making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

the role of the media in fiscal consolidation programmes the case of ireland a number of european countries have implemented austerity programmes since the onset of the current economic crisis this paper focuses on fiscal consolidation a central aspect of such programmes using the case of ireland it investigates the significant role of the mass media in presenting such policies to the public a role which has so far remained unexamined conceiving of the irish experience over the past few decades as a case of neoliberalisation it uses a critical political economic conceptualisation of news organisations to consider 431 editorials and opinion articles discussing fiscal consolidation in three leading irish newspapers between 2008 and 2012 it finds that the majority of articles present viewpoints in favour of fiscal consolidation and display a preference for spending cuts over tax hikes which substantiates the claim that ireland has adopted neoliberal policies to address the crisis only a minority of articles oppose fiscal consolidation these mostly contest specific spending cuts but usually fail to criticise fiscal consolidation itself by calling for economic alternatives such as keynesian stimulus differences between newspapers are also discussed highlighting their ideological cleavages

two bidder all pay auctions with interdependent valuations including the highly competitive case abstract we analyze symmetric two bidder all pay auctions with interdependent valuations and discrete type spaces relaxing previous restrictions on the distribution of types and the valuation structure we present a construction that characterizes all symmetric equilibria we show how the search problem this construction faces can be complex in equilibrium randomization can take place over disjoint intervals of bids equilibrium supports can have a rich structure and non monotonicity of the equilibrium may result in a positive probability of allocative inefficiency when the value of the prize is not common particular attention is paid to the case in which an increase in a bidder s posterior expected value of winning the auction is likely to be accompanied by a corresponding increase for the other bidder such environments are highly competitive in the sense that the bidder s higher valuation also signals that the other bidder has an incentive to bid aggressively

monotone equilibrium of two bidder all pay auctions redux abstract in this paper we revisit the two bidder asymmetric all pay auction of amann and leininger 1996 by allowing interdependent values and correlated signals both values and signals are distributed on continuous supports we provide conditions for the existence and uniqueness of a monotone pure strategy equilibrium mpse and constructively characterize the mpse when it exists we find that given the marginal distributions of the signals the equilibrium allocation is solely determined by how bidders values depend on their signals in particular the equilibrium allocation does not depend on how bidders signals are correlated

privately informed seekers of an uncertain rent two departures from antecedent rent seeking models are invoked a rent of unknown size is sought and rent seekers obtain private imperfect estimates of this size a symmetric equilibrium for a fixed number of rent seekers is characterized and shown to underdissipate the rent then a model of the decision to obtain private information and participate in the rent seeking contest is built the symmetric equilibrium participation probability equates expected profit to participation costs a simple formula for underdissipation results dissipation is incomplete pre cisely by the expected aggregate participation costs if an award mechanism can attain a lower level of dissipation for a fixed number of seekers then it will raise the endogenous probability of partici pation and as a result will dissipate less rent in the equilibrium with an endogenous number of seekers

private versus complete information in auctions abstract we show that in several but not all standard auctions i private independent values and ii complete information are payoff equivalent the first price auction generates the same revenue under i and ii the all pay auction has lower revenue under ii

asymmetric all pay auctions with incomplete information the two player case abstract we prove existence and uniqueness of bayesian equilibrium for a class of generally asymmetric all pay auctions with incomplete information due to its importance in applications some prominence is given to the first price all pay auction for which a detailed characterization of equilibrium and an approximation to equilibrium of its well studied complete information version are supplied furthermore we relate our uniqueness result to the well known multiplicity of equilibria in the war of attrition second price all pay auction which emerges as a limit point of the class of two player auction games considered journalof economic literature classification numbers d44 c62 c72

asymmetric contests with conditional investments rent seeking scenarios competitions for promotions and research and development r d races are examples of competitions in which participants expend resources regardless of whether they win or lose although similar in their all pay feature such competitions often differ in important dimensions these include the type of technologies employed in competition the type of asymmetries among competitors the degree to which expenditures are sunk and the number of prizes consider lobbying settings in which firms expend resources in order to influence a policymaker if expenditures take the form of monetary outlays and all firms have the same cost of capital then it is reasonable to think of firms marginal cost of influence as linear but if a firm has a reputational advantage and high costs of capital its lobbying technology may be more reasonably thought of as having convex costs relatively low marginal costs up to a moderate level of influence due to the reputational advantage and relatively high marginal costs at higher levels of influence due to the high costs of capital similarly the lobbying technology of a firm that is relatively unknown and has low costs of capital may be characterized by concave costs lobbying restrictions geographic location or preferential treatment by the policymaker further impact firms lobbying technologies inducing additional nonlinearities and asymmetries among firms in some lobbying settings firms also commit to expenditures conditional on a favorable outcome for example a firm may commit to building factories and creating new jobs if it is granted one of a limited number of manufacturing licenses thus the specification of firms lobbying technologies the type of asymmetries among firms the combination of unconditional and conditional investments and the number of eventual winners may change according to the lobbying setting studied the same is true for other competitions with an all pay feature in a competition for promotions workers often differ in their abilities experience and social skills more than one prize

fiscal deficits economic growth and government debt in the usa a simple model illustrates interactions between the primary fiscal deficit total deficit minus interest payments economic growth and debt the deficit income ratio responds countercyclically to growth while growth may respond positively a keynes case or negatively ala merkel to the deficit the recent great recession in the usa was atypical in that there was a weak countercyclical fiscal response the increase in government net borrowing was significantly less than the decrease in private borrowing an historically unprecedented asymmetry econometric esti mates verify the historical pattern and further suggest that there is a strong positive effect on growth of a higher primary deficit even when possible increases in the interest rate are taken into account

the basic paradigms of eu economic policy making need to be changed the anaemic growth of the european union euro area derives from its economic paradigms the principle one size fits all behind european central bank policy activates centrifugal forces diverging trends in unit labour costs external competitiveness and external balances follow german policy actively supports this excessive external surplus procedures against countries generating large surpluses at the expense of domestic consumption and the partners rising debt should be instituted the stability and growth pact needs modification the 3 fiscal deficit gdp mark may prevent automatic stabilisation insistence on the budgetary positions being close to balance or in surplus lacks rationale when the private sector s propensity to save is larger than its propensity to invest that requirement cannot be observed a permanent fiscal deficit may be a secular necessity problems related to rising public debt may also need to be addressed for the euro area these problems could be rendered far less serious than often believed

the case for restricting fiscal policy discretion this paper studies the effects of discretionary fiscal policy on output volatility and economic growth using data for 91 countries we isolate three empirical regularities 1 governments that use fiscal policy aggressively induce significant macroeconomic instability 2 the volatility of output caused by discretionary fiscal policy lowers economic growth by more than 0 8 percentage points for every percentage point increase in volatility 3 prudent use of fiscal policy is explained to a large extent by the presence of political constraints and other political and institutional variables the evidence in the paper supports arguments for constraining discretion by imposing institutional restrictions on governments as a way to reduce output volatility and increase the rate of economic growth

the end of the uk s liberal collectivist social model the implications of the coalition government s policy during the austerity crisis this paper reviews change and continuity in social policy up to summer 2011 contrasting the liberal collectivist approach of new labour with the reinforced neoliberalism of the coalition government given the ongoing uncertainty of economic conditions and the obvious difficulty of forecasting the stability of coalition policy it is not possible to arrive at a firm conclusion as to the sustainability of the recent change of policy direction nevertheless in a critical assessment of policy in three areas labour market governance the life course and the public sector the paper argues that the uk is witnessing an intensified neoliberal policy emphasis a redrawing or abolition of minimum standards and failures to meet changing patterns of social needs while the collectivist elements of new labour s social policy approach were contradictory in many respects the coalition government through a withdrawal of the state and obtuse pronouncements about the big society is seeking to embed in the uk a stronger neoliberal approach to social policy flawed assumptions about the scope for traditional families and localised big society programmes to compensate for state withdrawal mean the trajectory of change is not clear cut preferences for collectivist and publicly accountable solutions to issues of social policy are unlikely to be easily eroded however ongoing policy change during the austerity crisis is already inflicting radical change with adverse impacts upon many groups of society

a symmetric two player all pay contest with correlated information we construct both monotonic and non monotonic symmetric bayesian nash equilibria for a two player all pay contest with binary types and correlated information structures we also employ a class of parametric distributions to illustrate our equilibrium construction explicitly and to derive some comparative statics results

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

us government deficits and debt amid the great recession what the evidence shows this paper examines three sets of major questions regarding the current u s government s fiscal defi cit and outstanding debt tied to the 2009 economic stimulus program the american recovery and reinvest ment act arra first i consider the claim that high levels of government borrowing drives up interest rates these high rates then produce a heavy burden of government debt as well as heavy inflationary pressures the evidence we review regarding each of these concerns demonstrates that none have emerged as serious matters since the enactment of the arra given this conclusion the paper then questions why the arra did not then succeed in generating a strong economic recovery i first consider the possible impact of ricardian equivalence the position that government stimulus programs by their nature are self defeating after argu ing against this position i advance three reasons for the failure of the arra to achieve a strong recovery 1 the arra relied too heavily on tax cuts as a means of bolstering private spending 2 household wealth de clined dramatically during the recession tied to the collapse of the financial bubble this in turn weakened the willingness of households to increase spending and 3 credit markets were locked up especially for smaller businesses despite the highly expansionary monetary policy stance adopted by the federal reserve building on these findings i then develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term the short term program focuses on extending loan guarantees especially to small businesses and taxing the excess reserves held by commercial banks the longer term agenda focuses on reducing government costs for health care and the military and on increasing revenue through establishing taxes on financial market transactions

common value auctions with discrete private information abstract a first price sealed bid common value auction with finite valued conditionally independent private information is studied we show that the equilibrium in this auction game is characterized by all bidders using a symmetric mixed strategy in which bids are randomized over intervals that are successive and non overlapping for consecutively indexed signals we also show that as the number of bidders grows the winning bid conditional on the true value of the object converges to a non degenerate random variable that is affiliated with the true value therefore only partial information revelation is achieved in the limit

is ireland really the role model for austerity this paper describes the causes and consequences of ireland s economic crisis in the context of the policy solution implemented to contain that crisis protracted fiscal austerity i describe the causes of the recent crisis in ireland and look at the logic of austerity with a simple model i compare the current crisis to the crisis of the 1980s when fiscal austerity was touted as the trigger for the celtic tiger i discuss the measures implemented to date in the current crisis tracing their effects on sectors of ireland s macroeconomy i show that ireland is not the role model for austerity policies

dangerous interconnectedness economists conflicts of interest ideology and financial crisis this study investigates potential conflicts of interest among academic economists and some measures to address them we investigated the financial affiliations of 19 prominent academic financial economists who were associated with two economist groups proposing financial reform measures in the wake of the 2008 financial crisis we assessed whether they had private financial affiliations and identified the degree to which these economists disclosed these affiliations in their academic and media publications from 2005 to 2009 and again from january 2011 through april 2011 we found that private affiliations were common but that these academic economists disclosed these affiliations infrequently and inconsistently we advocate the adoption of a code of ethics by the economics profession similar to those commonly implemented by other disciplines prescribing more transparent conduct for economists facing such potential conflicts of interest

uniqueness and existence of equilibrium in auctions with a reserve price abstract we prove existence and uniqueness of equilibrium for a general class of two player bidding games we apply our results to the first price auction the combination of first and second price auctions the war of attrition the all pay auction as well as combinations of the latter two auction forms we also treat the first price auction without risk neutrality our results deal with the asymmetric affiliated common values environment in the case where signals are independent our results apply to all equilibria when signals are not independent our uniqueness results hold in the class of nondecreasing strategy equilibria journal of economic literature classification number d44

information in conflicts abstract we consider two player contests for a prize of common but uncertain value for settings where one player knows the value of the prize while the other only knows its prior distribution we give conditions for when the uninformed agent is ex ante strictly more likely to win the prize than is the informed agent in the special case of a lottery contest equilibrium expenditures are lower under asymmetric information than if either both agents are informed or neither agent is informed

selection bias demographic effects and ability effects in common value auction experiments inexperienced women along with economics and business majors are much more susceptible to the winner s curse as are subjects with lower sat act scores there are strong selection effects in bid function estimates for inexperienced and experienced subjects due to bankruptcies and bidders who have lower earnings returning less frequently as experienced subjects these selection effects are not identified using standard econometric techniques but are identified through experimental treatment effects ignoring these selection effects leads to misleading estimates of learning

a note on america s 1920 21 depression as an argument for austerity this note argues that recent interest in the 1920 21 depression in the usa as a historical precedent for austerity is inappropriate most of the austerity measures preceded the depression which had already begun receding by the time warren harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity the evidence suggests that the 1920 21 depression was the result of a variety of supply constraints rather than a deficiency of effective demand and is therefore a poor test of the efficacy of keynesian fiscal policy

asymmetric all pay auctions with interdependent valuations abstract i show that a unique equilibrium exists in an asymmetric two player all pay auction with a discrete signal structure correlated signals and interdependent valuations the proof is constructive and the construction can be implemented as a computer program and be used to derive comparative statics i also characterize the set of equilibria when a reserve price is introduced

russia austerity and deficit reduction in historical and comparative perspective this paper looks at russian experience with austerity programmes since the breakdown of the former soviet union in 1991 downsizing of the state was one of the major elements in a reform package designed to transform the centrally planned economy into a market one together with deregulation privatisation macroeconomic stabilisation and the opening up of the closed economy this downsizing however proved to be the single most important reason for the collapse of state institutions which in turn deepened the transformational recession contributed to the dramatic rise of income inequalities corruption and crime and the decline in life expectancy the story of the successes and failures of transition is not really the story of consistent shock therapy and inconsistent gradualism the major plot of the postsocialist transformation novel is the preservation of strong institutions in some countries very different in other respects from central europe and estonia to china uzbekistan and belarus and the collapse of these institutions in other countries at least 90 of this story is about government failure the strength of state institutions and not about market failure liberalisation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

all pay contests this paper studies a class of games all pay contests which capture general asymmetries and sunk investments inherent in scenarios such as lobbying competition for market power labor market tournaments and r d races players compete for one of several identical prizes by choosing a score conditional on winning or losing it is weakly better to do so with a lower score this formulation allows for differing production technologies costs of capital prior investments attitudes toward risk and conditional and unconditional investments among others i provide a closed form formula for players equilibrium payoffs and analyze player participation a special case of contests is multiprize complete information all pay auctions

iceland s rise fall stabilisation and beyond iceland is an unusually pure example of the dynamics that blocked regulation and caused financial fragility across the developed world for 20 years this essay describes the statist and corporatist political economy of the country as it soared from near the bottom of the western european income hierarchy at the end of the world war ii to up near the top by the 1980s it illustrates how a group of neoliberal politicians and allied civil servants drove through selective deregulation and privatisation in the 1990s and 2000s in the space created for newly privatised banks icelandic financiers grew the banks and linked private equity firms through mergers and acquisitions abroad to the point where by 2007 tiny iceland supported three banks in the world s biggest 300 banks with assets eight times the gdp second highest in the world after switzerland as profits from these overseas operations were partly redistributed back to iceland the economy boomed in the grip of super minsky processes the government the banks and the media interpreted the boom as testimony to the validity of neoliberal policies and went out of their way to hide increasing financial fragility from view preventing a negative or self correcting policy feedback loop the accident waiting to happen happened in the wake of the lehman collapse in september 2008 the essay charts the zigzags of the government s response and the citizens response and discusses the prospects for a resumption of growth on a more sustainable basis it suggests that iceland illustrates in miniature the ratcheting down of mass living standards underway across the western world now that the cushion of debt has been removed even as financiers and others in the top few percentiles of national income distributions increase their share of national income but economic institutions and politics matter in iceland the large devaluation spread the cut in a relatively apolitical way the government let the banks go bust rather than bail them out at taxpayers expense it imposed capital controls on outflows and it used fiscal transfers to protect the bottom half of the population from disproportionate cuts

contradictions of austerity the global economic and financial crisis has been marked by the following paradox a much more severe depression than the global slump of 2008 09 was prevented by determined state intervention in the form of bank bailouts and fiscal stimuli yet this bout of apparently successful keynesianism has been followed by a turn to fiscal austerity justified in terms reminiscent of the treasury view against which keynes relentlessly polemicised in the 1930s this article explores the sources of this policy shift among the factors considered are the ideology of neoliberalism the economic and political power of the banks and the relative weight of finance in individual economies the broader context of financialisation is also considered the conclusion is reached that an oscillation between bouts of austerity and laxer policies encouraging the development of asset bubbles may be built into neoliberalism as an economic policy regime the implication is that alternatives to austerity must embrace broad institutional transformation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

all pay auctions with affiliated binary signals abstract we analyze all pay auctions with affiliated values and binary signals we analyze the unique symmetric equilibrium with any number of bidders and show that the bidders earn positive rents only if the equilibrium is monotone we also characterize the symmetric equilibrium of the closely related two player war of attrition we compare expected revenues across these formats all pay auctions result in lower expected rents to the bidders than standard auctions but they also induce inefficient allocations in some models with affiliated private values with two bidders the effect on rent extraction dominates and the all pay auctions outperform standard auctions in terms of expected revenue with many bidders standard auctions may result in higher expected revenue the war of attrition outperforms the standard auctions in terms of revenue but its ranking relative to all pay auctions is ambiguous

economic status measures in the health and retirement study variables measuring economic status represent a straightforward but crucial part of round 1 of the health and retirement study hrs in addition to studies focusing directly on the economic well being of this cohort of the population the economic status variables are likely to be inputs into other analyses that focus on retirement and savings behavior on variations in health status on intrafamily transfers and support and on poverty status as a first look at these data this paper has several modest goals to offer a flavor for the major economic status variables on the hrs to indicate some preliminary analysis of the quality of the data and to take a preliminary look at the interrelationships among economic status measures like income and wealth and other important variables such as health status pension rights and health insurance coverage

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

the tragedy of uk fiscal policy in the aftermath of the financial crisis the evolving response of the uk fiscal authorities to the financial crisis and recession are briefly outlined with a focus on the fiscal austerity programme introduced by the incoming coalition government during 2010 the reasoning for that programme is critically examined and largely dismissed it is argued that the drive for major cuts in public expenditure comes from seeking to achieve a balanced structural budget and reductions in estimated potential output the significance of the latter are discussed the paper is completed by a brief consideration of alternatives

match bias in wage gap estimates due to earnings imputation about 30 of workers in the current population survey have earnings imputed wage gap estimates are biased toward zero when the attribute being studied e g union status is not a criterion used to match donors to nonrespondents an expression for match bias is derived in which attenuation equals the sum of match error rates attenuation can be approximated by the proportion with imputed earnings union wage gap estimates with match bias removed are presented for 1973 2001 estimates for recent years are biased downward 5 percentage points bias in gap estimates accompanying other non match criteria public sector industry etc is examined

ranking disclosure policies in all pay auctions in this paper we study information disclosure policies in all pay auctions with incomplete information two symmetric players have either high or low private value the contest organizer observes players values ex post and can commit ex ante to four different symmetric information policies exhaustively she can fully disclose or conceal the players types and she can disclose their types if and only if when both are high or if and only if when both are low we characterize the unique equilibriums and completely rank the four policies by various criteria we find the full concealment policy extracts highest aggregate expected effort followed by the policy of disclosing types if and only if when both are high the policy of disclosing types if and only if when both are low induces least aggregate expected effort players enjoy highest expected payoffs under the policy of disclosing types if and only if when both are low the other three policies yield the same expected payoffs to players in terms of prize allocation efficiency the full concealment policy is ranked highest and the full disclosure policy is ranked lowest in between the other two policies rankings depend on the probability of high type jel c72 d44 d82 d83 j48

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

the macroeconomic stabilisation effects of social security and 401 k plans this paper investigates how various retirement institutions impact the macroeconomy we find that for every 1 percentage point increase in the output gap net flows of various government programmes including social security decrease by 0 34 percentage points while net flows of 401 k plans increase by 0 05 percentage points in levels for every 1 increase in real gross domestic product net flows from various government programmes shrink by 45 cents whereas net flows from 401 k plans increase by 4 6 cents in other words 401 k plans reduce the automatic stabilisation impact of government programmes by 10 15 moreover we find that social security has a net negative effect on household consumption while 401 k retirement accounts work the opposite way in fact the destabilising effect of 401 k plans on consumption is twice as strong as the one attributed to social security these results highlight a significant problem with 401 k retirement plans and any retirement plan that is dependent on financial markets copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the great austerity war what caused the us deficit crisis and who should pay to fix it rapidly rising deficits at both the federal and state and local government levels along with long term financing problems in the social security and medicare programs have triggered a one sided austerity focused class war in the us similar class conflicts have broken out around the globe a coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public sector austerity severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment these demands constitute a deliberate attempt to destroy the new deal project begun in the 1930s whose goal was to subject capitalism to democratic control the right wing coalition seeks to replace that project with a modernized version of the free market capitalism of the 1920s in this paper i argue that our deficit crisis is the result of a shift from the new deal based economic model of the early post war period to today s neoliberal free market model a shift initiated under ronald reagan and continued under the presidents who succeeded him the new model has generated slow growth rising inequality and rising deficits rising deficits in turn created demands for austerity after tracing the long term evolution of our current deficit crisis i show that this crisis can be resolved by raising taxes on upper income households and large corporations cutting war spending and adopting a canadian or european style health care system there is no need to accept austerity calls for austerity should be seen as what they are an attack by the rich and powerful against the basic interests of the american people