In the first half of 2010, impassioned speeches denouncing federal red ink were the G.O.P. norm. And concerns about the deficit were the stated reason for Republican opposition to extension of unemployment benefits, or for that matter any proposal to help Americans cope with economic hardship.
But the tone changed during the summer, as B-day - the day when the Bush tax breaks for the wealthy were scheduled to expire - began to approach. My nomination for headline of the year comes from the newspaper Roll Call, on July 18: "McConnell Blasts Deficit Spending, Urges Extension of Tax Cuts."
How did Republican leaders reconcile their purported deep concern about budget deficits with their advocacy of large tax cuts? Was it that old voodoo economics - the belief, refuted by study after study, that tax cuts pay for themselves - making a comeback? No, it was something new and worse.
To be sure, there were renewed claims that tax cuts lead to higher revenue. But 2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don't matter. For example, Senator Jon Kyl of Arizona - who had denounced President Obama for running deficits - declared that "you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans."
It's an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether?
Why not, indeed? The new GOP position is the reductio adsurbum of the slogan, "We have a spending problem, not a revenue problem." It's a patently absurd claim on the face of it, but one that became GOP common "wisdom" during the campaign, leading Krugman to write a blitz of of op-ed and blog posts back in mid-to-late October, which I summarized in a Nov 1 diary, "Lies & consequences. Economic catastrophe edition.". Perhaps the single most compelling bit of evidence was the following chart from Krugman's "Why Have Deficits Exploded?", which showed that the exact opposite of the GOP claim was true: our problem is indeed a disastrous plunge in revenue, while government spending has increased at a relatively constant rate since a couple of years before the crisis hit:
The above chart represents cold, hard facts. It's what reality-based economics looks like. And Republicans are having none of it. As with global warming denial, Iraq's WMDs, the "success" of torture, or--for a majority of the GOP base--the belief that Obama is Kenyan, not American--they have their lies, their tribal articles of faith, and they're sticking to them. For them, their group cohesion as conservatives matters more than verifiable fact. When their leaders ask, "Who are you going to believe? Me or your lyin' eyes?", for them, the answer is a no-brainer. For us, the hope that Bush's political downfall and disgrace would lead to a return to reality-based politics has been bitterly disappointed, and this is what the descent into pure delusion looks like.
On Friday, I wrote a diary, "The highly networked clusterfuck conservative speaks", in which I tried to expose the absurdities of David Brooks' latest NYT op-ed, in which he babbled on about yet another of his self-invented sociological fantasies--this time, the supposed differences between "network liberals" (good) and "cluster liberals" (bad). Unfortunately, reading Brooksie can be hazardous to your health, and even my relatively brief exposure took its tool: I inadvertantly used the wrong text in my second clip of a passage from his column--not that it made a great difference for the point I was trying to make. But when it was pointed out, and I went back to try and fix it, I got so lost in his byzantine labyrinth of fantasies that I realized I needed to do a much more clear-cut job. And so I begin again. Yes, David Brooks is a great obfuscator. But he's also a piss-poor liar. And that's what I want to focus on now.
Network liberals share the same goals and emerge from the same movement [as cluster liberals]. But they tend to believe - the nation being as diverse as it is and the Constitution saying what it does - that politics is a complex jockeying of ideas and interests. They believe progress is achieved by leaders savvy enough to build coalitions. Psychologically, network liberals are comfortable with weak ties; they are comfortable building relationships with people they disagree with....
Barack Obama ran for president as a network liberal, and entranced a Facebook nation. But in office, Obama, like George W. Bush before him, narrowed his networks. To get things done quickly, he governed like a cluster liberal, relying on partisan leaders.
The results were predictable: insularity, alienation and defeat. So now we are headed toward divided government. But there is a whiff of coalition-building in the air. Dick Durbin and Tom Coburn boldly embraced the bipartisan fiscal commission process. Obama opened up a comprehensive set of negotiations with Republican leaders to handle the Bush tax cuts.
This is, of course, a complete lie. Obama's initial stimulus package was about 40% tax cuts--even though they are generally less stimulative than spending--precisely because it was crafted with the intent of gaining 80 votes in the Senate--meaning more than half the GOP caucus. Even though the economy was notably worse when the stimulus came before the Senate than when it was first announced--and it was clearly too small to get the job done--the amount asked for was not increased, in a desire not to incite conservative opposition. These were not the actions of a "cluster liberal", as Brooksie defines it. They were precisely what he prescribes as network liberal behavior. He ended up almost entirely dependent on Democratic support (including some fairly conservative Dems) simply because the Republican lawmakers rejected him en masse. It was not about Obama, it was about the cluster conservatives of the GOP House and Senate, which turned out to be almost all of them.
After that, there was RomneyCare, Obama's national version of Mitt Romney's approach to health care reform, which originated with the Heritage Foundation as the conservative alternative to Clinton's health care reform efforts in 1995-96. ("Obama: My Plan Is Like Romneycare") Quite the contrary to Brooksies claim that network liberals "share the same goals and emerge from the same movement [as cluster liberals]", so-called "cluster liberals" supported single-payer and/or the public option. Obama did not--though he did lie in public, when necessary. For him, the public option was a bargaining chip, no more, and to this day he treats public option advocates with dismissive contempt--this despite the fact that the public option enjoyed 60% public support or more, a more consistently high level of support than the package that was actually passed. Obama's intent was to preserve--even to enhance--the power of the medical-industrial complex oligopolies that are responsible for making the system so expensive and unresponsive in the first place.
In both cases, Obama passed deeply flawed programs explicitly crafted to gain conservative support--yet did so with only liberal and moderate support. And immediately after health care reform passed, what did he do? He announced the resumption of deep off-shore oil drilling, yet another pre-emptive giveaway in hopes of striking yet another deal with conservatives--this time on energy and global warming. This time, the effort went nowhere, thanks to the BP Deepwater Horizon disaster. But no one can say that Obama didn't try, once again, to reach out to conservatives and give them gifts that angered and disappointed his base....
When George Bush passed his tax cuts in 2001 with the assistance of 12 Democrats, conservatives and even "liberal" one like Dianne Feinstein, I tore the roll call vote out of the NY Times. And I kept that yellowing and drying piece of paper on my bulletin board until it crumbled into dust. I wish that was a metaphor for what would happen to the tax cuts themselves.
These tax cuts were a seminal triumph of Republican ideology. False ideology that tax cuts drive decent, just economic growth. But the real ideological compulsion was that if you starve the government of revenue that social programs, which the right has long hated and spent millions of dollars and volumes of lying words demonizing, will have to be dismembered in some . reactionary, cannibalistic orgy.
For the sake of the country I have fel for the last decade that January 1, 2011 couldn't happen soon enough.
LET THEM EXPIRE. And while that is the best negotiating strategy to ensure that middle class tax cuts only pass, one has to really mean it to have it work.
But I write this not as a negotiating strategy. I advocate this for economic and political reasons. I think going back to 1993 rates is the right thing to do.
The best outcome for the long term economic health of the country is to LET THEM EXPIRE. The best outcome for the Democratic party would be to to return to Bill Clinton's tax rates. Bill Clinton's Deficit Reduction Act of 1993, which was an essential component of that rejoinder " What part of peace and prosperity didn't you like?
The 1993 bill raised the Reagan/Bush tax rates to a level that could sustain a decent level of services and functions that a government must finance. Between those rates and his administration's investment and strategies to fuel economic growth, not only did Bill Clinton get rid of the Reagan Bush deficits, that Democratic president bequeathed to his Republican successor a SURPLUS. There was no need to turn to counterproductive and even destructive austerity proposals aimed almost soley at the middle class; proposals which actually will actually retard growth.
Letting them expire would reveal the Commission's real, ghoulish purpose...which is to use the deficit as a a Trojan Horse. Their real purpose is storming, looting and raping Troy aka the American economic system. The real purpose is to eviscerate and destroy the entire Democratic party's social entitlement edifice of of the 20th century. That prospect makes them as gleeful as Scrooge over his gold coins.
Is the conservative approach to job creation as deluded as attacking Iraq in response to 9/11? Or is it even more deluded? Either way, it's conceptually similar, in that rationale offered is an excuse, not a reason. The neocons wanted a new Cold War, and in "Rebuilding America's Defenses" they frankly admitted that they needed a "new Pearl Harbor" (p. 63) to get public opinion stampeded into supporting them. On the economic side, Naomi Klein wrote a whole book, The Shock Doctrine about how the "give the rich people all your money" scam works. (Put people into a total panic, then hit them with an avalanche of pre-fab theories telling them "there is no alternative.")
But most particularly on job creation--and comparing the two issues that are up right now: millionaires tax cuts and unemployment insurance--the evidence is overwhelmingly against conservatives as this CBO chart (page 11, slightly modified for visual purposes) clearly shows (unemployment insurance at the top, income tax cuts at the bottom, about 1/6th as effective):
Last night, Rachel Maddow had a real economist on to refute this nonsense (although Rachel holds up a different, earlier CBO document, that has the same data in a table, not a chart):
Once again, that surreal clip from John Shaddeg's interview with Mike Barnicle went like this:
Weekly Audit: Curbing the Deficit, Cat Food, and You
by Lindsay Beyerstein, Media Consortium blogger
The deficit commission released its much anticipated list of helpful money-saving tips for the federal government last week. These tips include tax cuts for the rich, reducing unnecessary printing costs, and cutting the jobs of federal contractors.
Last night, Rachel Maddow had a segment on the crazy world of imaginary rightwing facts, such as the recent furor over Obama's trip to India supposedly costing $200 million a day, and involving 10% of the US Navy fleet. Of course it didn't... but all manner of wingnuts, up to and including Michelle Bachmann were utterly convinced it was true. Maddow touched on a number of other examples, including the infamous "death panels", which should be enough to tip folks off that this is not merely a matter of whacky annecdotal excesses. Here's the first 8 1/2 minutes of the full almost 19 minute segment:
This phenomena of a separate reality sustained by a self-contained conservative media universe has serious policy consequences. And the fact that Obama and the rest of the Democratic establishment doesn't realize this--they're in yet another anti-reality bubble of their own--also has serious policy consequences.
In the that spirit, I thought of two recent examples that show how conservative media fantasy bubbles impact our politics in ways that are central to our politics, although both these examples have roots going back decades, and have been significantly enabled by the M$M for years. Still, in both cases--as in the cases Maddow cites--there's a core of crazy kept alive by the conservative media bubble that's utterly immune to outside debunking.
The first involves taxes and the size of government. The second has to do with the fact that illegal immigrants have been leaving a number of states since 2005. I'll deal with that in a separate diary later on. For now, to preserve some semblance of focus, let's just focus on taxes. A recent post by Brad DeLong dredges up something I remember commenting on, but can't find a link to, from relatively-not-insane conservative Bruce Bartlet, "Ignorance Is Bliss for the Tea Party Crowd". It's about their wildly inaccurate sense of taxation levels, from a survey of folks at a Tea Party rally done by interns working for David Frum, another non-fringey conservative. A relevant passage:
Tea partiers were asked how much the federal government gets in taxes as a percentage of the gross domestic product. According to Congressional Budget Office data, acceptable answers would be 6.4%, which is the percentage for federal income taxes; 12.7%, which would be for both income taxes and Social Security payroll taxes; or 14.8%, which would represent all federal taxes as a share of GDP in 2009.
Not everyone follows these numbers closely and tea partiers may have been thinking of figures from a few years ago, before the recession when taxes were higher. According to the CBO, the highest figure for all federal taxes since 1970 came in the year 2000, when they reached 20.6% of GDP. As we know, after that George W. Bush and Republicans in Congress cut federal taxes and they fell to 18.5% of GDP in 2007, before the recession hit, and 17.5% in 2008.
Tuesday's tea party crowd, however, thought that federal taxes were almost three times higher than they actually are. The average response was 42% of GDP and the median was 40%. The highest figure recorded in all of American history was half those figures: 20.9% at the peak of World War II in 1944.
So, in short, if one were to offer those Tea Baggers to cut federal taxes by 40% from what they thought taxes were, that would be a pretty dramatic offer that should make them all really happy, no? Well, Obama could do that very easily---and thereby raise taxes to 24%, an almost 7% increase. In which case, why should he ever think of actually cutting taxes? Especially since by "cutting" them 40% he could easily manage the budget deficit as well.
The questioning moved on to individual levels of taxation, and the Tea Baggers wildly over-estimated these as well. Then they moved on to the direction of change in recent tax levels:
In the GOP's big push to repeal the estate tax, there was a great deal of wailing and gnashing of teeth over the loss of family farms, due to the cruelty of having to visit the tax collector and the undertaker on the same week. Just one problem, though: they never could produce even a single family farm that had been lost this way. It's not that the Reaganized GOP ever did anything at all to help real family farmers. Otherwise, Jesse Jackson could never have drawn such crowds of Iowa farmers in the 1984 primary. But they sure cared deeply about imaginary ones!
Fast forward to the current debate over letting the high-end Bush tax cuts expire, and we find a slightly more amorphous echo of that same lie bouncing around all over the place. For example, last week, Matt Yglesias quoted a recent NY Times article:
But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.
"You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school," said Vincent R. Cervone, a certified public accountant in New York City. "They're grateful to be working. They aren't in danger of eviction or starving. But the cost of the average house is $500,000 - five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard."
Meet the mythical Westchester couple, the new non-existent family farm.
Now, I'm not saying that there are no Westchester couples like the one imagined in the NY Times op-ed. The family farmers of a decade ago were non-existent, such suburban couples, merely a "mythical echo," meaning that there may well be plenty such folks in a nation of 300,000,000, just not a whole lot of them compared to everyone else--and certainly not enough to dominate our thinking about tax policy.
In Westchester County, for example, such a couple would be making well over twice the average family income. The locale is meant to make it seem like "Of course they're making $250K+. It's Westchaester!" That's what makes it mythical. It creates this false picture where ordinary middle class people who just happen to live certain places are socked with the millionaries' tax! But the census figures show that that's simply not so. Anyone making that sort of money in Westchester is doing very well indeed. And if money is tight for them, then they need help from a money manager, or anyone living on a normal salary. They don't need help from the pocketbooks of average Americans.
Still, it might seem plausible that they have more in common with middle-class Americans than millionaires or billionaires." And so it is. And so are their taxes. After all, the higher tax rate is a marginal tax rate. It only applies to their income over $250K. And that's after deductions--including deductions for their home mortgage.
The main problem with the article is that it presupposes that individuals making $200,000, or couples earning $250,000, will pay higher taxes. They won't. The tax hike only applies to income over that threshold. When you go from $250,000 to $250,001, you only pay a higher tax rate on that one extra dollar. Your taxes will go up by a few cents. If you earn $300,000, you will pay a slightly higher tax rate on the last $50,000 of your income -- less than a couple thousand dollars.
Even people making half a million dollars a year won't be "taxed at rates similar to those who make $5 million," because only half their income will be taxes at the top rate.
I disagree with Chait, since I think the main problem is that such people are primarily mythical in the first place, relatively rare when they do exist, and shouldn't be the basis for reasoning about tax policy for a nation of 300,000,000 real people. But reasonable people can disagree here.
In two previous articles, "Maintain Tax Cuts for the Rich? Americans Don't Seem to Buy the Conservative Argument" and the "Efficacy of Tax Cuts Is now Questioned" I laid out two basic premises. One was that a majority of the American people did not buy into the conservative argument that tax cuts had to be maintained for the richest among us. The second was that the use of tax cuts in this type of economic downturn had been called into question by some very prominent economists and that those same economists just happen to be on the right side of the political spectrum. The notion that tax cuts are of little use in this particular economic environment received further support last week with the publishing of the findings of the nonpartisan Congressional Budget Office from which the following conclusions were drawn: " The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all... But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.
The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest "bang for the buck," because wealthy Americans were more likely to save their money than spend it....Neither of those options, though, would do as much to stimulate the economy as offering direct payments to the unemployed and Social Security recipients or reducing the payroll taxes of workers, the study found...So while the decision on whether to extend the tax cuts will have a lasting impact on the deficit and on how the nation's tax burden is distributed, economists and tax experts say it is unlikely to offer much immediate relief for high unemployment and sluggish growth... It may have some small impact along the margins, but firms don't hire based on tax breaks; they hire based on demand," said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. "So a lot of the tax breaks are likely to be rewarding people and companies for what they were going to do anyway."
As a footnote to the above, it's also of note that another prominent conservative has come to criticize the notion that tax cuts would be economically effective today. David Frum, a former Bush speechwriter and Fellow at the ultra conservative American Enterprise Institute, in an interview on NPR's Marketplace said the following:" The recession began when all the Bush tax cuts were fully in effect. And yet, it's suggested that re-enacting the tax cuts will somehow cure the crisis that those same tax cuts failed to prevent." Don't get me wrong, Frum is not endorsing the Obama Administration or its economic policies, not by a long shot. What he is saying, that is relevant to my premise is that those who are banking on tax cuts to pull us out of the current predicament are sadly mistaken as to their usefulness. Many would argue that tax cuts can only work if they are coupled with spending cuts, but to think that the government could reign in spending in the midst of this type of downturn requires a quantum leap of faith that would come with the notion that removing one of the only simulative elements remaining in the economy would somehow not cause the recession to worsen. This point was further underlined recently on Meet the Press. When pressed by moderator David Gregory, the Republican Minority leader, Mitch McConnell, declined to commit to spending cuts if the GOP took control of Capitol Hill. The bottom line is this: those on the far right fringe who parrot 18th and 19th Century economic concepts seem to strangely factor out the social chaos that would result from an ideology that was better suited for the world of Charles Dickens than the globalized world of today. The Republicans who hope to capture Capitol Hill in a few short weeks know this as well that's why they are reluctant to go on the record and say otherwise.
A corollary argument that is used to support the extension of tax cuts to those families earning over $250,000.00/year is that idea that if this tax break is eliminated, that job creation will suffer. Here again there seems to be little in the way of empirical evidence to support this claim. A recent article; "Tax Increases Would Hit Few Small Businesses"; summarized the findings of the IRS and it's Joint Committee on Taxation as follows: "Despite that emotional appeal, Internal Revenue Service statistics indicate that only 3 percent of small businesses would be subject to the higher tax, and many studies of previous tax increases suggest that it would have minimal impact on hiring... According to the Joint Committee on Taxation, 97 percent of all businesses owners do not earn enough to be subject to the higher rates, which would be levied on income of over $200,000 for individuals and $250,000 for families...But much of the research over the last two decades has found that increases in top tax rates can lead to an increase in the formation of small businesses, as wealthy individuals apparently begin start-ups to avail themselves of the more generous tax breaks offered to businesses... Higher taxes may lead individuals to seek self-employment because the opportunities for tax evasion and avoidance are greater," according to a report released this month by the nonpartisan Congressional Research Service, which surveyed more than 20 studies on the effects of taxes on hiring."
Thus it seems that the hue and cry about the dangers to job creation at the level of small business may in fact be greatly exaggerated after all, yet one more political football flying about amidst all of the misconceptions that relate to the issues of tax policy and it's applicability in the midst of the worst downturn since the 1930s. It's important to note that I am not against tax cuts per se; it's just that they are not and never have been a cure all too economic ills. That said; the monotonous reiteration of the sanctity of tax cuts in this particular environment seems to amount to nothing more than the political posturing of those who are at a loss for good ideas as to what we need to do to repair the damage done over the past thirty years of deregulation and bubble economics.
With regard to the fact that most Americans don't support extending tax cuts to the wealthiest, the latest New York times/CBS poll supports what the last Gallup Poll showed: "The poll found that 53 percent of Americans say Mr. Obama's proposal to increase taxes on households earning $250,000 or more is a good idea, and 38 percent say it is a bad idea." Thus once again as was previously pointed out, the disappointment and anxiety of rank and file Americans does not translate into empathy for the woes of the most fortunate among us.
2)New York Times/CBS News Poll September 15, 2010http://documents.nytimes.com/new-york-timescbs-news-poll-new-york-timescbs-news-poll-mood-of-the-country-as-midterms-approach?ref=politics 3)
A new poll shows that 53% of Americans support the ending of tax cuts for the Wealthy 1% while maintaining them for the Middle Class. John Boehner , however, comes out today saying it is not time to increase taxes on anyone (so I assume he's in that 1%... or is dominated by it.) At the same time, the US poverty rating has now increased by 43%... more of us are impoverished by this economy and the lack of jobs is seen as the major cause.
S0 let's look at that Wealthy 1%. As the major business investors (in terms of money, if not in the creation of new businesses), these folks have NOT created new jobs... at least not in the US. While China and the far east have gotten more employees (for pennies!) and Mexico has received new factories that used to be in Indiana and Illinois and Ohio, the Wealthy 1% have held onto their dough and have not used it to, as the trickle-downers maintain they would, "save America."
Tax policy and tax cuts in particular are elements central to the Republican Party's economic philosophy. Republicans have made tax cuts one of their primary tools for fighting the Great Recession and returning America to prosperity. When advocating cuts, many on the Right have waxed nostalgic for the Reagan era tax cuts and their supposed economic benefits. The "record" of those cuts is held up as a justification for extending the Bush tax cuts beyond their expiration date and likewise for cutting taxes generally. All of this as an ideological counterpoint to what the Obama Administration has done in addressing the current downturn. Thus when economists who describe themselves as free market advocates, Libertarians, Republicans and even conservatives call extending the Bush era tax cuts into question one can only take note and inquire further as to why those whom we would expect to endorse tax cuts count themselves among the opposition.
Opposition to extending the tax cuts of the Bush Administration falls generally into two different schools of thought. In one camp you have people like Alan Greenspan and David Stockman the former Director of OMB during the Reagan years, both of whom argue that tax cuts are being supplemented by foreign borrowing and are as such unwarranted. In another camp you have people like Bill Gross of PIMCO and former Bush Administration economist Glenn Hubbard who support more federal spending due to the severity of the current downturn. Appearing on Meet the Press on August 1st Greenspan voiced opposition to the idea of tax cuts combined with continued borrowing. He reinforced this point in a New York Times interview the next week that stated: "Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery." Greenspan went on to point out that tax cuts are appropriate when the government is running a surplus and that his original support of tax cuts was combined with other economic requirements that were ignored by economic policy makers within the Bush Administration. A far more scathing condemnation of the Republican Party, it's economic performance and it's fixation with tax cuts was voiced by David Stockman in two separate pieces: "Bush Tax Cuts Will Make U.S. Bankrupt" and "Four Deformations of the Apocalypse". Quoting Stockman: "Yes, there was a good idea that in certain circumstances, lower tax rates will encourage economic activity and savings. But when you make it a religion, when you make it a catechism and you say you cut taxes no matter what the circumstance, what the season, what the condition, then I think the whole idea has been perverted...I find it unconscionable that the Republican leadership faced with a 1.5 trillion deficit could possibly believe that good public policy is to maintain tax cuts for the top 2 percent of the population who, after all, have benefited enormously from this phony boom we've had over the last 10 years as a result of the casino on Wall Street." Stockman goes on to analyze the four deformations of the American economy that he says resulted from Republican policies that abrogated the Bretton Woods Agreement, the exportation of jobs overseas, the hyper-growth of the financial sector and the explosion of public debt. Yet it is in addressing the growth of public debt that Stockman is especially harsh in analyzing the Republican policies both during the Reagan era and beyond. Again to the author: "This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts."
The alternate point of view is put forth by those who see the economy as being so structurally unsound that no amount of tax cuts will help and that only massive public works projects and spending on retraining will provide the necessary remedial aid the economy requires. Bill Gross the fixed income guru of PIMCO was interviewed for an article in the New York Times by Nelson Schwartz, "Jobless and Staying that Way" with the following takeaway: "Despite his long-held belief in free markets, smaller government and lower taxes, Mr. Gross said politicians must recognize that this time, "government is part of the solution." He added, "In the new-normal world, there are structural problems, which require structural solutions... Mr. Gross believes that it's time for the government to spend tens of billions on new infrastructure projects to put people to work and stimulate demand." Quoting Gross: "We think the coma will last for years unless government policy changes to restimulate the private sector and bring unemployment down," In the same camp is former Bush economic advisor Glenn Hubbard who stresses a new, expanded role for the government in addressing the problem of structural unemployment. He talks about a "new normal," where economic growth is too slow to bring down the unemployment rate which in turn requires the government to be more actively involved in mitigating problems that now emerge as the result of globalization. In Hubbard's words: "If there is a new normal, it's more about the labor market than G.D.P. "We have to help people face a new world."
In contrast, the Republican Party continues to talk about the current downturn as if it were a garden variety economic contraction that could be dealt with through tools and policies related thereto. It continues to advocate tax cuts as if they would somehow create consumer demand where it currently doesn't exist. Conservatives have repeatedly pointed to the Reagan era tax cuts as a prime example of the efficacy of such measures in stimulating demand and at the same time they have ignored the massive Reagan era stimulus provided by military spending. In a recent article titled "Unemployment: What Would Reagan Do? Henry Olsen of the American Enterprise Institute talked extensively of Reagan's tax cuts but mentioned not a word of his spending. To paraphrase the source "Reaganomics" below: "Reagan very significantly increased public expenditure, primarily the Department of Defense, which rose from $267.1 billion in 1980 to $393.1 billion in 1988." That meant that "defense spending went from being 22.7% to 27.3% of total public spending. In order to cover new federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $700 billion to $3 trillion, and the United States moved from being the world's largest international creditor to the world's largest debtor nation." Beyond spending for military goods, Reagan expanded the size of the federal government creating a new cabinet level department and presiding over a federal workforce that was larger when he left office than it was when he arrived. Economist Robert Reich points out the fallacy of the Reagan era tax cuts as follows:" Unfortunately for supply-siders, history has proven them wrong again and again. During almost three decades spanning 1951 to 1980, when America's top marginal tax rate was between 70 and 92 percent, the nation's average annual growth was 3.7 percent. But between 1983 and start of the Great Recession, when the top rate was far lower -- ranging between 35 and 39 percent -- the economy grew an average of just 3 percent per year. Supply-siders are fond of claiming that Ronald Reagan's 1981 cuts caused the 1980s economic boom. In fact, that boom followed Reagan's 1982 tax increase." An analysis from the Center on Budget and Policy Priorities argues that "history shows that the large reductions in income tax rates in 1981 were followed by abnormally slow growth in income tax receipts, while the increases in income-tax rates enacted in 1990 and 1993 were followed by sizeable growth in income-tax receipts." Specifically, the analysis calculated that the average annual growth rate of real income-tax receipts per working-age person was 0.2% from 1981 to 1990 and a much higher 3.1% from 1990 to 2001. Thus if you want to find the wellspring of economic growth in the Reagan era you won't find it in tax policy, ironically it can be found in simulative spending for military hardware and the growth in federal employment.
In their constant baying "Where are the jobs?" the Republican leadership on Capitol Hill has ignored the fact that the present downturn is far more severe than their rhetoric would allow. In analyzing the current downturn Sara Murray points out:" GDP was revised down in seven of the 12 quarters of 2007, 2008 and 2009, primarily because consumer spending grew more slowly and home building fell more sharply than previously estimated...The overall depth of the latest recession surpassed that of any other downturn since the late 1940s. GDP fell by 4.1% from the fourth quarter of 2007, when the recession officially began, to the second quarter of 2009, when many economists believe it ended. The previous estimate for the peak-to-trough decline was 3.7%...The new data show that the worst of the recession came in the last quarter of 2008." With economic utilization rates down by 30% across much of the economy and manufacturing output off 28% in the U.S. and 23% worldwide and with services down significantly as well, it was more than evident that tax cuts could not restart the world economy and that is why they were not a major element in the initial policy response in any major economy. The value of government action has been outlined by Jon Hilsenrath as follows: "Most mainstream economists agree on some points: The U.S. economy needed some kind of fiscal help in 2009 as the financial system teetered and the Federal Reserve pushed interest rates near zero. The deficit has to be reined in eventually, in part by restraining the growth of spending on health and other benefits. And developing a long-term plan to do so now would reduce risks of a future financial market calamity and help hold interest rates down... But today, neither side can say with certainty whether the latest stimulus worked, because nobody knows what would have happened in its absence...One big issue: Lessons about fiscal policy in normal times aren't necessarily applicable to today, when the Fed has cut interest rates to zero and unemployment remains high. Skeptics of fiscal stimulus traditionally argue that government borrowing crowds out private investment and pushes up long-term interest rates. True, says Obama adviser Lawrence Summers, but not at times like these...When private-sector lending was drying up and the credit markets froze, "government investment and creation of demand for consumers was a form of alternative financing, not a threat to private investment," Likewise, David Wessel author of "In Fed We Trust" notes: "Government, which did fail to head off the crisis, saved us from an even worse outcome... But we know now that the economy was imploding in late 2008. We know now with detail how paralyzed financial markets were, and how rotten were the foundations of some big banks. We know now that even after all the Fed has done, we still risk devastating deflation... So the short answer has to be: Yes, it would have been far worse had the government failed to act." The factors that affect unemployment predate the Obama Administration as the economic downturn started roughly a year before he took office and you can see unemployment starting to rise in the last quarter of 2008. One could make the argument that the stimulus has been far less effective in getting people back to work than one would hope, but there is little reason or historical evidence at hand to lead to the conclusion that we would have done better by employing tax cuts. Some conservatives would point to Calvin Coolidge's tax policies in fighting the 1920-1921 downturn as evidence that these policies work, but in doing so the avoid the influence of sharp tariffs that were also part and parcel of his response and the negative chain reaction that ensued worldwide as a result. Besides, what was the follow on act to the Roaring 20s, the Great Depression.
In analyzing the effect of the controversy surrounding stimulus verses tax cuts on the recessionary economy, Jon Hilsenrath states:" Tax cuts haven't been a cure-all. President Bush tried $168 billion of tax rebates in 2008, and a recession ensued anyhow. Economists note that households tend to save temporary tax cuts or use them to pay down debt, so they don't provide much short-term stimulus." Hilsenrath goes on to point out that one third of the Obama stimulus was in the form of tax cuts. This fact has also been pointed out by Steve Weisman of the Petersen Institute for International Economics who has stated that the tax cuts included in the stimulus have had zero simulative effect. There is now evidence that business is starting to spend money on capital goods regardless of the specifics of tax policy. Nomura Securities economist David Resler calculates "that businesses didn't spend enough in 2009 on new equipment to offset the wear and tear on their existing equipment...Mr. Resler estimates that even with the recent sharp increases in capital spending, the total capital stock is still $100 billion less than it was two years ago. That suggests that capital spending could continue to grow strongly the rest of the year." Mr. Greenspan himself added that the relationship between taxation and growth was still not well understood. "I don't think anybody can know exactly what the impact of these taxes is on G.D.P.," he said, referring to gross domestic product, the broadest measure of output. "We put them through econometric models that have a very poor record forecasting recession. Conclusions based on such models must be suspect." The fact of the matter is that companies spend money on replacement and expansion when they see an economic reason to do so, not primarily as a result of tax policy. While tax incentives for plant and equipment can be helpful, they alone are not enough to give rise to business spending if there is a perceived lack of demand for a firm's goods or services. After all, companies still have to lay out millions of dollars in expenditure and why would they do so if they have idle capacity to the tune of 30%?
So the question is this; if so many influential people are pointing to the lack of effectiveness of tax cuts in this particular economic environment, why do Republicans cling so desperately to the idea? As I have said in earlier articles, I believe that, in a large part, the G.O.P. is at the point of ideological exhaustion and is sorely lacking when it comes to new and compelling ideas. It is basically, with few exceptions, pushing old wine in old bottles. Their one big exception is Congressman Paul Ryan's " A Roadmap For America's Future", which contains a number of tax reform ideas and advocates for a privatization of Social Security, a tall order to fill in this environment and one that Republicans could not pull off during the Bush Administration when they had control of the presidency and both houses of Congress. Ryan's plan has been picked apart by Economist Paul Krugman for what he claims are its faulty assumptions. One is Ryan's claim that based on OMB estimates; his policies would cut the budget deficit in half by 2020. Krugman's critique is as follows: "But the budget office has done no such thing. At Mr. Ryan's request, it produced an estimate of the budget effects of his proposed spending cuts - period. It didn't address the revenue losses from his tax cuts... The nonpartisan Tax Policy Center has... Its numbers indicate that the Ryan plan would reduce revenue by almost $4 trillion over the next decade. If you add these revenue losses to the numbers... you get a much larger deficit in 2020, roughly $1.3 trillion. And that's about the same as the budget office's estimate of the 2020 deficit under the Obama administration's plans...The Tax Policy Center finds that the Ryan plan would cut taxes on the richest 1 percent of the population in half, giving them 117 percent of the plan's total tax cuts... Even as it slashed taxes at the top, the plan would raise taxes for 95 percent of the population...Finally; let's talk about those spending cuts. In its first decade, most of the alleged savings in the Ryan plan come from assuming zero dollar growth in domestic discretionary spending, which includes everything from energy policy to education to the court system. This would amount to a 25 percent cut once you adjust for inflation and population growth. How would such a severe cut be achieved? What specific programs would be slashed? Mr. Ryan doesn't say."
There is a curious lack of candor and directness among Republican leaders making the rounds on the political talk show circuit when it comes to detailing specifics. Appearing on the Bloomberg network, Senator Mitch McConnell (R-KY) declined to outline what comprised the G.O.P.'s political or economic platform for the 2010 election cycle saying he "did not want to scoop himself". A week later in an August 8th Meet the Press interview, John Boehner (R-OH) would not provide specifics on the same topic choosing to talk around the issue by saying that the G.O.P. was "still listening to the American people." That's a sharp contrast to Mr. Boehner's comments on Meet the Press this past January when he said: "Leadership is about standing on principles and offering alternative policy solutions" The fact of the matter is that if they were in power now, they would most likely have favored simulative spending as well as there is no historical evidence that tax cuts alone, or as a primary strategy, has ever pulled an economy out of a downturn as deep as this one. They certainly can't harken back to the business friendly 19th century America as taxes then were low or nonexistent on economic activity as well as personal incomes. And interestingly enough, Senator McConnell appearing again on Meet the Press, 22nd of August, was unwilling or unable to come up with an answer as to how to pay for extending the Bush era tax cuts as well as answer the question of the viability of Congressman Ryan's Roadmap. As per the moderator, David Gregory's take on the Ryan plan: "it lays out some Draconian steps to balance the budget, to cut spending in both Social Security and Medicare. I'm wondering why it is if Republican leaders are so serious about cutting the deficit and cutting spending, why there aren't more than 13 cosponsors in the United States Congress for this plan?" Somehow the new found fiscal rectitude of the G.O.P. seems to ring hollow when you consider that much of the present Republican leadership on Capitol Hill are the same culprits who took this country from surplus to deficit and endorsed a military misadventure that has by now cost over one trillion dollars that would have been better spent here fighting the downturn.
Perhaps it is this lack of compelling new ideas in the midst of the worst downturn since the 1930s that has led the G.O.P. to basically avoid policy specifics and let the far right media fringe do much of the talking for the Party. Perhaps that is why so little is known about the ideas of a Paul Ryan, he can't be heard over the roar and din of the fanatics on the far Right and the political theater of people like Newt Gingrich, Rush Limbaugh, Glenn Beck and the rest of the entertainers on the right who pawn themseleves off as legitimate news analysts. Perhaps that is why many of its leading figures have been so enmeshed in the Ground Zero Mosque controversy or perhaps why they have let the "Birther Mania" run wild and unabated. After all, if you don't have compelling ideas to offer voters in general, you're left with having to rile up the base and keep them engaged no matter what the method or the reasoning. Columnist David Brooks addresses this as part and parcel of the lack of civil public discourse currently gripping the nation in his latest op-ed "Case of Mental Courage":"Many conservatives declare that Barack Obama is a Muslim because it feels so good to say so. Many liberals would never ask themselves why they were so wrong about the surge in Iraq while George Bush was so right. The question is too uncomfortable...There's a seller's market in ideologies that gives people a chance to feel victimized. There's rigidity to political debate. Issues like tax cuts and the size of government, which should be shaped by circumstances (often it's good to cut taxes; sometimes it's necessary to raise them), are now treated as inflexible tests of tribal purity." While the Republican Party will surely make gains in the 2010 election cycle, it will be a function of the natural progression of electoral cycles rather than the start of a renaissance. We are now in a brave new world of globalized economic competition where military power may very well play a diminished role. No amount of tax cutting will help us in combating the cost of production in China and the Far East. We are in need of bold new ideas and to date, the Republicans have largely offered an agenda of obstruction and out of date economic concepts that proved lacking in the 19th Century as well as in 2008. Generally the voters still blame the Bush Administration for the current economic disaster and the G.O.P. remains at historic lows in favorability ratings. In spite of the fact that some 30% of the voters identify as conservative, the long term demographics are trending against the G.O.P. and its core philosophy and at some point it will either have to redefine its reason for being or it will have to accept a role as the default party of American politics.
AUGUST 11, 2010.Grim Voter Mood Turns Grimmer: Pessimism Rises on Economy and War; Bad Reviews for Both Democrats and GOPhttp://online.wsj.com/article_email/SB10001424052748704901104575423674269169684-lMyQjAxMTAwMDEwMTExNDEyWj.html#articleTabs%3Dinteractive
On Feb. 1, President Barack Obama unveiled his 2011 budget proposal. While conservative pundits reacted with predictable, yet preposterous, wailing about the federal budget deficit, the short-term U.S. budget outlook is just fine. If anything, Obama's budget doesn't dedicate nearly enough funding to create jobs.
As John Nichols notes for The Nation, Obama budgets just $100 billion for jobs in fiscal 2011. The amount is nowhere near enough to make a significant dent in the epic unemployment rate. The government's fiscal 2011 calendar begins in October of this year, and by that time, the stimulus package Obama pushed through in February of 2009 will have been exhausted, leaving the labor market without serious support from the federal government.
The free market isn't going to take care of the jobs shortage on its own. While the unemployment rate fell from 10.0% to 9.7% during January, the "improvement" is really just a statistical mirage-the economy actually lost 20,000 jobs during the month.
If we had pushed through a bigger, or as Nichols notes, a better stimulus package in the first place, we might not be facing the same situation today. Part of the problem is that Obama redirected about $326 billion of the $787 billion bill away from direct job-creation efforts toward a set of tax cuts intended to appease Republican senators.
Tax cuts do not equal job growth
But as Art Levine emphasizes for Working In These Times, the $100 billion that Obama sets aside for job creation in 2011 appears once again to take the form of relatively inefficient tax cuts. Giving money to businesses, even small businesses, isn't really going to make them start hiring unless there's a real demand for what those businesses produce. When everybody is broke and out of work, that demand doesn't exist, since people don't have money to spend.
If the government wants to create jobs, it has to do it directly by hiring people to help rebuild the nation's infrastructure through institutions such as schools, transportation and green energy. Just as important, the federal government can provide funding to state and local governments to make sure that jobs that serve our communities-teachers, cops, etc.-don't disappear.
Sure, these things cost money. But the short-term budget deficit is nowhere near the current deficits of many European nations, or the deficits the U.S. ran during World War II. The budget deficit only matters to economics insofar as it raises concerns that the government will not be able to pay back its debt. But despite caterwauling from the right, investors just aren't worried about a U.S. debt default. If they were, they would demand very high interest rates on Treasury bonds, and Treasury rates are at their lowest levels in decades.
If policymakers want to keep the jobs bill from running the deficit higher, they could always raise taxes on somebody. Financial speculation on Wall Street seems like a good place to start, but just about any tax on the wealthy would work fine. Rich people don't get hammered by recessions. After all, they're rich.
Overzealous tax cuts hurt communities
In a piece for AlterNet, David Sirota details the budgetary disaster that has already befallen the city of Colorado Springs, CO., a conservative enclave where anti-tax extremists have managed to slash just about every basic government service imaginable. Rather than impose some modest taxes on the wealthy, Colorado Springs is going to lay off cops and firefighters, let its parks go to waste, shut-down rec centers and museums and even allow its streetlights to go out. This is the Republican plan for fiscal responsibility.
But several state governments recognize that shredding the social fabric just isn't a good idea. In Oregon, Sirota notes, voters just approved two ballot initiatives to raise taxes on corporations and wealthy individuals rather than allow their state to slide into social decay.
How to deal with a deficit
There are two ways to increase a budget deficit: You can either increase spending, or cut taxes. If you want to decrease the budget deficit, you can either cut spending, or raise taxes. As Kevin Drum notes for Mother Jones, Republicans both increased spending and cut taxes during the George W. Bush presidency. Now those same so-called fiscal conservatives are feigning outrage over the prospect of the government actually spending some money to put people back to work. These are not serious economic arguments-conservative politicians are just hoping to gut progressive policy priorities.
But while the attacks don't hold any water, conservative media outlets are latching on to them, and Obama isn't pushing back.
What caused the current crisis
Writing for The American Prospect, Robert Kuttner notes Obama's recent support for a proposal from right-wing deficit hawks to create a commission to evaluate the causes of our so-called fiscal crisis. But we already know what put us in the current fiscal situation: Rising health care costs, a brutal recession, and the Bush era. The commission is being pushed by radical conservatives for a reason-it's part of an effort to gut Social Security. It's bad economics, bad public policy and it badly misreads the real source of public discontent. Kuttner explains:
"Public concern about deficits is really a proxy for broader unease that government is not delivering enough practical help . . . . The president should be helping citizens sort this out, not caving in to the fear-mongers."
Fortunately, as Steve Benen notes for The Washington Monthly, Senate leaders appear committed to passing at least some kind of legislation to help put people back to work.
Whatever right-wing pundits say, the U.S. fiscal crisis remains a totally theoretical problem. Someday, if the U.S. budget does not come down, it is conceivable that investors would be reluctant to purchase U.S. debt. For now, that is simply not the case. But the crisis in the job market is very real and requires direct action. Put simply, the deficit is no excuse for inaction.
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I said it the other day, and I feel the need to repeat it: the public does not yet understand that the government is about to order people to buy health insurance, with their own money. Yes, the government is about to order people to cough up hundreds of dollars a month each.
When the Republicans start using their toxic message-machine magic on this, and the public starts to understand that they are being ordered by the government to cough up a huge amount of money every month, Democrats had better have good hiding places, because things are going to get really bad out there.
This is the kind of policy that results when "centrist" Democrats give in to to the demands of Republicans and big corporations and the top 1% of the wealthy. Instead of just taxing the wealthy and corporations at reasonable rates and using the money to provide We, the People with health care -- thereby vastly improving the economy for ... the wealthy and big corporations -- they instead come up with a scheme to order regular people to pay for health insurance because they don't already have it because they can't afford it.
This is how things work in the Post-Reagan era: The corporations and vastly wealthy get tax cuts. We, the People get service cutbacks, increases in the retirement age, jobs outsourced, the infrastructure deteriorates... When huge financial corporations get in trouble because they got too greedy the government salutes and says, "Yes, Sir!" and coughs up trillions in bailouts. But when regular people can't afford insurance, the government as presently constituted comes up with a plan ordering them to buy it.
This fight over health care seems to be exposing the contradictions much more visibly than other policy battles we have had. Against the background of the vast sums spent on the bailouts we have people in power telling us that it wouldn't be fair to insurance company profits to come up with a health care plan that provides great care to the public for a low price.
Who is our economy FOR, anyway? That is the question that my own blog asks. Just asking the question takes your thinking in new directions.
What can we do about this?We need to fight for meaningful health care subsidies so regular people who do not now have health insurance will not have to pay for health insurance. It is a simple tradeoff, really: every dollar in new taxes on corporations and the top 1% can be applied to a dollar of subsidies covering health care. This will result in a more equitable, prosperous and healthier society -- and happier voters.
The banking lobby still holds enough sway inside the Beltway to torpedo sensible consumer protection rules, even after releasing a flood of predatory mortgages that kicked off the current economic crisis. On issues ranging from payday loans to subprime mortgages, the banking industry continues to successfully defend itself against new regulations that would protect the consumer. As if that weren't outrage enough, the finance lobby has also joined other corporate interest groups to fund misinformation campaigns that smear unions and block wage growth.
Even those in the White House have admitted the stimulus bill probably isn't enough to do the job. But this was just a single bill. More work will be done in most every bill passed by congress this year.
And yes, I really do mean most every bill. Remember those efficiency numbers everyone posted last month? Tax cuts for the rich do almost nothing but more money for the poor and middle class do a lot. Even if you are revenue neutral, every policy choice that directs money away from the richer and towards the poorer people helps the economy. The health care money put aside in Obama's budget, for instance, will be a big stimulus itself.
Although I'm not quite so sanguine as Mark (state budget cuts are going to be a bitch to offset), this is a very important point. In rightwing mythos land, every tax cut is always good for the economy--the product of not really thinking through all the effects it will have, including the opportunity costs of not putting that money to potentially much better uses. But in reality, money that goes to poor people does a helluva lot more good.
That's only the first step, however, as can be seen in this blog post Paul Krugman wrote back in mid-January:
Senator Barabara Mikulski of Maryland was back at her old tricks this week in the Senate (where, to be sure, terrible legislation was in no short supply). Back in November when Congress was considering the auto bailout, the Senator proposed making the interest on auto loans, along with sales taxes, deductible from a household's federal income tax. The legislation is designed to save jobs at car dealerships, save consumers money, and boost sales tax revenues. The Senate voted to include the tax break in the stimulus package. In November, I pointed out:
But people aren't buying [cars] and most of them probably shouldn't be.
Certainly, they should not be buying a car if $1,500 (at the end of the year) is all that is separating them from a new Dodge Minivan. Not only does the tax break encourage early replacement of perfectly good cars (the break expires at the end of 2009), but it encourages already debt-ridden Americans to assume more debt. And it is not even clear that stoking demand for cars will be sufficient, even if higher interest rate loans appear more affordable to purchasers. Secretary Paulson has emphasized, along with the WSJ, that loan availability depends on the securitization market, which has "for all practical purposes ground to a halt."
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