Republicans Flunk History and Economics, Pass Drama
A second economic stimulus package is in the news if not (and its not) on the front burner of the Obama administration. Curious, considering we haven't had one yet. More precisely, the one that was passed by Congress is just now rolling out. Warren Buffet's interview with ABC last Friday set the stage. This enabled the drama queens of the Republican party to make no sense voicing stern opposition to a second stimulus bill. On Meet the Press, McCain said, "I think that would be the biggest mistake we could ever make." Of course it is their job to make no sense. Sense is their mortal enemy. I just wish I could figure out why.
Just in case you missed it, Keynesian economic theory -- the same stuff that was used to correct the First Great Depression -- is what is behind the reasoning for a stimulus program at all. All the whining about the abandonment of the gold standard and the evils of the Federal Reserve and the dread of socialization and government debt, will not alter the plain fact that Keynes was right. In super condensed and extrapolated summary, if the rich have all the money, there is no economy worth investing in and therefore no need for capitalism. A somewhat milder prognostication than that of Marx.
As the Republicans rummage around in the basement of revisionist history for enough denial fodder to construct an abutment of doubt about government stimulus spending, the country sails through the quiet reality of a Second Great Depression averted by Keynesian theory, already. Bush and Paulson kicked the can down the road just far enough for the adults to save the day. Although the question remains as to whether the American public is adult enough to understand both the perils and remedies. Republicans seem to be working as hard as they can to assure that we are not.
History of 80 years ago is rife with persons of authority predicting that the First Great Depression would be over in 1929. Market forces, they assured our grand parents, would correct that business cycle downturn in a few fortnights. Republicans always get it wrong. And the alternative that they proffer now, tax cuts for businesses, is less and worse than the steps even Hoover took to correct his looming economic catastrophe. Tax cuts for business is an anti solution, because increasing capacity through investment is pointless when no one is buying anything, and it would increase deficits to no purpose. How stupid can you be? I'll have to offer a new appellation, "Republican Stupid".
Contrary to myth, Hoover did try to make things better, but his ideology stopped him short of going far enough. He lowered interest rates through the newly created Federal Reserve and passed Smoot-Hawley, created public works projects through the Emergency Reconstruction Act, but failed to support measures that put money in the hands of consumers directly. Hoover, somehow more enlightened than his latter day brethren, seemed to understand some of what was happening, but fell short. It was all theory then. It is not theory now, it is law, proven, despite the pouting of the economic right.
What the Republicans are doing now is adamantly insisting we fall short in the scope of our efforts to fight a Depression. Some predecessors of current Republicans ganged together and stopped Roosevelt New deal spending, with identical arguments to now, in 1937. The result was a hiatus in the recovery that lasted until WWII appeared on the horizon.
Republicans have now kitted the notion that Roosevelt and Keynes did not end the Great Depression, but that WWII did. Alright, if that is true, then what was it about WWII that was economically significant? The answer is the most massive government borrowing and spending in our history. But, seemingly undetected by anyone, academic or political, is that wages doubled for American workers during the course of that war. The America that emerged after WWII was then the consumption giant of the world, with a middle class that could buy more than any other country at any time in history. And when government spending for WWII ceased, the economy, doubled during the war, retracted only 10%. The pay made the difference, created the America, the profits, that the Republicans so covet but could never have made happen with their medieval recidivism.
Higher pay for workers results in a growing economy leading to higher profits. Lower pay, a la "Supply Side" and "Trickle down", leads to a shrinking economy and lower profits, always and immutably. The most cited cause of the Great Depression is that wealth was so concentrated with a few that no amount of investment in capacity could be utilized. Ergo the futility of tax cuts for the rich. The economy was not able to grow anymore because consumers had no more money with which to purchase more things. In the decades since Reagan, the American economy has grown to duplicate the exact conditions of high concentrations of wealth an low pay that caused the Great Depression. It is not magic my Republican friends.
As it is the responsibility of government to act in the best interest of the public, including business, it is incumbent on government to see that wages go up in order to stop a Depression and restore growth. And to the extent you do not understand the wisdom and experience and thoughtfulness that has gone to draw these conclusions, conclusions reached by responsible economists and legislators worldwide, you do not belong in government. It is especially true if all you are going to do when you get there is practice your drama chops.
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It's nice to read another intelligent article on the Huffington Post!
What many people do not appreciate is that the federal government prints money. It differs from your kitchen economy because the printing is not a matter of thrift or extravagance but of monetary policy. The federal government is not your free enterprise type small business swept by tidal forces of the market, but the root source of money in the market.
There will be a balance between money, prices, and costs; and, the best thing is stable money. Such money is an anchor that prices and wages can be calculated against. The federal government's money is most stable with budgets that balance taxes and expenditures though there are other factors involved. You should want to remember that the most of our money is created in banking credits while the speed that money moves through also creates or destroys money. (What is spent can be spent again with the effect of doubling money supply across the interval.) Keynesian deficits are meant to compensate for bank inadequacy or an economic slowdown.
One thing that does not happen is that future generations are burdened by the debt. They may be burdened by the form of the debt as we contract it in various ways, but the immediate effect of monetary policy is what matters. The rest has various compensations. Inflation, for example, reduces the value of current monies as the markets respond.
Has anybody told the GOP that Pres Obama has the nick name, No Drama Obama? The GOP melo-drama, street theater & dramatic readings will be ignored by BHO & most other Americans. The GOP should have learned the 3R's.
I just love the Title of your article.
With all due respect, Mr. Herrington, I don't believe you know what you're talking about. If every family was run the way the you propose the government run finances, they all would be in bankruptcy court or being constantly chased by creditors. I can't see running a budget where debt is harnessed by going out and spending more. What is needed, is more money in the pockets of those small businesses that create most of the jobs in this country and as a result, increase tax revenues.
Obama put more money in peoples' pockets on day one (almost.) The largest part of the stimulus (35% or 275 billion) was for the largest tax cut in the middle class history. And not a single Republican in Congress voted for it. What half the Republicans in Congress voted for was the largest tax rate increase in US history (35% to 90% on the AIG bonuses.)
That turns the Repcon world view on its head.
Cutting spending? Bush was sending welfare checks in the form of tax rebates while our troops were scavenging in Baghdad junkyards for material to uparmor their humvees. Why do I call them welfare checks? Because the money was not there to rebate. In other words, it was no longer YOUR money because it didn't exist.
How did you feel about that? Cutting taxes to, as Republicans said, go shopping, while our boys were getting killed over there?
I've said a million times, Republicans don't want to pay their fair share and worry only about themselves and not their country and their antics during the Bush administration proved that.
With all due respect it is you who doesn't know what you are talking about. Mr Herrington has it exactly right. What would your small businesses do with their tax cuts if their business wasn't growing. Do you think they are going to expand? Why would they if they are already producing more than they can sell. Until their business improves no expansion is necessary. If on the other hand you provide jobs for the unemployed through government programs those people will buy more goods and improve the bottom lines of the small businesses you speak of which can then expand using the new profits. George HW Bush had Reagonomics pegged perfectly - Voodoo Economics
It is of some relief, that 1937 is remembered for that which it was. By at least somebody fit of pen and word.
All of the same players in that Greek tragedy are assembling once again, as if on cue.
"Waiting and watching" also lacks the sense of urgency necessary to resolution. Once a recovery is faltering, it is too late. All that was built is gone before anyone can get to it. And you have to start over again.
The market's earning season is upon us and some of the truth will be told. Where the money has gone, and who it has benefited will begin to show its face. This first week belongs to the Big House Banks. They have insatiable appetites for capital, and should show well in their income statements, also. All will be high-fives and rejoicing. But leave people of reason to watch that which follows. Particularly the vast number of small-cap companies, who might not be able to show any evidence of the benevolence of the taxpayer.
And jobs?
If there is one incontrovertible economic fact of the past 9 years, it is that companies first apply the money to their income statements and balance sheets, and then to the widening of their margins. Jobs and reasonable pay have been last on their list, far behind happy shareholders.
Let's listen to that which earnings season has to say.
Mr. Harrington, thank you for setting this straight. It's so easy for "history-revision creep" to rear it's ugly head. Thought most of the lies are rebuked, some may get through. You should see how many trolls are on this site all the time parroting what the right says, that "the new deal didn't work". I just tell them that I'd prefer to rely on our top economists and the historical record. But, I'm so glad you wrote this. I will just refer them to this link from now on! :) Thanks for saving me some 'splaining. Great work!
Excellent column. I live in Jesusland and I've been trying to educate Republicans on US history for years.
In 1942 government spending was 52% of GDP and the unemployment rate was 1%. Talk about a stimulus!
From 1947-1973 worker productivity increased 103% and wages increased 103%. During this period 31% of the private work force was unionized and the American worker had the highest standard of living in the world. The government used worker prosperity in its cold war propaganda against the USSR to show how well the working man does in a capitalist system versus a communist one.
Today, only 9% of the private work force is unionized. Since 2001 worker productivity has increased 96% but wages are flat. Where did the wealth created by that increase in productivity go? Cayman Islands?
Want to see a Republican's head explode? Tell him that capitalism will never fail because socialism will always be there to bail it out. Or, in the alternative, quote Truman who said if you want to live like a Republican, vote like a Democrat.
As far as I can tell, all the major industries / companies that have been heavily unionized over the years have never done so well......Just look at the auto industry for example. Somehow, alot of what I am reading on these threads is hypocrytical and simply doesn't make sense....like tax cuts are not spending. Personally, if my taxes were suspended for awhile, I do believe that I would spend alot of the extra cash!
Major, highly profitable and totally unionized companies like GE, UPS and Boeing? Heavily unionized industries fail for the same reasons non unionized industries fail: lousy mamagement. Was Enron unionized? How about Circuit City?
When will Republicans and conservatives stop hating the working man? More importantly, why did that start in the first place? Rovian wedge politics and the politics of the 51% solution?
WE tried tax cuts under Reagan and Bush and things only got worse for working peoiple. We raised taxes on the rich under Clinton and things got better for working people, like 4% unemployment and gas at 98 cents/gal and Dow 14000.
The post WWII boom was created from the massive workforce coming home from world war 2, with all the industry already revving tank manufacturing can be changed to car manufacturing, simple. The reason 31% were unionized is because of more blue collar jobs than white collar jobs unlike today. you don't hear of the IT union do you?
Your right Socialism will always work. You can provide high wages and jobs for all if you really want. The people will work off the government’s “limitless” budget. The high wages and government jobs for all, or at least most will have a cataclysmic downside of massive debt. causing an economic collapse when the government wont be able to fund anything more.
My suggestion is to take the opposite approach let the private sector create the jobs. The libertarian approach. Low taxes and business freedom coupled with low spending, a non-republican view. That was why bush got us into this debt, spending! Low taxes and low spending, say only on defenses the slightest amount of welfare will work. When you think about playing the “I don’t care about poor people card” think again. If anyone wants to give time to work hard and strive to succeed they can in a true libertarian society. I am sorry to say that if you are homeless and don’t work hard you don’t deserve to succeed. There will always be opportunity in a truly libertarian society.
cont...
If working people don't share in the wealth then they won't have money to buy a business's products. So the business won't create jobs. Besides, businesses don't make money today by creating jobs; they make money by ELIMINATING them and sending them off shore. Capitalism is forcing socialism to remain a bigger factor in our national economy because the rich want to rig the game so they can make money with money and not by creating/building things that adds value to society and which spreads the wealth.
Forget all the libertarian BS. If you really believe in libertarian principles, then lets apply them to rich people first. Lets see the rich stand on their own without government help. Remember, we tax income from labor as high as 37%. Income from capital is taxed at only 15%. The next time banking or insurance tanks, hold those responsible accountable; don't use tax money to insure their salaries and bonuses.
End welfare for rich people as we know it.
" If anyone wants to give time to work hard and strive to succeed they can in a true libertarian society. I am sorry to say that if you are homeless and don"t work hard you don"t deserve to succeed. There will always be opportunity in a truly libertarian society."
Where is this fairyland with perfect health and 100% employment? How is homelessness and not working hard linked? Today it is very easy to work hard and still be homeless, or is it that if you are homeless you are not worthy? I live in the real world where things happen whether you deserve them or not. I want a civilization where we help those who need it so they may survive.
Proof that low taxes work are in history of the Reagan, booming economic times because of low taxes, but yes, debt because of cold war overspending. And today in, Texas the state with the second highest gross state product and growing only behind the shrinking population of liberaland California, All because of low taxes and business freedom Texas is successful.
Eric, Jesusland, texas
What booming economic times defliberal? There were two recessions under Reagan's watch, and the unemployment rate sky rocketed in 1982 to almost 10 percent. Throughout Reagan's whole presidency, he could never get unemployment below 6 percent. So where were these booming economic times you speak of? The record doesnt show it
FACT CHECK:
Tax rates for the wealthiest in our society were lowered under the Bush administration to a rate that is below any since 1931, except for a brief period of 1988-1992:
http://www.truthandpolitics.org/top-rates.php
Please remember that during the 1950s, when the wealthiest were paying a phenomenal 90% top income tax rate, that was the exact time when we had our biggest economic growth ever. Wages for the middle class went up during the 1950s by 30%, the biggest increase ever. And yet you would have us believe that a 90% tax rate on the wealthy would cause Armageddon!
Also, that so-called "economic boom" under Ronald Reagan is equally suspicious, because Reagan added enormously to our national debt during that "boom," as did both Bushes, but especially GWB:
http://zfacts.com/p/318.html
In short, government over the last 30 years (since your beloved RR) has done nothing but shift money to the upper classes through tax cuts for the wealthy while simultaneously burdening the nation and the lower classes with debt from which we may never recover. Steven Herrington is ABSOLUTELY RIGHT.
Reagan raised taxes in 6 of the 8 years he was in office, including a doubling of the so-called payroll tax, the most regressive tax that exists.
Low taxes in Texas? I personally know people in west Texas who bought their homes in New Mexico to avoid the exorbitant property taxes that Texans pay as their reward for not having a state income tax. They would rather pay NM state income tax than Texas property taxes.
And its easy to have a high state GDP when you have the 2nd highest population and lots of McJobs. And how much of that state GDP is a function of high oil prices?
And, when you are at the top of the list in social pathologies (crime, divorce, teen pregnancy, infant mortality, etc) you have to ask yourself just what your proseperity is buying you.
Wrong Reagan had to raise taxes in 1982 , spending increased, he increased the deficit to a whopping 200B (in comparison Carters was 74 B.)
During Carter's presidency, the government spent $590 billion dollars. Ronald Reagan's government spent $990 billion dollars.
An increase of around 68 percent more than what the Carter administration spent.
I am very happy with everything in this article except that it doesn't talk about the damage Smoot-Hawley caused. That kind of tariff-based protectionism directly caused a 2/3 drop in international trade in 1931, I believe.
I also believe there will be some angry libertarians on here talking about how evil the federal reserve is soon. But maybe not. This is a boring article because it didn't talk about personality conflicts between Ben Bernanke and congress or something. If people can't talk about how much they don't trust Tim Geithner's face, maybe they won't comment at all.
Trade and tariffs are double edged swords. Hoover did attempt to help with Smoot-Hawley, but the effects are obscured as to the domestic impact. The balance of trade impact is clearer because of more precise record keeping. Our current trade imbalance could use some adjustment. Of particular concern is manufacturing of militarily strategic products, computing and automobiles, for instance.
Wouldn't it have been smarter to spend all the money immediately in the form of payroll tax reductions? A 9.5% unemployment rate seems to say "yes".
Oh yes. Bush's tax rebate did wonders. Let's repeat that when the unemployment rate is much higher and deflation is a real possibility. That money should pump into the economy in no time.
No and the reason is the high unemployment rate. A tax cut is not spending. It is a transfer of money from the government to the people. The natural thing for people to do in the current economy is to save the money, not spend it. Even the unemployed have been saving against the day their insurance payments run out.
The only way to increase the overall level of spending in this economy is to spend. The problem is that governments take a long time to spend money. That's why the New Deal for the most part bypassed the states and funded projects directly. In addition, the unemployment rate always lags economic recovery.
A tax cut is not the government giving you money. It's the government stopping taking your money. Think of it this way. If a mobster takes money from you every week to let you run your hot dog cart, and suddenly he gets arrested and stops taking your money, would you say the mobster is giving you money?
To follow your logic further, how about we start taxing everyone at a 90% rate and we let the government spend that money. Do you think that would fix the economy?
ALl the consimer would do in that scenario is pay off debt.
The payroll tax, as it is commonly referred to, is not a tax. It is an employee-employer paid premium for OASDI (old age, survivors and disability INSURANCE,) which is the correct term for what is commonly referred to as social security. Capitalists like the term social security because it can be morphed into "socialism."
I've noticed that republicans (Hannity espec.) have cited the recovery from the great depression as due to the war and only the war. I always thought republicans were knowledgeable about war (from all the Tom Clancy books they read,) but apparently they don't understand that all of the tanks, bombs, bullets...etc. cost money and the government had to spend. I thought letting them talk themselves out would work and they would eventually arrive at logical conclusions about cause and effect, but it doesn't. I guess this very simple to understand concept is not simplistic enough for the average conservative to understand/accept.
How did breaking windows in Europe increase the nation's wealth? We recovered as we had the world's manufacturing base after razing Germany's and Japan's to the ground, and we were the only country left standing.
What if all that manufacturing capacity had been dedicated to producing civilians items? I am not suggesting that it was not necessary to win the war, but using war expenditures as an example of economic success is ludicrous. In addition, would 400,000 lives be worth a stimulus?
War expenditures aren't the measure of success- it was the number of jobs created, wage hikes, and record consumption that America experience as the GIs were returning home. Keynesian economics is usually summed up as government becoming the 'employer of last resort'. Without the government spending that resulted in thousands of new jobs (in a factory making tank parts for example.) If there are fewer people working and earning wages, there is less money in the entire economy, less successful business, more jobs lost, and on and on...
The market should theoretically reach an equilibrium on its own eventually but the cost in human suffering in the meantime makes this intolerable.
It was the government-mandated boost of employment that gave enough people enough jobs that they had disposible income again and could consume. This increase led to virtuous cycle of middle-class spending that supported more industries which created more jobs.
And to answer your question I would rather the stimulus' money being directed towards more positive, proactive domestic efforts than bombing people. Duh
Keynesian economic theory was utterly disproved by the Depression. We lingered in a slump for over a decade, which we only climbed out of after the relaxation of FDR's policies following WWII. The stagflation in the 1970's nailed the final nail in the lid of this fatally flawed theory.
Heard of the Depression of 1920-1921? Of course not, because the government and Federal Reserve stayed out of it and the economy recovered by itself.
LOL! Alternate universe theory. You sure it wasn't aliens?
There is no such thing as a one year depression because it's defined in part as a long lasting recession.
What's the explanation of the 1843 depression? The financial panic of 1907?
Unemployment went from 25% to 14% under the new deal alone. Government spending on WWII left unemp at 1% . So much for utterly disproving Keynesian economics
Stephen -- This was the best column I've read in a long time. Excellent!
HA! I'm gonna use "Republican Stupid" in my normal speech from now on. I don't think the repubs will get it, so it'll just be an inside joke for us HuffPo denizens.
BTW, "trickle-down" economics just means you're getting pissed on.
Who told you that screeds are normal speech, ObliqueReference? Somebody has been lying to you.
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