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Memo to Dems: Poverty and Income Drops Represent GOP Failures

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The sharp drop in household income in 2009 is being used by the rightwing to suggest the Obama stimulus did not work. The rise in the poverty rate to its 1994 level is similarly fodder for the rightwing Republicans.

In truth, the longer-term data on household incomes and poverty present a much clearer case of economic failure, not of the Democrats but of the Republicans. One would expect family incomes to go down and poverty rates to go up in recession -- especially the sharpest recession since the Great Depression. How did Obama's stimulus cause this? Surely, it didn't push up interest rates to stall the economy. Interest rates are now about rock bottom. Surely, it didn't cause inflation. There is none.

In fact, the Obama government spending arrived just in time to keep the unemployment rate from rising much higher than its ultimate 10.1 percent. Consumption in mid-2008 was about to fall off the cliff and federal spending saved the day.

A true reading of the basic data about the economy obliterates any justification for new rounds of tax breaks for the wealthy and the other rightwing Republican economic schemes -- the policies they are quite remarkably now trying to resurrect. As I say, it is one thing for incomes to fall in recession. But household income never recovered its 1999 level during the Bush economic expansion. That is saying something. The poverty rate stayed well above its 1999 low as well during expansion. The Bush tax cuts of 2001 and 2003 simply did not revive the economy in any way Americans had come to expect. Incomes and poverty rates were poor in these years.

But here is the outright killer. Those big income tax reductions for the wealthy under Bush were supposed to generate lots of entrepreneurial activity and capital investment. And the Bush policies also included cuts in capital gains taxes and taxes on dividends. These were the magic exlixir. Now, capitalism was free to work its magic.

But what happened was that capital investment, a source of economic growth, actually weakened compared to historical growth rates. Richard Bernstein, the former Merrill Lynch economist, recently noted that the 2000s was the worst decade for investment since World War II -- by far.

Facts of course don't deter ideologues -- or some politicians willing to sell the country down the line to win election. Income growth has been poor for a generation now, the experience of the late 1990s the only exception. Poverty rates reached their 1970s low only once -- momentarily in the late 1990s. So much for the maligned 1960s, which reduced poverty rates from 23 percent to 12 percent.

The proportion of people with health insurance has kept declining as well and in the recession soared to record levels.

Most of this dismal performance occurred under Republicans, and all of it under the anti-government ideology that took hold especially with Ronald Reagan.

In a recent debate I had on BBC radio, a rightwing economists said the reason big government is bad for growth is that every tax dollar is deadweight. This is an old, simplistic and devastatingly cruel argument. I doubt the recipients of Social Security benefits think their money is deadweight, or those on Medicare, or those who are possibly enjoying a newly paved road or decent schools for the kids.

What's more, history tells us clearly that big government simply does not slow growth. Government does a lot to promote growth -- education, roads, healthcare, law enforcement. There is no serious sophisticated data to back up the claim that big government or higher taxes results in slower growth than in nations with smaller government. Some economists will produce a contentious study to make the claim, but it is always shot through with holes, as other economists quickly point out.

But back to today. Big government did not produce the current crisis. Poor regulation, steeped in anti-government ideology, was the main cause. Private enterprise given an utterly free hand did it.

It was the seven years of poor economic performance before the 2008 collapse that should get the real attention. This was the test of Republican economic policy, and rarely has history been so conclusive. Those policies failed miserably. If the Democrats cannot make any hay out of that record this election, they are in the wrong profession.

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Cross-posted from New Deal 2.0.