The saddest part of the speeches by President Obama and Speaker John Boehner tonight, is that neither plan addresses the most fundamental crisis our economy is in -- one of a vicious downward cycle of demand reduction. Just as the Smoot-Hawley Tariff Act of 1930, passed with the intention of protecting American farmers, is now blamed for making the Great Depression much worse, major cuts to Government spending at all levels is exactly the wrong thing for us to be doing now, and is likely to push the economy into a double dipper recession, if not the "Lessor Depression," that Paul Krugman has been warning us about.
Robert Reich is making the same point right now on the Ed Show. Our biggest problems, are lack of jobs, low wages, and lack of demand. "If we start cutting the deficit now, we are going to make things worse," says Reich on The Ed Show. "We need to create jobs now."
Once again, Robert Reich identifies this key insight and flaw in both the debt-ceiling proposals we heard tonight, which you can read in Vicious Cycles: Why Washington is About to Make the Jobs Crisis Worse. Reich suggests we live in two parallel universes. Although, it is certain to be ignored, just for the historical record we should put in a footnote that some were fully aware of what's going on, and passionately warned us, in person, and in writing.
Reich notes in the real world that the American people live in,
almost 15 million people are unemployed, wages are declining (adjusted for inflation), and home values are still falling. The unsurprising result is consumers aren’t buying — which is causing employers to slow down their hiring and in many cases lay off more of their workers. In this universe, we’re locked in a vicious economic cycle that’s getting worse.
The other universe is the one in which Washington politicians live. They are now engaged in a bitter partisan battle over how, and by how much, to reduce the federal budget deficit in order to buy enough votes to lift the debt ceiling. ...
Short of some miracle, I can't see how see how we can refocus the budget balancing debate in this direction. Which could very likely mean our economy is about to experience another great fall.
Robert Reich spells it out with such clarity that even politicians should be able to get it.
If consumers can’t and won’t buy, and employers won’t hire without customers, the spender of last resort must be government. We’ve understood this since government spending on World War II catapulted America out of the Great Depression — reversing the most vicious of vicious cycles. We’ve understood it in every economic downturn since then.
The only way out of the vicious economic cycle is for government to adopt an expansionary fiscal policy — spending more in the short term in order to make up for the shortfall in consumer demand. This would create jobs, which will put money in peoples’ pockets, which they’d then spend, thereby persuading employers to do more hiring. The consequential job growth will also help reduce the long-term ratio of debt to GDP. It’s a win-win.
How sad to see us in the process of struggling to advocate for a plan which leading economists tell us might damage the economy slightly less than the other plan, or be slightly less unjust.
Reich outlines his proposal of a major new job stimulus, such as those enacted in the Great Depression, infrastructure investment, tax incentives for employers to hire, extensions of unemployment benefits, and a host of other Keynesian stimulus programs.
But, even Reich acknowledges this is exactly the opposite direction both parties' deficit reduction plans are moving.
The Boehner Cap, Cut, and Balance will lead to huge job losses, and further negative economic depression. While the Democrats are playing “I can cut the deficit more than you” — trying to hold their Democratic base by calling for $1 of tax increases (mostly on the wealthy) for every $3 of spending cuts."
Neither of these approaches will address the fundamental problem our economy is facing, now, and will, in all likelihood, make things much worse - "creating a vicious political cycle," driving us further down.
And, worse, as we Democrats fail to articulate our own more competent economic and political theories we are adding legitimacy to the crackpot theories of the Republicans. Enthusiastically, talking about making "constructive cuts to balance the budget" at this stage, undermines our own long-term credibility. As Reich says:
As more and more Americans lose faith that their government can do anything to bring back jobs and wages, they are becoming more susceptible to the Republican’s oft-repeated lie that the problem is government — that if we shrink government, jobs will return, wages will rise, and it will be morning in America again. And as Democrats, from the President on down, refuse to talk about jobs and wages, but instead play the deficit-reduction game, they give even more legitimacy to this lie and more momentum to this vicious political cycle.
I recommend you read Robert Reich's well written and compelling essay. But, I must warn you, it will leave you with a sad and lonely feeling. Perhaps, reminding you of how Humpty Dumpty must have felt just before his great fall.
But, at least, you will have the feeling you have just read a cogent, and intelligent article consistent with what your intuition and knowledge of the data suggests is much more on target than most of the rest of what we are hearing great bluster about.
We probably have no choice, at this point, but to do our best to support President Obama's efforts to get the best deal that he can through the Congress now, and then work for improvements later. But, I'm going to be doing this with a sad feeling, that a better path remains undiscussed and unexplored.