On the Contrary

Yesterday I wrote a blog making fun of both our media for its failure to ask relevant questions and the illogic of the Republican’s economic plan or lack thereof.  Today I thought I would like to present these failures in a little more detail because the lunacy of their plan for America scares me especially as the press seems to be unable to challenge this lunacy about the Republican way forward and treats it as a viable alternative.  The Republican ideology and its implementation into policy falls into three categories:

1.    Do Nothing – This is the extreme end of Republican laissez-faire and basically says that the market must be allowed to flush out those who have made bad choices.  I have to admit that it is appealing, for about a millisecond before the reality of doing nothing hits home.  Although it would seem just desserts to see the banks, finance companies, and irresponsible home buyers get punished, this would not be the extent of it.  As housing prices are driven down, innocent homeowners bear the brunt of this.  If the banking industry collapses, which is highly probably according to most economists, well, welcome to the Great Depression.

This solution is fine if you are wealthy and can weather the storm and don’t give a damn for the general population, but for the millions who will be and are losing their jobs through no fault of their own, this is unconscionable.  Those who promote this solution really don’t care about these “little people” and assume they are either lazy or stupid.  If you want to understand this, it is from the strict father model family (George Lakoff) that believes that if you work hard, are disciplined, and follow the rules, you will be rewarded.  Those that don’t, get their just rewards.  This belief set allows one to ignore or deny empathy or to understand that this mythology of justice is just that, mythology.   Thankfully, there are not many, even in media, that don’t question this way forward.

2.    Just Cut Taxes – This is where the mainstream of what is left of the Republicans in Congress resides.  Their belief here is that taxes are the most effective way to stimulate the economy because they only believe that businesses create jobs that are permanent, and most important, tax cuts are not government spending which they hate because they see it as federal welfare.

There are many problems with this belief system.  First is the effectiveness issue.  If we are talking about tax cuts for businesses, they can be effective in small down turns, but they were mostly ineffective in the last downturn, and in a major contraction which we are in now, they may be totally ineffective. What is the benefit of tax cuts on shrinking profits and demand?  If we are talking about tax cuts for workers, if they are losing their jobs, just how stimulative can tax cuts on salary you don’t earn be?  If, in hard times, people receive a tax rebate, they usually save it or pay off debt which does nothing for stimulating the economy which requires spending to create demand.

Then there is the really big issue of spending for what.  We have had a policy of putting money back into people’s hands to spend on what they wanted for the last eight years of tax cuts.  We are living in a time when our infrastructure and way of life is crumbling around us because we didn’t keep some of that money and invest it in our future, improving our infrastructure, investing in alternate energy, and investing in our human capital (education, health care, childcare).  Said more eloquently by others, tax cuts don’t pay for police or fire protection, they don’t pay for schools, or energy research, build roads and train rails, and they don’t pay for health care, our military, or government programs to inspect our food, drugs, and imports.  They do empty out the treasury at an amazing rate and usually transfer that wealth to the wealthy if the last eight years are any indication.  Republicans never have an answer for what we are going to do about our slowly approaching third world status.  More toll roads anyone?  How about some private prisons that judges can earn kickbacks for sending minor offenders there?  I am not making this up, read the newspaper.

So what we have here is that tax cuts are very ineffective in a major contraction, they do nothing to help rebuild our aging infrastructure or invest in our future, and they push the deficits to astronomical levels.  They are a short term fix if they work that has no strategic value for our future.  So why do Republicans hang in there with them when they are obviously a short term and ineffective fix?  They require no thinking, no planning, and no sacrifice.  It is the Republican mindless ideology which is not being properly challenged by our media to debunk its false promises.

3.   Be Afraid of the Deficit – Then we have the argument in both of the above that we can’t let the deficit get any worse since it is this creation of a credit bubble that got us into this mess.  Well yes and no.  The credit bubble that created this mess was a private one that resulted from many factors, but most directly related back to Republican ideology about the infallibility of the market place and the evil of government interference (See Microeconomics).

Second, the federal deficit was a result of Republican led tax cuts in the last eight years when the economy was booming and we could have been investing for just such a rainy day that is now upon us.  All the large federal deficit says today is that we have much less ammunition to fight this down turn, but it had nothing to do with it.

Third, one has to ask Republicans what they think their tax cuts will do to the deficit?  Their proposed plan to cut taxes in lieu of the stimulus bill was estimated to cost $3 trillion dollars.  Gee, $800 billion stimulus bill or $3 trillion tax cut? Note for Republicans:  Trillion is bigger than Billion and the word tax cut does not change that.  I wonder which one will impact the deficit more with nothing to show for it?

Finally and basic to this whole argument about tax cuts, the underlying argument by most economists is that tax cuts cannot stimulate the economy when it is this constricted and continuing to falter.  Private spending simply will not be enough and if we want to cushion the blow, public spending is the only game in town.  The argument is bolstered by our spending and deficit creation in the 1930s and in World War II.  As bad as the deficit got, once the downturn was fully turned around, we managed to repay our debt.  Republicans have tried to reinvent this history and our media has been too dumbstruck to challenge some of these allegations or to even ask the obvious question, what if tax cuts are ineffective.

What is most amazing to me, with all these facts for anyone to find and examine, is how the media treats the Republican lunatic ideas with equal weight to stimulus spending supported by most economists and history.  Once again the media is falling into the same trap they did in the run up to the Iraq war where in their need to seem unbaised they are giving lunatic ideas equal weight with proven solutions.   Right now Republicans and their ideas are a grave danger to our nation’s recovery and after a few more failures when we all get on board to how bad the situation really is, we will finally push them aside and get on with the hard work that lies ahead of us.  It would be nice if the media would do its job and we could do it sooner rather than later.

“If the Democrats get elected their tax and spend ways will destroy our economy.”  How many times have you heard that?  It is the Republican conventional wisdom that conservative politics are more suited to helping our economy.  “Cutting taxes simulates the economy and the lower the taxes on business, the better our economy hums.”  Of course if you are at all tuned into reality and accept that they have had their way for eight years (twelve in Congress and eight in the White House) you might be questioning those assumption looking at where our economy is today.  But reality doesn’t faze most of these folks so I want to throw something at them and see if they can grasp it.

If low taxes helps business by simulating investment and growth, what does it tell you that two thirds of large business (both domestic and foreign) in the United States pay no taxes at all?  CNN reported that:

“The Government Accountability Office (GAO) examined samples of corporate tax returns filed between 1998 and 2005. In that time period, an annual average of 1.3 million U.S. companies and 39,000 foreign companies doing business in the United States paid no income taxes – despite having a combined $2.5 trillion in revenue.

The study showed that 28% of foreign companies and 25% of U.S. corporations with more than $250 million in assets or $50 million in sales paid no federal income taxes in 2005. Those companies totaled a combined $372 billion in sales for the largest foreign companies and $1.1 trillion in revenue for the biggest U.S. companies.”

So how could taxes get any lower for them?  Do we start paying them out of the treasury to do business here?  That’s called subsidies and if you look at the oil and gas business, we do it all the time.

But here is the clincher:  In an article in the New York Times Business Section entitled, “Is History Siding with Obama’s Economic Plan”, the author of the article, Alan S. Blinder, a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve, cites two economic facts “in a brilliantly delineated”  new book, “Unequal Democracy,” by Larry M. Bartels, a professor of political science at Princeton.  These facts when looking at the period from 1948 to 2007 during which Republicans occupied the White House for 34 years and Democrats for 26 show:

➢    First, average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.  Said another way, the GNP grew at almost twice the rate under Democrats as Republicans

➢    Second, over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all

Said simply, the numbers show that our economy and the welfare of our people have been better served under Democratic administrations than Republican ones.  What Republican administrations have done is continue to widen the income gap between rich and poor, but when you look at the very rich, it also accelerated their accumulation of wealth while retarding the economic growth of those not so fortunate.  One possible explanation for this is that cutting taxes for the rich accelerates their wealth accumulation, while Democrats prefer a more progressive tax distribution, and raising the minimum wage.

Whatever the cause, it would seem that if history is any guide, the economy will grow faster, with less inequality under the Democrats.  Put that in your pipe and smoke it Republicans.  Kind of destroys that whole flow down fantasy you have been gouging us with.  Maybe it is time for a real change.  What is that I hear from my Republican friends?  You say those good numbers were just a result of Democrats reaping the benefits of good Republican policies.  Then why are we where we are today?