Faith & Social Justice: In the spirit of Richard Overton and the 17th C. Levellers

Republicans’ Flunking Econ 101

So, it seems the “Compromise” Senate Bill on Economic Stimulus will be much smaller and 42% tax cuts! If it passes, we need to lobby D.C. hard for the House version to be adopted in the reconciliation bill. Fortunately, the reconciliation bill would need only 51 votes to pass in the Senate and not 60 so the GOP could not stop it.

But they are flunking basic economics in the midst of our slide from Recession to Depression.  They want to cut spending out of a stimulus bill. As President Obama himself said, what do they think a stimulus bill is? Look, sometimes an economy can be sluggish because of excess taxation.  This is NOT one of those times. We are in a downward spiral from not enough buying.  People aren’t buying because they are losing their jobs (or are afraid they will), which causes overproduction, and a spiral of more job losses.  The banking crisis is leading to a loss of all liquidity, too.  The only way to break the cycle is for the government to be the spender of last resort. The more it spends, the better, but some things are better than others.

  1. Unemployment insurance:  Every dollar spent here results in $1.82 in economic activity.
  2. Food stamps: Every $1 yields $1.75.
  3. Government spending on infrastructure (bridges, roads, schools, etc.): $1 yields $1.59 immediate jobs, plus longterm help for later economic activity in the form of infrastructure.
  4. U. S. Governmental aid to state governments:  keeps states from laying off employees, cutting social services, etc.

All that is major economic stimulus.  And economists think there should be close to a trillion dollars of it to get us out of this recession. (Source Moody Economics.com )

By contrast, tax cuts in this atmosphere cause people to SAVE money.  In some contexts, one wants to encourage savings, but not in the current environment.  So, $1 in tax cuts leads, AT MOST to $1.02 of economic activity.  Some economists actually think tax cuts, lead to about $.75 of every $1.  That’s why Bush’s tax rebates last summer and fall did nothing to stop the economic free fall. (Now, tax incentives to buy American cars or houses, might have some help.)

So, the GOP has it backwards.  And if they send this tax-cut heavy, infrastructure-light, spending-lite bill to Obama, it will be like putting a bandaid on a wound that needs a tourniquet.

I can’t decide whether the GOP is simply idiotic on this point and truly believes its tax cut mantra or whether it knows they won’t work and is deliberately trying to get the recovery to fail so that Obama is blamed.  I hope the latter is false.  There are a huge number of jobs being lost, families being destroyed. If the GOP leadership would sanction that simply to score political points, then they border on treason.

This is more class warfare on the poor.  It”s time for the poor to fight back (nonviolently). Start by flooding your senate offices and demand they vote for passage of the largest stimulus possible with fewer tax cuts and more infrastructure spending.  We may have to march on D.C. with signs saying, “Give us jobs!”

This is just the beginning. Fixing this mess to create a sustainable and just economy will be a long fight.  The super-rich have had it so good for so long, they think they are entitled to be supported in that luxury while the rest of the nation goes to hell in a handbasket. Time for them to wake up.  Listen up you modern Marie Antoinettes:  The peasants are restless.

February 7, 2009 - Posted by | economic justice


  1. I’ve come to believe that the focus on tax cuts is more self serving than anything else. It doesn’t really matter if other people see a benefit but if I have more money in my account immediately than that is all that matters.

    Comment by Martin | February 7, 2009

  2. No wonder that economics is known as the
    “dismal science” ! These figures are like a labyrinth devised by evil economists. And class warfare was that Marx or Engels in “Das Kapital” ? Why we fiddle Rome burns !

    Comment by Paul | February 7, 2009

  3. The figures are based on scientific studies, Paul. The reason why food stamps do so well as stimulus, for instance, is that they go to poor people who MUST use them to buy things. Further, since they can’t be placed in a savings account or invested, they stay in circulation, which creates the multiplier effect of money circulating repeatedly in the same market. The same is true of unemployment insurance. Infrastructure does somewhat less because of overhead–and takes a little more time to get the dollars into circulation, but the projects leave you with a bridge or road, etc. when you are done that continues to facilitate commercer, thus benefitting the economy. And infrastructure is only done by government: private business doesn’t pave roads or build bridges. But private jobs are created when government builds them.

    Yes, it was Marx and Engels that talked about class warfare, but it is an apt description for what the Wall St. types and their lackeys in D.C. are doing to the rest of us. Ironically, it is the GOP that keeps using the phrase “class warfare” every time the poor point out the huge income gaps.

    Even a good stimulus package won’t cure all our economic ills–just stop the bleeding and stabilize the patient. Full healing will take many other steps. The fight will be hard because the wealthy don’t care if everyone else gets screwed or not–nor do their GOP servants.

    Comment by Michael Westmoreland-White | February 7, 2009

  4. Michael, I feel that “scientific studies” are part of the problem. We have come to depend on “experts” to such a degree that it’s as if we (the American people) cannot do anything with being told what to do. I favor a stimulus package that stimulates rather than a pork package that bloats. As for the wealthy I cannot speak for them ; however, I do not think that all of them “don’t care”. A lot of them probably don’t care would be closer to the truth. 🙂

    Comment by Paul | February 8, 2009

  5. See, Paul, this is flunking Econ 101, again. Even “pork” would stimulate more than stupid tax cuts. The time to worry about pork was before we got into this mess–while Bush was blowing the surplus and turning it into deficits as far as the eye could see. But most of the “pork” was amounted to 1% of the bill. What is being taken out is billions in aid to state governments at a time when most states are nearly bankrupt (California, 12 largest economy in the world, is paying in IOUs!!!). So, the states are going to be laying off workers (teachers, firefighters, police, etc.), cutting services, etc. ADDING to the recession! What’s being cut out is billions in building new schools or repairing older ones–something that creates jobs and helps our kids at the same time. What is being removed is billions in education aid–even though education is the surest route out of poverty.

    This is just sheer stupidity. All for idiotic tax cuts–a recipe we’ve tried for 40 years and has led directly to this mess. The definition of insanity is trying the same thing over and over and expecting a different result.

    I want to puke.

    Comment by Michael Westmoreland-White | February 8, 2009

  6. Michael, I agree that the same old methods to revive (or in this case resuscitate)the economy do not seem to be working and the entrenched politicians don’t seem to have any new ideas much less feasible ones. The people suffer as a result of such incompetence.

    Comment by Paul | February 9, 2009

  7. I’ve got a question and a comment (crap, I sound like I’m calling in to a radio show.

    What the hell are the Dems doing? Are they not confident that their plan will work? They have the ability to push this through without making stupid bullshit concessions for the obstructionist (or, insurgent using the Taliban model) GOP. They will go on TV and the radio and talk a lot of crap, but if it works you’re still the hero of the day, and that’s what we need.

    My job caters to the ultra wealthy (the type who spend $350,000 per annum on golf club memberships). Our local economy is struggling right now because big money is made in real estate. The heads of (now failed) banks and mortgage companies are our clients, and anyone who is ultra-wealthy has had money in real estate. The whole area is a service economy. Tax cuts won’t help us. It’s too late for that. They’ll sit on the money, not spend it. $20 more per pay check won’t help me either.

    Comment by Steven Kippel | February 16, 2009

  8. When the Dems retook Congress in ’06, they restored the “Pay as you Go” which takes a supermajority to raise the deficit. Thus, the Dems had to compromise to get anything to pass the stimulus.

    Comment by Michael Westmoreland-White | February 16, 2009

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