Let's be perfectly clear: After the walloping the Republican Party took in the last election, men like House Minority Leader John Boehner and his Senate counterpart Mitch McConnell have nothing to gain and everything to lose if Team Obama is successful in righting the ship of state that they and the Bush Administration ran aground. As Larry Sabato, Director of the University of Virginia Center of Politics notes, “Their job is to sit and wait to see if Barack Obama and the Democrats in Congress fail. Not a very good option, but that’s what it amounts to.” If Mr. Obama's "New New Deal" economic stimulus plan cushions the effects of the current deep recession, the very economic ideology on which Mr. Boehner and Mr. McConnell have staked their political lives will have had the final nail driven into its coffin.
And if you think that's exaggeration, consider the newest conservative talking point making the rounds (and if you are a student of either history or economics, hold onto your jaws to keep them off the floor): Franklin Roosevelt's New Deal policies actually extended the Great Depression. It's popped up everywhere from small blogs, to new books masquerading as reputable history, and the most crackpot advocates of this theory are even going one better, claiming that FDR's policies that the New Deal didn't have any positive effect, or even that they caused the Depression - never mind that it began in 1929 before he had even assumed the presidency.
To be frank, this is utter nonsense, as detailed in a short, but excellent article by David Sirota at Salon:
But if there is one thing that eight years of George W. Bush should have taught us, it's that rightwing talking points don't get generated by the grassroots; they are messaged, with discipline, from the top down, especially when they are as fact-free as this one, and that matters intensely in the battle for public perception. Stung already by a slapdash financial sector bailout from the Bush Administration that has been administered without meaningful oversight or accountability, taxpayers are justifiably gun shy when it comes to shelling out hundreds of billions more of their dollars.
On deeper examination, I discovered that the right bases its New Deal revisionism on the short-lived recession in a year straddling 1937 and 1938. But that was four years into Roosevelt's term - four years marked by spectacular economic growth. Additionally, the fleeting decline happened not because of the New Deal's spending programs, but because Roosevelt momentarily listened to conservatives and backed off them. As Nobel-winning economist Paul Krugman notes, in 1937-38, FDR "was persuaded to balance the budget" and "cut spending and the economy went back down again."
To be sure, you can credibly argue that the New Deal had its share of problems. But overall, the numbers prove it helped - rather than hurt -- the macroeconomy. "Excepting 1937-1938, unemployment fell each year of Roosevelt's first two terms [while] the U.S. economy grew at average annual growth rates of 9 percent to 10 percent," writes University of California historian Eric Rauchway.
What about the New Deal's most "massive government intervention" - its financial regulations? Did they prolong the Great Depression in ways the official data didn't detect?
According to Federal Reserve Chairman Ben Bernanke, "Only with the New Deal's rehabilitation of the financial system in 1933-35 did the economy begin its slow emergence from the Great Depression." In fact, even famed conservative economist Milton Friedman admitted that the New Deal's Federal Deposit Insurance Corporation (FDIC). was "the structural change most conducive to monetary stability since ... the Civil War."
OK - if the verifiable evidence proves the New Deal did not prolong the Depression, what about historians - do they "pretty much agree" on the opposite?
President-elect Obama has already declared that oversight will be a key element of his plan, vowing to ban all legislative earmarks in order to maximize its effectiveness. This is as it should be, but in recent days, he has also begun talking about sourcing as much as $300 billion of his proposed $775 billion stimulus package from tax cuts rather than new government expenditure. From a budget perspective, tax cuts are no different from deficit spending, but they are widely divergent in their effects. As Paul Krugman puts it:
Let’s lay out the basics here. Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.There are good reasons - namely speed-of-implementation - for including tax cuts along with public spending, but the proportion being reported - approximately 40% - is both out of whack and alarming in its implications for any success from the stimulus package. In a separate article, Mr. Krugman has a detailed explanation for those with an economic bent, but it boils down to the fact that depending this much on tax cuts in lieu of spending will almost certainly doom the stimulus to - at best - mediocre results:
Bluntly, this is no time to be anything less than bold, and it is no time to cater to the likes of hypocrites like Mitch McConnell or John Boehner. Let's hope that the incoming Obama Administration team sees past its own rhetoric of bipartisanship to do what needs to be done.
And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.
I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”