No Experts Needed

There are a lot of issues that require some level of expertise when you delve into the details. This is especially true with finance and economic related policies. However, it requires no specialized knowledge to see when theories defy logic itself. The recent debate over the so called 'Bush Tax Cuts' are a perfect example. They were originally enacted to help restart a sluggish economy, but really did very little in this regard. On top of that, they were unpaid for and therefore were mainlined directly into the deficit and ultimately the national debt. To add insult to stupidity, these cuts disproportionately helped those earning over a million dollars a year. Hardly the segment hurt most by economic troubles. This is what is known to Conservatives as the theory of Trickle Down Economics, made famous under the Reagan administration. To everyone else, it's simply known as Help the Wealthy and hope they feel generous towards the little people.

If there is one economic idea that should be run through the shredder it's Trickle Down Economics. Let's set aside the example of its abject failure in the mid-late '80s and instead just think for a moment. A capitalist based economy is powered by the engine of consumerism. People buy houses, cars, TVs, computers, beer, clothes, etc. That demand means companies who supply these items need to make more of them and create improved versions. To do this they hire workers to design and produce the items. Those workers get paid for this work and use that money to buy houses, cars, TVs and so on. With me so far? So the corporations make money by selling items to people who have money to spend. The more money consumers have to spend, the more they can buy and the more luxuries they will desire. Corporations make more money by providing these items. As demand rises, they find it profitable to add more factories, hire more workers and produce more. The new workers spend their paychecks on more items, from necessities to luxuries. From food to diamonds. The capitalist version of the circle of life. Simplified, but you get the idea.

Now for the Trickle Down Economics in this scenario. This theory says that to stimulate the economy you should give tax cuts to the corporations and the wealthy so that they will use that money to expand factories and create jobs. What should be obvious by now is that this goes against even the most basic idea of capitalism. Wealthy individuals and corporations don't create factories and the resulting jobs because they have extra cash on hand this year, they do it when there is DEMAND! It doesn't matter how many tax cuts you give them, if there is no one shopping for jewelry, it's unlikely that Kay Jewelers is going to be opening any new stores anytime soon. You can 'trickle' all you want and all you'll accomplish is to make the corporations richer. This is not particle physics, it's logic on par with 1+1=2.

So here we are, two years into a colossal recession. Unemployment is pushing 10% and the credit markets might as well not exist for all the lending that's going on. Bankruptcies and foreclosures are at eye watering levels. The deficit, and therefore the national debt, is skyrocketing as the Federal government keeps pumping money into the economy like a winter driver trying desperately to keep the engine running on a December morning. So what is the plan being pushed by Conservatives? Trickle Down Economics in the form of the Bush administration's disproportionate tax cuts for the wealthiest 2%! They spew forth all sorts of political babble to confuse us into thinking that keeping tax cuts in place for this tiny section of America is vital to reviving the economy.

Nobody seems capable of explaining how this would work in the real world. Don't forget that these tax cuts are already in force and have been for the better part of a decade. All we are debating is if they should expire or be renewed. But to hear Republicans tell it, maintaining these cuts for the top earners will magically boost the economy. Remember that if the rates were to return to what they were before the cuts were enacted in 2001, they would be at the level they were during the economic boom of the 1990s. Hardly a dire situation. In fact, I'd say that generic tax cuts usually have minimal stimulative effect at the best of times. For most of the country the cuts usually only add up to a few dollars a paycheck which is barely noticeable. Certainly not likely to keep a family out of foreclosure or encourage them to spend on luxuries.

If the GOP were really worried most about the deficit and actually cared about being fiscally responsible, they would be the first in line to call for the Bush Tax Cuts to expire. The next best option is to keep them in place for income less than a quarter million dollars and let the rest lapse. This would erase about $800 Billion in projected costs over the next decade. But what are they actually calling for, nay, demanding? Keep 'em all, especially the cuts for the top 2%. They are so desperate to keep the wealthy well looked after that they have gone for a scorched earth policy in the Senate, refusing to consider any legislation until the tax issue is resolved. And by resolved I mean, all GOP demands met. What is so amazing about this is that they can still say the words 'fiscal conservative' without collapsing in laughter. It certainly is a joke, albeit a very bad one.

As I write this, and wallow in disgust, Congress has just passed a deal struck between the White House and senior GOP leaders that would renew the entire Bush Tax package for two more years. What did Obama get for giving in on a stand he and the Democratic leadership have been harping on since before the elections? A stand supported by a majority of Americans, according to more than one poll. Well, he got an agreement for a one year extension of Unemployment benefits and, uh... nope, that's about it. There are some assorted other tax related cuts and such, but most of them were things the GOP liked anyway, so from my standpoint a very lopsided deal. Actually not just from my standpoint. A good number of Democrats are pretty put out by this agreement, as are a few Republicans who seem irritated that Obama didn't just surrender the Presidency outright. Worse, at least for the future of the Obama Presidency, is that it gave the GOP a huge, undeserved victory and inspired the Democratic base to a collective "WTF?!" Most importantly though, it shows that if Republicans pick the right hostage, in this case the long term unemployed, the White House is likely to capitulate. By the way, in a post deal press conference it was Obama who used the hostage metaphor to explain the deal. This is particularly odd since as far as I know, if the hostage takers demand a jet as a trade for the hostages, we usually don't whistle up a Gulfstream 200 and wave goodbye as they depart. But perhaps I'm misinformed on these sorts of negotiations.

There is so much about this deal in particular, as well as Congressional incompetence in general, that leaves me stunned. As far as I can tell, the only real stimulative part of the proposal is the extension of unemployment benefits. This will put cash in the hands of those who not only want to spend it, but absolutely must. Think unemployment benefits are just a waste of money? First, let's remember that these benefits are only for those who have been laid off through no fault of their own. So we aren't dealing with lazy people who quit their jobs. These are the casualties of recession level downsizing. Second, the money these people get through unemployment is often the only thing keeping them housed and fed. Stopping unemployment benefits isn't just non-stimulative, it actually contributes to the recession. Soon after losing this life-line, individuals and families will start defaulting on mortgage and car loans. Going delinquent on rent. Some who have held on as long as possible will finally give in to Bankruptcy. Do any of these things sound good for the economy?

I had a tiny sliver of hope that this deal would be modified enough to be at least vaguely palatable. But that was way too optimistic of me as, despite angry words on both sides of the aisle, it passed both houses of Congress this week. The 111th Congress, from GOP obstruction and the ongoing 'War on Logic' to Democratic incompetence and spinelessness, is a poster child for all that's wrong with our government. And I didn't even mention the Supreme Court's ruling to give corporations many of the rights of individual citizens! I suppose Corporate suffrage can't be far off. We are in tough times, but we are not going to get out of them by shoring up the coffers of the wealthy or of big corporations. Huge corporate profits have not managed to resuscitate the economy thus far. Why? Because it doesn't matter how nice the detailing or how clean the engine is, if there's no fuel in the tank then the car ain't moving. The economic fuel is consumer spending. Everything boils down to this. Without it, we aren't going anywhere. Outside of the unemployment extension, I don't see anything in this deal that will improve matters, though it will spike the national debt to greater heights. Once again political victory brings little help to those most harmed by the recession while continuing to reward the mindset that got us into it.

Fiscal Reality

The conventional wisdom is that one of the most important planks in the Republican platform is 'Fiscal Conservatism'. In other words, the idea is keeping the government's purse strings pulled tight whenever possible and limit spending for non essential items.  Sounds like a good idea, doesn't it? I would have to say that I like the sentiment. I'm sure I wouldn't agree with everyone else on what's essential, but that's its own issue. The point is that Republicans and Conservatives in general are always harping on about fiscal restraint. Conversely, we are also told that Democrats like to spend and spend freely. Ask just about anyone and they'll tell you that Democrats are the spenders and Republicans are the party of fiscal restraint. What makes it so inconvenient is that it's not true.

First let's look at history. The previous five Presidential Administrations all increased the national debt, which probably surprises no one. But you might be surprised by how much each Administration contributed to our current debt. The Republicans' mythological hero, Ronald Reagan ballooned the national debt by 189% in his eight years in office, making him by far the biggest spender. Next on the list is another Republican, George W. Bush who increased the debt by 89% in his eight years. You're probably thinking that Clinton must be next, as the only other eight year Administration, right? Well, as a matter of fact, you would be wrong. George H. W. Bush takes the number three spot with a 55% increase in his four years in the White House. Number four is Jimmy Carter having added 42% in four years. That's right, William Jefferson Clinton, after eight years only added 36% to the national debt. He even managed to run a budget surplus towards the end of his second term. So here we have five Presidential Administrations and all three Republicans outspent the two Democratic Administrations. On top of that, the Clinton White House presided over the most fiscally responsible spending despite being reviled by Republicans. I realize that this simplifies the financial details of these administrations, yet it's hard not to see a fundamental hypocrisy from the 'Fiscal Conservatives' on the right.

Today the deficit is a major issue to the country, but has become the very raison d'être for the Conservative movement. In fact, since March of this year it has been a grueling fight to get unemployment extensions passed in the Senate as Republicans thump their chests and demand that they be paid for in the budget before they can be passed. On the surface this sounds somewhat reasonable. But as far as I can tell, emergency measures like these have historically never been paid for up front. That's probably because they are needed due to an . . . emergency. Another thing to realize, despite several prominent Republicans' moralistic babbling, is that unemployment benefits in a deep recession like we have now are just about the most direct form of economic stimulus possible. You are putting desperately needed money into the hands of people who will spend just about all of it back into the economy immediately. This prevents even more foreclosures, car repossessions and loan defaults by people on the edge. You keep people in their apartments rather than pushing them onto the streets to become an even bigger issue for the nation. But the steady thrum of Republicans chanting 'deficit, deficit, deficit' drowns out these obvious facts. What is really infuriating is that during lulls in the unemployment extension arguments, the same Conservatives who decried unpaid for benefits are calling for extending Bush era tax cuts for those who are least affected by the recession. Incidentally, both rounds of tax cuts pushed through by the Bush Administration and Republicans in Congress were, wait for it . . . UN-paid for. I wish I was surprised by the hypocrisy but for good or ill I'm getting a little numb to it after the last decade. The logic, if you'll allow me to demean the term for a moment, given is that tax cuts will pay for themselves. I'm serious, that's the idea. Worse yet, some people with functioning brains actually believe it. Oh, I'm not saying that in the long term the cuts may not have some positive effects that could make back a percentage of the original cuts. But tax cuts that pay for themselves are about as viable as the mythic perpetual motion machine. It might make sense four hours into a Friday night bar crawl, but in the sober light of day it's complete drivel.

The reality is that, based on past performance, Republicans seem incapable of walking the walk once they get power. They will talk up fiscal responsibility all day long and deep into the night, but their actions continually underscore a complete lack of interest in the subject. It's a hollow, empty charade for most of them. They are on full volume now because the debt is an issue after the 8 years of wars and tax cuts under Bush and the necessity of heavy spending to try and stabilize the economy immediately after Obama took office. I won't deny that the debt is a major issue. In fact I posted a piece about the need to deal with the national debt back around the end of Bush's first term. The complicating factor is that now, in the midst of a dodgy recovery from the biggest financial disaster in 80 years, is not the time to start slashing and cutting spending. Why? Because the economy is teetering on the edge and right now the Federal government is the only entity ready and willing to pump money into the economy.  The banks have somewhat recovered but are sitting tight on their cash until the economy revives. Kind of a Catch-22 for them. Banks won't lend until the economy stabilizes but the economy is having trouble stabilizing due to a lack of credit available. You see if we cut now then the States, who are already struggling to find money just to pay school teachers, will be thrown to the sharks, not to mention most any cuts of significance would result in adding more names to the already endless seeming unemployment lists. Here's where a healthy sense of irony comes in. The best time to make strides on the national debt is when the economy is doing well. That's when States are making ends meet and have some leeway in how they manage their budgets. That's when tax revenues are high because individuals and companies are buying and spending freely. That's when foreclosure and bankruptcy rates are low. That's when the banking system is flush with cash and eager to lend. That's also when politicians are least likely to cut programs and trim fiscal fat. It's when the American public is blissfully unconcerned about the debt because everything is going so darn well.

I have never claimed, and never will, that I'm a financial expert. But the most important item on the nation's agenda at this moment is stimulating the economy to spur new job creation. That's job numero uno. And that's not going to be accomplished by renewing tax cuts for the wealthiest Americans or by the Republicans' myopic plan of 'tax cuts fix everything'. No single thing is going to magically resurrect the economy. It will take targeted tax incentives, aggressive, focused spending, loosened credit markets and consumer confidence to get the nation back on its feet. This includes extended unemployment, in the short term, to provide some minimal support for those who are the most obvious victims of the collapse. Let me remind you that to be eligible for unemployment benefits a person had to have lost their job through no fault of their own. These people are not dead-beats as some pathetic politicians and pundits like to portray them. They were laid off because the economy tanked and business dried up, not because they quit or were fired. We can't ignore the ballooning debt, but we can't let it paralyze us from doing what's needed to restart the economy either. Unfortunately no single thing will get the national debt under control. Dealing with debt is like losing weight. It can't be done overnight and it's going to require long term changes and willpower.  Where it gets tough is when the recovery is complete, the storm clouds part and the sun returns. That's when we need that fervor to attack the problem because it's always more difficult to focus on cuts and and spending reductions when the cash is flowing. America must be ready and willing to demand action on the debt when we have the resources to do so and not fall back into spending it as fast as we get it. As a nation we are so fond of declaring wars on things, so why not a War on Debt? Not only would that be a winnable war, but one with concrete benefits for Americas future. When we've climbed out of this recession, let's focus on reducing government spending through cuts and changing the way we do things. For one thing, let's reduce our military commitments overseas. I'm not just talking about Iraq and Afghanistan, though to be sure both of these wars are costing us dearly. We don't need 50,000 troops in Germany anymore. We don't need tens of thousands in Japan or most of the other countries where we continue to maintain huge active duty forces. Most of these Cold War era military commitments are no longer needed. I'm not saying we should pull out everyone from everywhere, but there is no reason for the manpower commitments we currently maintain. America is capable of dealing with the financial crisis and then paying down the debt. What we have, up to this moment, been sorely lacking is the will to do so.