It’s Not Fear Mongering If…

It’s almost kind of funny; with the media buzz being centered around the congressional battle over the stimulus package one can almost forget that we’re still in the midst of an economic meltdown. You get so tied up in the tit-for-tat game instigated and fueled by a political party that is not coping well with being thrust out of power that you lose sight of the fact that the stimulus bill in question is actually intended to serve a purpose (acting as a first step in economic recovery in disastrous times, for instance) as opposed to just another political football being punted back and forth in DC.

But the NYT is reporting that over half a million jobs were lost in January alone, and CNN Money points out that this is the worst single job loss in America in over three decades.

So to answer President Obama’s critics who giddily accused him of fear mongering, I think it’s worth noting that it’s not really fear mongering if the threat is real.

Yesterday I pointed out that the Republican response over the past couple of weeks has been insane. I want to make sure that I’m clear on this; I’m cool with dissent, completely and totally. But good faith dissent isn’t what’s going on here. Instead, Republicans are pushing the same old ideology with a little populist flavor and they are doing it mostly to embarrass the Democratic President.

Funnier still, the ideas that they are pushing–cutting the bill and focusing more on tax cuts–are the very same ideas that are actually robbing the stimulus bill of its potency.

Take it away Nobel Prize winning economist Paul Krugman:

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.

(…)

Would the Obama economic plan, if enacted, ensure that America won’t have its own lost decade? Not necessarily: a number of economists, myself included, think the plan falls short and should be substantially bigger. But the Obama plan would certainly improve our odds. And that’s why the efforts of Republicans to make the plan smaller and less effective — to turn it into little more than another round of Bush-style tax cuts — are so destructive.

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

It’s actually worth wasting a couple minutes to take down the fundamental fault of the conservative tax cut theory in growing the economy here in terms that are a little more supply-and-demand-y. Believe it or not, I got my understanding of supply side economics from none other than Bill O’Reilly, granted, this was second hand and many years ago, so I’ll be… paraphrasing.

See, BillO’s rich. Like insanely rich, with his own television program, radio program, and a few NYT Bestsellers. The guy who coined my favorite line ever, “Fuck it! We’ll do it live!” really has it like that. Now being the humble guy he is, BillO doesn’t achieve all this success on his own. He has producers and assistants, researchers (maybe?) and even the guy who airbrushes all the weird blotches on his face from the book covers. All of these folks depend upon BillO for their livelihood.

So, if we were to increase BillO’s taxes, he’ll be fine because, hey, he’s rich. He can stop working now and probably have enough money in the coffers to keep himself in falafels for the rest of his life. But with higher taxes, all of a sudden maybe his radio program is no longer worth doing, so he decides not to do it anymore and now not only will a bunch of talk radio junkies have to find something else to listen to during the Radio Factor time slot, but also all the other people who help BillO put the Radio Factor on the air are going to have to find a job.

On the other hand, if you LOWER Billo’s taxes, he now has more money he can spend on growing his own presence, hiring maybe someone to do his nails and his toes, or something like that. I don’t know.

Now, when we’re doing okay economically, the big argument arises between giving tax cuts to the wealthy or the lower and middle classes. The supply side argument is that cutting taxes on the upper echelon of incomes allows businesses to grow, hire more workers etc. This in turn creates jobs and therefore creates wealth among the lower and middle classes through a trickle down effect. The opposing view is that tax cuts should go to the lower and middle classes because the wealthy tend to be better equipped to afford higher taxes, nor can the wealthy necessarily be depended upon to reinject that money into the economy as supply siders tend to suggest they will. On the other hand, tax cuts to the lower and middle classes directly increases the buying power of the consumer, which would therefore inject moneys into corporate America and voila, economic growth.

Again, under good times, these two different arguments can usually ram each other into a stalemate. Do you feed the supply or do you feed the demand to keep things chugging along?

But here’s the interesting thing about the situation we face today. It is the DEMAND that has dropped completely out the bottom. The thing about feeding the supply side of the equation is that it assumes a certain level of strength along the demand side in order for it to work. In order for a company to grow and create jobs, there has to be a customer base that it supplies and is able to be cultivated in order to meet the growth of that company.

The situation we are in now, though, is one in which the demand has been severely hamstrung. Consumers are scared to spend and as a result, even if we injected more moneys into corporate America using tax cuts, this does not guarantee that companies will grow and start to create jobs because a) there’s not a consumer base to support it, and b) they are at this point digging in for economically tough times so extra funds they receive from tax cuts are not going to be used necessarily for growth so much as for survival.

Shorter, there’s little to zero guarantee that giving tax cuts to companies will act as any kind of incentive for them to hire more people and get the economy back on track–what’s the good of hiring more employees if no one is going to buy what they are making?

That is the point of the government spending. The economic landscape right now is not supportive of employing people as the figures at the top of this post would point out. As a result, government spending allows the government to come in and employ people which would give the consumer class more buying power that can be fed into the economy and get everything chugging along again.

Or, we could all jump in and root for the Republicans to win some sort of petty political battle. I know, tough call.

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