Republicans: Penny-Wise, Pound-Foolish

06/28/2010 09:31 am ET | Updated May 25, 2011

If your ship sinks and you're swimming to shore, you don't stop because you'll be too wet when you get there.

But that's what the Republican's new-found anxiety about deficit spending amounts to. Because whatever conservative economists say, you spend your way out of a recession, and deal with the long-term debt problems later. The alternative is a deeper recession.

So when you consider the Republican leadership's recent sneer at extending unemployment benefits, you have to wonder: What is the Republican leadership thinking?

That's because unless Congress reverses course, we're heading straight for economic disaster, and if anything bad happens to the economy, the country is out of tricks.

The economy's already stalled, and cutting off benefits to 5 million people by October -- and choking consumer spending as a result -- will do us no favors. In this pass, anything that takes money out of the hands of companies -- and that's what taking it away from consumers means -- only aggravates matters.

In fairness to the GOP, Harry Reid did rebuff Olympia Snowe when she urged him to send up a stand-alone bill to extend the benefits. And the $30 billion unemployment measure was part of a $200 billion grab bag bill that included plenty of tax breaks for business and financial aid to the states -- that last intended to keep first responders employed. Nobody's hands are clean this election year.

Still, this train wreck was created by the Republican leadership, and they'll be blamed for it this November. By that time, the nation will have begun feeling the inevitable effects of cutting said benefits.

Among the effects: More trouble for the housing market, as people with no money lose their homes. And a housing recovery is considered the key to keeping this economy up, running, and creating any jobs at all.

Hit the hardest: Americans 55 and over.

Among the 6.8 million long-term unemployed 2.14 million, or 31.4%, are 55 and older. As a practical matter, these people are the least-likely to find new jobs. Home ownership in this group is high -- 79.1%--and for most, their house is their main asset.

The 2008 stock market crash hit these Americans hard; retirement accounts lost 32 percent of their value in the crash -- $2.8 trillion -- and while the Dow has come back some in 2010, it's still 4,000 points off its peak. Meanwhile, at age 67, income from retirement accounts and financial assets make up 58 percent of average household income.

That clutch of numbers means that if these people lose their homes, they'll have lost most of their wealth and have little chance of seeing it again. Since Social Security benefits for someone who's 66 years old and earned, say, $95,000 a year are only $1,680 a month, they'll likewise have little chance of living anything like the way they have the past 20-odd years. These people, many of whom have highly-developed job skills and years of business experience, are between the mugger and the wall.

The actual number of people who will lose their homes is unknowable; some may be able to hang on, or get help hanging on from relatives or friends. Some may pull a rabbit out of a hat. But if we assume that 45% do lose their homes, that's 963,000 homes in foreclosure. By comparison, 3.1 million homes have been seized by banks since April 2005.

And since it's a good guess that many of these people are already delinquent -- they've been out of work 99 weeks, after all -- many of those foreclosures are inevitable.

Those million foreclosures aren't a mere spike -- it's a huge negative for an economy that's going sideways at best. Bottom line: Nancy Pelosi wasn't kidding when she said last week that rejecting the bill could send the economy back into recession.

That's because every foreclosure has a ripple effect. There's no handy-dandy number that says for every dollar X of foreclosure there's a Y dollar loss to the economy -- though there should be one. But aside from the depressing effect on consumer spending, foreclosures drag down the values of surrounding homes, and lower property tax revenues for state and local governments.

That's bad news for the states, 46 of which expect budget shortfalls for the fiscal year ending next June, and totaling $112 billion, according to the Center on Budget and Policy Priorities, a Washington-based think tank. And it's bad news for America, since as a result, state spending cuts are inevitable, and state spending is 12 percent of U.S. GDP.

Meanwhile, extending those benefits would have stimulated the economy. Mark Zandi of, for instance, estimates that every dollar paid in unemployment benefits has a multiplier effect in economic stimulus of 1.64. By comparison, Mr. Zandi calculates that cutting the corporate tax rate has only a 0.30 multiplier effect.

I like to think that the Republican leadership, whatever else I may think of them, are smart guys, with plenty of smart, informed people telling them what's what. So aside from any questions of simple right or ethical conduct, much less self-interest, the question I have is: If they know all this -- why do they hate America?