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The Recipe for Growth Is...

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Why is there even a debate about this? Individuals, families, and countries must have enough foodstuffs to grow, even if there is less to eat during times of austerity. In the case of a country, there have to be programs that induce growth -- both income and jobs growth. We are in such a period today, yet the austerity folks keep insisting starvation is the only way to recover from the biggest credit binge since the Great Depression.

There is only one problem with that solution. They are asking for everyone but themselves to starve. Labor productivity has soared in the past 30 years, yet those profits have not been passed on to the workers who created them. The latest example is the House Republicans' passing of Republican Paul Ryan's latest budget proposal that punishes the poor to pay for the excesses of the wealthiest that created the worst budget deficit since WWII. "We propose to stop fraud in the food-stamp program by ensuring that individuals are actually eligible for the taxpayer benefits they receive," said Ryan at a recent press conference.

Dr. Robert Shiller of Irrational Exuberance fame, and a shoo-in future Nobelist for his work in understanding financial behavior, has suggested those advocating more austerity measures need to look at new metaphor, in a recent New York Times op-ed. Instead of the household metaphor of tightening the belt when times are tough, we might look at how agricultural farms operate. The "Winter on the family farm" metaphor is when farmers are not earning money, but keeping busy doing projects that improve the farm--such as fixing the barn, digging a well or fixing fences. "The farm requires that all members pay a sort of tax, by donating labor," he says.

In fact, research cited by Dr. Shiller, says if a country raises taxes and expenditures by the same amount (as President Clinton did with budget pay-as-you-go rules scuttled by Republicans to pay for their Wars on Terror), then national income grows by exactly the same amount. "Like the farm in winter, the nation -- through taxation -- can require full employment, and does not need to go into (additional) debt to simulate the economy," says Dr. Shiller.

In fact, we do know the recipe for growth. It is what got us out of the Great Depression. Put everyone back to work -- or war, as in World War II. War required a debt to GDP ratio of 120 percent that was paid off with post-war growth inducing programs, largely led by pro-labor Democrats.

For instance, the 40 years from 1961 to 2000, when the White House was shared equally by Republican and Democratic presidents (20 years each), pro-labor rights Democrats had the far superior record both for economic growth, and jobs. This can be found in numerous government data, but summarized by the Currency Thoughts blog. Bush 43's record (GW Bush) was even worse.

% Per Annum Democrat Republican Bush 43

GDP Growth: 4.1 percent 2.9 percent 2.2 percent

Employment: 2.9 percent 1.7 percent 0.5 percent

Even more convincing proof that Republicans will prolong this recession is their record on job creation. The Wall Street Journal has run articles on this fact. Since Harry Truman, 57.5 million jobs were created during Democratic administrations, vs. 36.2 million jobs created during Republican administrations.

President Clinton is the winner with 23.1 million jobs created during his eight years, whereas President Reagan leads Repubs with 16 million created during his term. There are pundits who say these job totals are not totally accurate because policies created in one administration will affect job formation in the next. But that would have to work both ways, cancelling out any effects of one administration's policies over another.

We aren't even counting President Obama's almost 4 million jobs created to date after our Greatest Recession that followed on the heels of GW Bush's worst track record of just 3 million jobs created 2000-2008.

Why? This is one of the most basic economic truths, yet the austerity advocates in particular don't seem to care. They want to believe that lower taxes will stimulate more jobs by transferring more revenue to the private sector. But that hasn't happened -- historically such policies have depressed the jobs and incomes of wage and salary earners that would stimulate more demand for their products. Why not learn from our mistakes, instead of repeating them?

Harlan Green © 2012