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.