Economic Policy Wars by Ryan Rhoades

So let me get this straight.

We are in the worst economic downturn since the Great Depression.  The national unemployment rate stands at 9.5%, is at least 10% in 128 metropolitan areas and over 15% in twelve of the largest urban areas.  The ratio of unemployed persons to job openings stood at 5.4 to 1 in January, slightly lower than in December, when the ratio was six-to-one1.

Teachers, police officers and other service workers are getting laid off, taking pay cuts or getting furloughed.  Since August of 2008, over 180,000 local government jobs have been lost.   Estimated projections show that local public-sector job losses are only going to increase through 2012 due to budget cuts2.

With all this happening now, some politicians, news commentators and pundits are preaching fiscal austerity – suddenly concerned about the deficit and our national debt.

I say suddenly because many of the same people calling for reducing the national deficit by cutting programs and gutting state budgets were suspiciously silent during Bush’s rampage on the economy.  For instance, the Center on Budget and Policy Priorities found that , “just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs”3.

These critics – mostly Republicans but more specifically fiscal conservatives supportive of ‘Reaganomic’ policies – are intent on cutting government spending while also calling for the renewal of Bush’s tax cuts on the wealthiest Americans.  Bush’s tax cuts are set to expire this year.  In 2008 alone, the tax cuts for the wealthiest 1% totaled $79.5 billion4.  That’s enough money to hire well over 2 million workers for one year on a modest $35,000 salary.  Such a jobs creation program reminiscent of the New Deal is clearly more important than extending tax cuts for the superrich.

Given Bush’s fiscally irresponsible policies along with the financial meltdown, it is obvious that tough policy choices lay ahead for the President and our Congress.  However, I find it interesting that so many of these deficit hawks have waited this long to squawk, especially given our current unemployment figures, business hiring freezes and banks cutting back on lending.

It makes me wonder how much Republicans care about the average working family, especially when some of the top Republican Congressmen claim that the Bush tax cuts actually increased revenue.   According to Senate Minority Leader Mitch McConnell, “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy”5.

There’s no evidence?  I understand that there is a Congressional election coming up this fall, but Senators should not be able to get away with such colossal lies.  All available evidence points that the Bush tax cuts were not effective in creating jobs and substantially added to the deficit.  In contrast, when Bill Clinton raised the income tax for the richest Americans, he presided over a budget surplus for consecutive years6.

While addressing deficit concerns remains a political strategy for Republicans, Nobel laureate economist Joseph Stiglitz made a historical argument against such reasoning7:

When US President Herbert Hoover tried that recipe, it helped transform the 1929 stock-market crash into the Great Depression. When the International Monetary Fund tried the same formula in East Asia in 1997, downturns became recessions, and recessions became depressions.

As a registered independent who did not vote for either Obama or McCain, I find it repugnant that Republicans are able to get away with statements that are not supported by economic figures or historical examples.  The most recent Gallup poll shows that half of all Americans claim to have very little to no confidence in Congress, the lowest rating for any institution since Gallup began polling such numbers.

Should anyone be surprised?  Democratic Congressmen may be pushing through legislation, but most of it has been severely compromised from…well, compromising with Republicans and lobbyists.  Republicans, currently known as the “party of no”, have nothing to offer except more Bush policies – policies that have no chance of helping the economy.

What do the other recent Gallup polls show us about public confidence?  President Obama’s approval rating is at a mere 36%, yet it is still higher than President Bush’s during 2008, which stood at 26%.  While 66% of Americans claim to have confidence in small businesses, only 19% claim to have “a great deal” or “quite a lot” of confidence in big businesses, the lowest public rating for any institution aside from Congress8.

While the BP spill in the Gulf is an example of the public’s eroding trust in Big Business, there is something else going on.  Big businesses are sitting on large piles of cash yet most are still not hiring.  According to a recent USA Today report, nonfinancial companies in the S&P are hoarding approximately $857 billion in cash, “enough to pay 2.4 million people $70,000-a-year salaries for five years”9.  According to Bloomberg BusinessWeek, nonfinancial corporations are actually sitting on $1.84 trillion in cash, which is the most in the last fifty years10.

Economist Paul Krugman is not surprised by this, given the “unusually uncertain” economy recently described by Federal Reserve chairman Ben Bernanke.  With consumer confidence low, companies have few incentives to increase production.  The problem is that consumption accounts for two-thirds of the U.S. economy.  Krugman proposes a logical solution: since businesses are hoarding cash in money market accounts and not spending it, the feds could borrow this money to create jobs, which should create more incentives for business investments11.

Regardless of what policies are pursued, one thing is irrefutable:  prioritizing the current deficit over employment and another stimulus program is economic suicide, particularly for middle and lower class America.  The Economic Policy Institute researched this issue, concluding that, “greatest threat to economic growth is policy inaction fueled by deficit fears”12.

So again, let me get this straight.  Given all this information – our current recession, structural unemployment problems, consumer confidence lows, and Bush’s expensive policies – why are Republicans focused more on the deficit than on stimulating the economy and creating jobs?  Going back to the Gallup Polls, when Americans were asked what they believed to be the most important problem facing the country, 31% stated the economy in general, 22% stated unemployment and jobs, and 11% stated “dissatisfaction with government and politicians.”

Only six percent of Americans stated that the “Federal budget deficit/federal debt” was the country’s top concern.

Can you say political disconnect?

Although I believe that Democrats have made plenty of mistakes, including the recent ethics violations, I struggle to think of any positive alternatives the Republicans have proposed.  Even more so, I have yet to discover anything other than reactionary and regressive opinions on the nature of government.  Comments by top Republican Congressmen, the sentiments of Sarah Palin supporters, the pontifications by Glenn Beck and other pundits, and the ideology of the ever-mysterious tea party – all of this sounds an awful like declarations of class war.

While this same political bloc is quick to stoke fears about ‘economic redistribution’ or ‘social justice’ or ‘community organizing’, and continue to miseducate the public by incorrectly using labels such as ‘socialist’, ‘communist’, ‘progressive’, and even ‘conservative’ – they’re supporting policies that are benefitting the rich and powerful at the detriment of the rest of society.

Sure, there are cultural differences that split American public opinion, but the real culture war is about class.  It is about the rich minority versus the middle class and working poor majority.  Recent Congressional Budget Office research shows that in the last thirty years, the incomes of the richest one percent increased by 281% or an additional $973,100 a household.  In contrast, the incomes of the middle fifth of households increased by 25% (about $11,200 per household) and the poorest households increased by only 16% ($2,400)13.

The evidence of income inequality and wealth disparities is reminiscent of the Roaring Twenties, right before the stock market crash that ushered in the Great Depression.  The influence of lobbyists on public policy formation and the illegal practices of Wall Street at the expense of Main Street are a few more examples of how government policies catering to the rich and the largest corporations and financial institutions have brought our nation to our current economic reality.

So what are some Republicans doing, exactly?  They are siding with failed policies of the past, all the way up to Bush’s “vibrant” tax cuts, hoping the spirit of Reagan and the specter of voodoo economics will pull us out of recession.

In short, they are lining up on the wrong side of history.  They are siding against working class Americans and the middle class.  And they will lose.

Sources cited:

1: Taken from the Bureau of Labor Statistics website.  All unemployment figures from June 2010 data. Taken from: http://www.bls.gov/.

2: Economic Policy Institute. Local Government Job Losses Hurt Entire Economy.  Ethan Pollack. May 27th, 2010.

3: Center on Budget and Policy Priorities figures are taken from: http://www.cbpp.org/cms/index.cfm?fa=view&id=3036.

4: Citizens for Tax Justice (CTJ), “President Bush Has Made Tax Day Easier for the Rich‐ at the Expense of Everyone Else,” April 14, 2008.

5: Congressman McConnell’s comments made to TPM and taken from: http://tpmdc.talkingpointsmemo.com/2010/07/its-unanimous-gop-says-pay-for-unemployment-benefits-not-tax-cuts-for-the-rich.php.

6: Figures taken from CBO historical data can be accessed here: http://www.cbo.gov/budget/data/historical.pdf and an article on the topic: http://www.factcheck.org/askfactcheck/during_the_clinton_administration_was_the_federal.html.

7: Taming Finance in an Age of Austerity. Joseph Stiglitz, July 14, 2010. Taken from: http://www.zcommunications.org/taming-finance-in-an-age-of-austerity-by-joseph-stiglitz.

8: All Gallup polling data taken from: http://www.gallup.com/home.aspx.

9: USA Today article taken from: http://www.usatoday.com/money/companies/2010-07-28-cashcows28_ST_N.htm.

10: Businessweek article taken from: http://www.businessweek.com/magazine/content/10_31/b4189011893228.htm and Washington Post article from: http://www.cbsnews.com/stories/2010/07/15/politics/washingtonpost/main6680641.shtml.

11: Paul Krugman’s blog article taken from: http://krugman.blogs.nytimes.com/2010/07/06/lincoln-mcclellan-and-stimulus/.

12: Government Debt and Economic Growth, John Irons and Josh Bivens. July 26, 2010. Taken from: http://epi.3cdn.net/d144a03f5b38f7a137_aqm6b9p0y.pdf.

13: Income inequality numbers taken from: http://www.cbpp.org/cms/index.cfm?fa=view&id=3220

[Sources will soon be correctly reformatted]

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