Last night Americans, and perhaps much of the world, were treated to two vastly different viewpoints on government. At issue: What should it be doing and to what extent?
In his state of the union address President Obama rather passionately advocated for a more energetic and involved government, one that assists both businesses and individuals in realizing their potential. He would do so through targeted tax cuts, spending on infrastructure, expanding educational opportunities, while preserving entitlements for the Rest of Us as he pushed to impose higher taxes on the very wealthy.
Quite opposite, Mitch Daniels, narrating the Republican response, offered a vision of a much smaller government that is almost completely out of sight if not out of mind. His program calls for tax cuts, of course, fewer, if any regulations, reduced benefits for the poor and aged, and, by implication, repeal of “Obamacare.” Here’s Daniels:
The President’s grand experiment in trickle-down government has held back rather than sped economic recovery. He seems to sincerely believe we can build a middle class out of government jobs paid for with borrowed dollars. In fact, it works the other way: a government as big and bossy as this one is maintained on the backs of the middle class, and those who hope to join it.
Obama’s plan will not be tried. Daniels’ will not work. That means for the Rest of Us more of the same.
Notwithstanding Obama’s appeal to “common sense” and “shared responsibility,” today’s Republican Party eschews both. There’s is an ideology founded on mendacity and fairy tales. Their goal, however, is as simple as it is obvious: control Washington, D.C., by whatever means necessary. Since facts are always inconvenient, manufacture a phony reality, then stick to it regardless of circumstances or events.
We could spend several pages dissecting Daniels’s glib propagandist adventure, but we should address a few of the assertions. It really doesn’t matter where we start, because they’re all whoppers. I’ll put Daniels’s assertions in boldface.
“The President’s grand experiment in trickle-down government…”
Experiment? Trickle-down government? First off, keep in mind that presidents in our form of republicanism wield much, much less power and latitude than prime ministers in parliamentary governments, and this president, in particular, and regardless of how you might judge his proposals, has faced an obstructionist Congress. Even raising the debt ceiling, well-nigh automatic in the past, has become an exercise in political brinkmanship, exploiting the opportunity to exact concession, often irrelevant to the issue. The Senate, a bordello of arcane rules designed to hinder rather than facilitate legislation. Thus, a minority stymies the majority—without a single vote, more often than not.
Those familiar with our economic history recognize the purpose of Obama’s fiscal stimulus proposal, which Congress eventually passed. This is textbook Keynesianism and hardly an experiment. Yes, it was much too little, as many prominent economists complained, so it failed to accomplish what the administration had intended, though it prevented an even worse calamity.
And speaking of Keynes, he concluded that in severe recessionary periods only the government has the ability to break the demand-supply logjam. We’ve visited this on several occasions. In a demand-constrained economy, such as the one we’ve been in since the collapse of the housing bubble, businesses won’t expand and hire workers, because whatever they might produce won’t be consumed.
FDR understood, somewhat grudgingly, that his administration had to act following the Wall Street crash. He increased the money supply and persuaded Congress to spend millions of dollars on public works projects, from the arts to building dams. The private sector was in too bad a shape to hire workers; only government could make that happen.
Well, the Great Recession parallels many of the conditions of the Great Depression, albeit less acutely. But the same prescription is required. Republicans didn’t like it in the 30s and they don’t like it now, even if people’s lives are improved or they suffer less. That’s because their sacred texts abhor the mere concept of government, let alone what it can or cannot do.
“Those punished most by the wrong turns of the last three years are those unemployed or underemployed tonight, and those so discouraged that they have abandoned the search for work altogether. And no one has been more tragically harmed than the young people of this country, the first generation in memory to face a future less promising than their parents did.”
The Congressional Budget Office ran the numbers on ARRA (pdf). It drew these conclusions about the act’s expenditures:
- They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.8 percent and
2.5 percent,
- Lowered the unemployment rate by between 0.5 percentage points and 1.6 percentage points,
- Increased the number of people employed by between 1.0 million and 2.9 million, and
- Increased the number of full-time-equivalent jobs by 1.4 million to 4.0 million, as shown in Table 1. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)
Subtract out these achievements, which the Republicans dearly wished to do in the first place, would have exacerbated the situation. The strategic error was all Obama’s. He shunned superior advice (e.g., from Christine Romer to more than double the spending) in favor of pragmatism, naively believing that he could get more bites out of the apple. But, he did something rather than nothing, for which he gets tarnished. Republicans to a person point the finger at the White House because ARRA failed to jumpstart the economy, completely ignoring its positive effects.
“As Republicans our first concern is for those waiting tonight to begin or resume the climb up life’s ladder. We do not accept that ours will ever be a nation of haves and have nots; we must always be a nation of haves and soon to haves.”
Yes, there are all these millions of people just “waiting” in the wings for a better life. No, they’re not waiting. They’re down if not completely out, tortured by the curse of unemployment, saddled with mountains of debt, and facing homelessness should benefits run dry.
Consider this chart from the Economic Policy Institute:
The dark line represents the number of unemployed per job opening. Twenty-one months after the recession began there are over six people out of work for every available position. Compare with the lighter line, which shows what happened after the last recession in 2001. Yep. Things are bad.
But this is all Obama’s fault, because all those people tossed out of work are forced to wait. Wait for what? Republicans tell you that the government is in the way of businesses hiring. Why they believe that escapes reason. Businesses aren’t hiring because people aren’t buying. It really is as simple as that. And why aren’t people buying? Because they don’t have a job or are underemployed.
It is an article of Republican faith that all unemployment is volitional. People can always find a job, provided they’re willing to work for less money. I’ve written about this here. Under existing economic conditions, people won’t be hired no matter how low they go.
“In our economic stagnation and indebtedness, we are only a short distance behind Greece, Spain, and other European countries now facing economic catastrophe. But ours is a fortunate land. Because the world uses our dollar for trade, we have a short grace period to deal with our dangers. But time is running out, if we are to avoid the fate of Europe, and those once-great nations of history that fell from the position of world leadership.”
Daniels really doesn’t understand macroeconomics at all, and I’m hardly an expert. He’s not been reading the literature about why Europe is in a mess of its own, and it has almost everything to do with the Euro sans a central government institution like our Federal Reserve.
The U.S. is less likely to go “bankrupt” because it has a single, common currency. And if the U.S. was really “only a short distance” from troubled European countries, why do investors line up to buy our securities, whose yields are at record lows? It’s precisely because we have the means and the commitment to pay our debts, even as they accumulate.
“The only way up for those suffering tonight, and the only way out of the dead end of debt into which we have driven, is a private economy that begins to grow and create jobs, real jobs, at a much faster rate than today.”
Well, here is where the Rest of Us are waiting. Where is the private sector, the one that’s been coddled by Congress for all these years since the Great Divergence? As surveys show, businesses aren’t expanding because of government regulations or high taxes; they cite the same problem as economists do: diminished aggregate demand.
Only an imprudent CEO would open his doors tomorrow to hire more workers without some assurance that whatever he built or sold would be purchased. Supply does not create its own demand.
“The extremism that stifles the development of homegrown energy, or cancels a perfectly safe pipeline that would employ tens of thousands, or jacks up consumer utility bills for no improvement in either human health or world temperature, is a pro-poverty policy. It must be replaced by a passionate pro-growth approach that breaks all ties and calls all close ones in favor of private sector jobs that restore opportunity for all and generate the public revenues to pay our bills.”
“Extremism”? Recall that it was Richard M. Nixon who signed bills establishing the EPA, the Clean Water Act, and the Endangered Species Act. He would be judged a pariah by today’s Republicans. The modern GOP cares not for the environment or any of the species that inhabit the planet. They would gladly toss the earth under the bus for another dollar of profit.
That proposed pipeline, by the way, was neither “perfectly safe” nor would it have employed “tens of thousands.” Nor will its absence cause people’s utility bills to rise. Visit this site to gain a different perspective.
“That means a dramatically simpler tax system of fewer loopholes and lower rates. A pause in the mindless piling on of expensive new regulations that devour dollars that otherwise could be used to hire somebody. It means maximizing on the new domestic energy technologies that are the best break our economy has gotten in years.”
As the clock ticks the Republicans can be relied on to push for lower taxes. How low would the GOP take them, since they’re already at the lowest rates since the 1920s? Remember this: the G.W. Bush tax cuts did nothing to create jobs.
As for regulations, do the Republicans not realize that the repeal of financial regulations, especially the New Deal’s Glass-Steagall Act, led to the housing bubble and its inevitable collapse? We’re mired in debt, both public and private, a product of unrestrained speculative euphoria. I would submit that had the pre-Reagan regulations been in place, we wouldn’t have experienced this last recession.
There. I’m done.
