Economic stimulus–the right and the wrong of it

by Linda Beale

Economic stimulus–the right and the wrong of it
crossposted with Ataxingmatter

Clearly, for ordinary Americans, the US economy is still in a funk from the financial crisis caused by the housing boom funded by the easy credit of turnover securitization of mortgage loans, coupled with the casino banking mentality spurred by proprietary trading and naked credit default swap bets. (The wealthy, on the other hand, seem to be recuperating nicely, thank you, or at least still spending on luxury goods. See Even in Moribund Economy, Wealthy Spending More on Travel, Luxury Goods, Kiplinger, Sept. 24, 2010.)

The political parties have two very different answers to resolving this ongoing economic crisis for ordinary Americans.

  • The GOP thinks that we need more of the same “medicine” that got us into this mess to start with–deregulation, privatization, tax cuts, and militarization. On deregulation, see, e.g., The Electricity De-Regulation Con Game, (discussing the coalition of conservative groups supporting deregulation, including Heritage Foundation and Tom DeLay), Republican Candidate Seeks Return of De-Regulation , Newark Democrat Examiner, Sept. 30, 2010 (discussing NJ candidate Little’s support for Tea Party “free market” with the “absence” of government regulation). On tax cuts, see, e.g., Senate Republicans Firm on Tax Cuts for Rich, Reuters, Sept. 13, 2010; Republicans Pledge to Fight to Preserve Bush-Era Tax Cuts, Washington Post, Sept. 13, 2010 (noting that the GOP, unlike the Dems, wants to pass a new law providing a tax cut to the wealthiest Americans when the Bush cuts expire as scheduled at the end of 2010). On privatization, see, e.g., 104 Republicans in Congress Want to Privatize Social Security, ThinkProgress, Oct. 27, 2010; GOP Budget proposes to Ration Medicare, Privatize Social Security, CrooksandLiars, Feb. 5, 2010 (discussing the GOP alternative to Obama’s budget proposals); GOP’s Pledge to America would end up privatizing Social Security, The Nation, Sept. 24, 2010 . On militarization, see, e.g., Hard Line: The Republican Party and US Foreign Policy since World War II, The Nixon Center, Oct. 31, 2010 (suggesting that there is some division within the party based on its mantra of fiscal conservativism, but that most Republicans, and neo conservatives especially, support military spending even while demanding cuts elsewhere); David Broder, The War Recovery?, Washington Post, Oct. 31, 2010 (apparently suggesting war, and its huge military expenditures, as a way out of recession, in spite of the already huge costs of Bush’s two wars of choice) ; Conservatives Profess Support for Defense Budget Cuts But Still Want Weapons the Pentagon Calls Unnecessary, ThinkProgress, July 2010; Benjamin Fordham, Evolution of Republican and Democratic Positions on Cold War Military Spending (noting that the Republicans originally opposed increased military spending after WWII, but in the 1960s, the party began supporting militarization). It’s hard to believe that the American voters can be gullible enough to fall for the argument that we need “more” deregulation and tax cuts to cure the problem caused by deregulation and tax cuts, but apparently a good many may be. Party acolytes mouthe the mantra of tax cuts and spending cuts, but what few spending cuts are ever discussed are ones targeted at the so-called “entitlements”–meaning, programs that aid the down and out, the elderly, and the unemployed, like Social Security (and pensions generally, especially public pension plans for public employees), health care, and other such programs. Meanwhile, privatization includes privatizing Social Security (at least in part) and eliminating the progress (not complete) that we’ve made under the Democrats towards a more sustainable health care system (preventing insurance companies from refusing to cover someone, alowing children to stay on parents’ plans longer, making sure that insurance companies don’t refuse to pay covered items, creating a universal system so that the people who pay for their health insurance are not also forced to pay for those who gamble on having no health insurance but end up with expensive hospital stays, etc.). Presumably, if the GOP candidates win a majority, they will fight to ensure that tax cuts extend to the wealthy who have garnered an increasingly huge share of the income stream from GDP growth as they cut out the safety net from those whose wages have stagnated and declined because of their policies.
  • The Dems (the ones that aren’t too afraid to talk about what their polilcy views really are) generally are on the other side of those issues–re-regulation (to prevent the kinds of casino banking problems that occured under Bush), maintaining public safety nets (rather than leaving the vulnerable at the mercy of the “markets”), decreasing military spending (especially for unneeded weapons systems and ideally by ramping down Bush’s wars), and tax cuts for the middle class but not for the rich who’ve gotten all of the growth while the middle class declined). They are also aware that when the private economy is slack, government spending needs to pick up the slack. Ideally, that government spending will be aimed at real needs–unemployment compensation, more money in the pockets of consumers in the bottom half of the income distribution who will spend it on things that they need, and/or public infrastructure that will help our economy expand (like public transit projects, research projects, support for research universities, etc.).

Now, in that context, what to make of David Broder’s Washington Post op-ed talking about war–it took a war, he says, to get us out of the Great Depression, and he seems to be suggesting that a war with Iran wouldn’t be such a bad idea to get us out of this Great Recession.

“What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy.

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran’s ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

I am not suggesting, of course, that the president incite a war to get reelected. But the nation will rally around Obama because Iran is the greatest threat to the world in the young century. If he can confront this threat and contain Iran’s nuclear ambitions, he will have made the world safer and may be regarded as one of the most successful presidents in history.” Id. (Broder in WaPo)

This from a person who has consistently opposed government spending and other Keynesian ideas for stimulus as inappropriate. War, he appears to think, is ok, but government spending on major public infrastructure is not? Now that is crazy. I refer you to Mark Thoma’s Economist’s View for a full dress-down of Broder’s essay, David Broder Calls for War with Iran to Boost the Economy, Oct. 31, 2010.

That Broder column fits with the rest of the GOP policies, which generally suggest that spending on military might is just dandy, but spending on the public infrastructure and safety net for the vulnerable is wasteful, or that tax cuts for the super-rich are fine, but earned income tax credits for the poorest amongst us are not, or that deregulation of banks will lead us to growth while regulation to include a consumer protection agency will hamper banks’ ability to make profits. What a warped view of society. I just hope that Americans aren’t naive enough to fall for it.