If You Like the Recession, You'd Love "Speaker Boehner"

10/11/2010 12:33 am ET | Updated May 25, 2011
  • Robert Creamer Political Organizer, Strategist, Author; Partner Democracy Partners

Last week's employment report served to reinforce the utter bankruptcy of Republican economic policy -- and the absolute necessity of remembering the lessons of the last century of economic history.

The private sector job market is slowly stumbling out of the economic ditch into which it was steered by the policies of the Bush Administration. Sixty-four thousand private sector jobs were created by the economy last month -- well short of what is necessary to allow the job market to achieve lift-off velocities and long-term sustained growth -- but a least a positive number.

But that growth was entirely offset by the loss of 159,000 government jobs. Some of them were temporary census jobs. But the bulk -- including the loss of 26,000 teachers -- came from layoffs caused by the fiscal crunch of state and local governments. State and local governments cut jobs at the fastest rate in almost 30 years. The loss in jobs would have been even more massive if Democrats in Congress had not passed a bill to aid state and local government before they adjourned for the August recess. That bill was passed over virtually unanimous Republican opposition.

The Republicans have traditionally offered four major elixirs as their prescriptions for economic growth:

1) Cut taxes -- especially for the wealthy. In fact, of course, tax breaks for the rich are mainly about giving more money to the Republicans' major constituency -- the wealthiest of our citizens. The fig leaf they have used to cover this self-serving policy used to be described as "supply-side" economics: the idea that if you give the wealthy and big corporations more money they will automatically invest it in new economic ventures that generate jobs.

Of course this proposition completely ignores actual economic history. The Bush tax cut policy was in place for much of the last decade. But his administration created a net increase of zero new private sector jobs -- zero. In fact, of course, it is still in place today -- due to expire at the end of the year, unless Republicans have their way -- and it has done absolutely nothing to create new jobs. In fact, just the opposite.

Right now, corporations and the rich are rolling in cash. Why don't they invest it, expand capacity and create jobs growth? Simple. There is not enough demand. To have economic demand you need consumers who want to spend money. But tax cuts for the rich have just turbo charged the overall tendency of our economy -- and especially the overgrown financial sector -- to concentrate more and more money in the hands of the top 2%. And that means there is less and less for ordinary people to spend on goods and services and not enough demand to entice all of those corporations to expand and hire more workers, which in turn further depresses demand.

And what is even worse, tax cuts for the wealthy deprive the government of funds that it can use to jumpstart demand and end this vicious cycle -- which leads me to prescription number two.

2). Cut government spending. It should be lost on no one that the proximate cause of the reduction in employment last month was layoffs by state and local governments. Much of the fiscal pressure on state and local government came from the end of funding from the original federal stimulus bill which was opposed by most Republicans. Of course the Republicans also worked long and hard to stall the additional $22 billion aid package for state and local governments that finally passed Congress in August. And they assured that the package proposed by Democrats was cut in half before it could get the 60 votes needed to get out of the Senate.

In fact, cutting government spending before the private sector has achieved sustained job growth is a recipe for economic disaster.

Long-term structural federal deficits that are too large in relation to the total Gross Domestic Product (GDP) can in fact create a drag on long-term economic growth. They can create upward pressure on interest rates that can choke economic activity. And by over-stimulating the economy they can also cause inflation.

But that is not our problem today. Just the opposite. Interest rates in general are at their lowest in decades -- as are the interest rates for government debt. And the problem today is not inflation in our currency, but the much more pernicious problem of potential deflation.

In this situation, the Republican argument that cutting government spending will help create jobs is kind of like a doctor telling you that the solution to your anorexia is to go on a diet and get more exercise.

3). Cut back on the regulation of corporate behavior. That certainly worked well during the Bush years. Pretty much everyone acknowledges that the deregulation of the financial sector was mainly responsible for the reckless behavior of the big Wall Street banks that threw the economy into free fall and cost eight million Americans their jobs late in 2008. Republican proposals to allow Wall Street and other big corporations to resume their orgy of recklessness and greed are a recipe for another major financial collapse -- not long-term economic growth.

4). Use monetary, instead of fiscal, policy to increase the money supply and lower interest rates. Republican economists of the Monetarist School that was once headed by University of Chicago right wing icon Milton Friedman have contended for years that the perils of the business cycle could be dampened virtually entirely by using monetary policy. So, the argument goes, you don't have to use fiscal policy -- the spending of government - to restore economic health.

The problem is that while the Fed has the ability to make important mid-range course corrections in the direction of the economy, monetary policy has shown itself incapable of dealing with an economic catastrophe of the magnitude that happened in the fall of 2008. The Fed has exhausted virtually all of the tools of monetary policy and the economy is still barely creating new jobs. Interest rates have been lowered about as far as they can go. The Fed has massively expanded the money supply. It probably can take additional steps to make credit more available, but no one thinks that monetary policy by itself can turbo charge employment growth.

In other words then, every one of the four major Republican prescriptions for economic growth has demonstrated itself to be ineffective -- or downright poisonous -- in the real world of today's real economy.

But Republicans continue to bray on about the need to cut taxes, cut spending and cut regulation as if it were not as plain as the nose on your face that these proposals have proven themselves utter failures.

So why haven't the Democratic policies of President Obama been able to restore employment to its pre-recession levels? The answer is simple: not enough of a good thing.

First and foremost, those policies did in fact prevent another Great Depression. They brought the economy out of a death spiral. The non-partisan Congressional Budget Office and most other mainstream economists agree that the first stimulus will in fact create or prevent the loss of 3.5 million jobs. Had it not been passed the job losses caused by the financial collapse would have increased by 50%.

In fact, even a cursory look at the numbers -- and the economic trend lines -- before and after President Obama took office, shows a stark contrast between the Bush and Obama eras.

Private sector job losses increased steadily from February, 2008 until January, 2009. In October, 2008 over 700,000 jobs were lost. In December, 2008, 680,000 jobs were lost, and job losses peaked at almost 800,000 in January, 2009.

The month after President Obama took office private sector job losses steadily began to shrink -- accelerated by passage of the stimulus bill in March, 2009. Private sector job growth turned positive in October 2009, dropped into negative territory again in November and it has been positive ever since.

Manufacturing job losses accelerated steadily from December, 2007 until they peaked at 280,000 jobs lost in the last month of the Bush Presidency, January, 2009. Since then they steadily declined and for the last seven months the economy has actually created over 180,000 new manufacturing jobs -- owing both to the stimulus bill and the auto industry rescue plan that were both assailed by the Republicans.

Retail sales dropped precipitously from $373 billion in August, 2008 until it bottomed out at $335 million in December 2008. Since President Obama's took office, it has increased steadily back into the range of $365 billion.

GDP growth went from a negative 4.0% in the third quarter of 2008 to a negative 6.8% in the fourth quarter of 2008. Then the losses began to abate after President Obama took office and dropped to a negative .7% in the second quarter of 2009 after the stimulus bill was passed. It has been in positive territory ever since.

Over $17.5 trillion of household wealth was wiped out from the third quarter of 2007 until the first quarter of 2009. Then after the stimulus bill was passed it began to rebound. Households have now regained 35% of the wealth lost in the last two years of the Bush Administration -- a gain of almost $6 trillion.

We still have an enormous way to go to achieve sustained long term economic growth, but let's remember that in 2008 the economy fell into the deepest recession it has faced in 60 years. The last time Republican policies led us to such a downturn in the early 1930s, it took the public sector spending of World War II to return the country to sustained economic growth. Roosevelt, of course, was not lucky enough to have the benefit of the economic history he himself would write. He experimented with substantial economic stimulus -- but not nearly enough to get the economy into a self-sustaining cycle of long-term growth. In fact, in 1938, he was convinced by his own deficit hawks to decrease spending and the result was a new downturn in employment and a shrinking GDP. Roosevelt was not able to muster the country's political will to apply the massive amounts of governmental stimulus necessary until Emperor Hirohito made it a matter of national survival by attacking Pearl Harbor.

During World War II the public sector not only powered the beginning of a cycle of sustained economic growth, it did so while tax rates on the rich were near confiscatory levels -- 91%. So much for the dampening effects of taxes on the wealthy. These expansionary policies began a period of sustained economic growth that would last 40 years and create the modern American middle class.

I'm a pilot. To make an airplane fly, you have to get it up to a critical speed that allows the lift created by the wing to offset the force of gravity. Once you achieve that velocity, the plane can rotate off the runway and fly away. But if it never achieves that speed, it will never take off.

The same is true with sustained economic growth. Until the economic growth achieves a velocity adequate to assure that jobs are being created faster than natural population growth; until enough wages are flowing into the pockets of ordinary consumers to allow them to start spending at a pace where businesses will invest and expand employment, the economy will keep rolling down the runway, but never take off.

The only force powerful enough to get the economy to takeoff speed is government stimulus.

In an airplane you never reduce power until you achieve that critical velocity needed to take off. The same should be true with the economy. If you want the economy to pick up enough speed to achieve self-sustaining growth, you keep revving up the engine of fiscal stimulus until it lifts in the air. Then -- and only then -- can you begin to back off on the power.

In early 2009 America needed a much larger economic stimulus that the Republicans -- and some deficit hawk Democrats -- would allow Congress to pass. To get 60 votes in the Senate, conservative Democrat Ben Nelson and Republican Susan Collins insisted that the stimulus bill be substantially reduced in size. And the threats of the deficit hawks had already convinced the Administration to reduce their stimulus proposal to levels well below what many Administration economists believed were necessary. But the Administration needed to pass some stimulus and to their credit, they did. Now we need more.

Let's be clear. The reason we needed -- and still need -- such a large amount of stimulus is that the Bush economic policy had driven us into the deepest economic ditch since the Great Depression. We need a lot of economic firepower to get us out of that ditch -- more than has been necessary in 60 years.

So to escape a period of long-term economic stagnation, we need a major shot of additional stimulus now. But we will never get it -- at least in the near term -- if Republicans take control of one of the houses of Congress.

Instead we will get Republican prescriptions for the economy that are not just worthless -- but toxic. We will get policies that will endanger our children's futures and our competitive position in the world.

Robert Creamer is a long-time political organizer and strategist, and author of the recent book: Stand Up Straight: How Progressives Can Win, available on