February 19, 2011

Misunderstanding Both Economics and the Electorate

In a recent piece, Joe Bodell astutely points out that the source of our current economic woes is less a problem  of spending than one of revenue:
... The federal budget deficit is between a quarter and a third of the federal budget (over a trillion dollars against a budget of over three trillion). That means you could eliminate every single program other than the three identified above [Defense, Social Security, Medicare/Medicaid] and still not close the federal budget hole.

Simply put, we have a revenue problem, not a spending problem.
A deficit simply means revenue falling short of spending. If a certain spending level is necessary thanks to priorities shared by everyone in a political system (anyone remember the Tea Party screaming that Medicare had to be protected from evul Obamacare?) then the other choice is to increase revenue.

Perhaps by allowing the Bush-era tax cuts (which didn't create a single net job over their lifespan) expire, and going back to 1990s era tax levels. In a rough economy we should definitely extend them temporarily for low- and middle-income earners, or perhaps phase out for those earners over time. But the rich could afford it before, and they can afford it now... Perhaps by continuing the drawdown in Iraq, finding a practical way out of the disaster in Afghanistan...
However, instead of focusing on programs that promote consumption - the spending of money, which is the mechanism by which demand manifests itself - and thus drive the economy, Washington is locked onto the wrong-headed notion that cutting spending will somehow encourage growth.  The always-excellent Dan Froomkin explains:
The laws of supply and demand haven't changed. Nothing has happened to suddenly put Keynesian economic theory in doubt. There is still an entirely plausible argument to be made that government spending cuts are absolutely the last thing this economy needs. So why has the conventional wisdom done a 180?

The answer is that politics has trumped economics.
"It's as if people suddenly forget the world is heliocentric," [
Popular Science deputy editor Luke] Mitchell wrote (referring to the fact that the earth revolves around the sun). "An entire concept, one taught in every introductory economics course, has simply disappeared from our discourse."

"The basic Keynesian position is actually one that is held pretty widely in the economics profession," said Dean Baker, co-director of the Center for Economic and Policy Research. "Spending boosts the economy; that's not what we were arguing over, and it's not as if there's been any evidence going the other way."
"The uncontested premise at the moment is that the federal government's spending is 'unsustainable,'" said University of Texas professor James Galbraith, one of a handful of progressives still willing to shout Keynesian economics from the rooftops.

"A wave of programmed conformity has swept over the Washington community on this question," he told
The Huffington Post. "The substance of this issue has been placed on an index of forbidden thought. And anybody who expresses those thoughts is excommunicated.

"It's exactly the same phenomenon that led to the acceptance of the war in Iraq," Galbraith said. "Those who hold a different view are by definition ruled out of the discourse, and the fact that they are right will only be accepted later, when it no longer matters."
The cuts championed by Republicans in the House of Representatives are aimed squarely at pretty much anything but the "big three" programs Mr. Bodell points out.  In fact, not only are the anti-spending hawks locked firmly onto the wrong targets while refusing to acknowledge time-tested economic principles and the lessons of history, they are pointedly ignoring the economic stagnation currently taking place in Britain as a result of that country's own misguided austerity policies.  And if that weren't enough, the resurgent GOP appears more focused on social wedge issues than creating jobs.

Despite the prevailing narrative from the Tea-Party-besotted media, Americans consistently state that their number one concern is employment and the economy, not the deficit.  (In a recent CBS News Poll, for example, 48% of respondents stated that their number one priority is the economy and jobs; just seven percent listed the federal deficit as their primary concern.)  So what have congressional Republicans focused on?  Repealing President Obama's health care initiative; trying to kill President Obama's health care program by choking off its funding (a course of action most Americans have stated they do not want); declaring that if planned GOP cuts to government spending cost one million American jobs "so be it"; attempting to redefine rape to make it more difficult for women to get necessary abortions, and most recently, eliminating all funding for Title X, which gives grants to organizations providing community reproductive health care.

Title X grantees are among the most experienced providers of comprehensive reproductive health care where they operate. Title X-funded clinics provide family planning counseling; contraceptives; education; and HIV, cancer, and other preventive health screenings to both women and men who are otherwise unable to afford those basic services. Not only is Title X the only federal program devoted solely to providing family planning services nationwide, but it is the sole entry point for many low-income individuals into the health care system.  Planned Parenthood, perhaps the most well-known of all the Title X funding recipients, has been used by fully 20% of all women in America, at least one time in their lives.

Given the wide-reach of needed services provided by organizations like Planned Parenthood, as well as the effectiveness and long-term fiscal benefits of preventitive care, why was Speaker of the House John Boehner pushing for $450 in federal funding to build an un-needed military jet engine in his own district, while leading the GOP's efforts to shut down Title X, a program whose closure would eliminate just $327 million?  It's very simple, really, and it has nothing to do with saving money.  Despite the fact that existing law already prevents federal funds from being used for abortions, as Republican Representative John Culberson of Texas explains:
All Planned Parenthood has to do is say they're going to stop performing abortions. And yet they won't do it.
That's not the voice of limited government; that's just more of The Same Old Pandering, Hypocrisy and Legislated Morality that has been the trademark of the modern GOP for the last couple of decades, and it's the surest sign yet that Republicans have seriously misunderstood the reasons for their victory at the polls in 2010.

Congresswoman Jackie Speier took to the floor of the House during the debat over funding for Title X, and used a very personal story to put the battle over Title X in perspective:


lokywoky said...

What the electorate instinctively understands and the politicians willfully ignore is that the budget deficit can and would be cured by the spending on infrastructure (investment) that Obama proposed. Job creation means people are employed - thus they begin paying taxes - income to the government increases. At the same time - they go off the welfare rolls and stop using food stamps and unemployment compensation and other forms of assistance - government spending goes down! Presto - income up and spending down at the same time. Budget deficit is magically reduced. Who woulda' thunk it?

That is why cutting the budget at this point in time is exactly the wrong thing to do. And in one sense it isn't even about the tax cuts for the rich (although they should all be abolished!)

We should just start building stuff! Roads, bridges, high speed rail, broadband/cable everywhere, upgraded electrical grid, new schools, there is so much stuff we need to be competitive and that we are so far behind on.

The debt to GDP percent is somewhere around 80%. Right after WWII it was at 117%. Harry Truman put people to work on public works projects and reduced that to under 75% in 5 years. We are not at a dangerous point of over 100%. But we need to get our workforce working again - and for all the hue and cry about the deficit - getting people back to work is the best and most efficient way to do it.

PBI said...

I agree. I feel like we're watching the decline of empire the Brits saw a couple of decades ago. Thanks, W!