James Houle: Let’s bring on the Grand Depression!

Redwood Valley

“The $2.5 trillion deficit-reduction deal brokered by Senate Minority Leader Mitch McConnell, House Speaker John Boehner, and President Barack Obama is grotesquely unfair. It’s also bad economic policy. In the midst of a terrible recession, it will cost hundreds of thousands of jobs. At a time when the wealthiest people in this country are doing extremely well, and when their effective tax rate is the lowest in decades, the rich are not required to contribute one penny more for deficit reduction. When corporate profits are soaring and many giant corporations avoid federal income taxes because of obscene loopholes in the tax code, corporate America will not be asked to contribute one penny more for deficit reduction. On the other hand, working families, children, the sick and the elderly – many of whom are already suffering because of the recession – will shoulder the entire burden:” Senator Bernie Saunders of Vermont (Aug.5, 2011).

Selling the American People a Totally Deceptive Message

The forces of the right have managed to guide the American people into a sense of helplessness, lethargy and stupid complacency. We have been told that: (1) the rising national deficit is our most serious problem today; (2) taxes are sapping the initiative of our business community; (3) we have to cut domestic spending because increasing the taxes on the wealthy individuals just gives the government more money to spend; (4) we cannot afford to cut defense spending, for this would only lower our guard against those terrorists who would invade our shores and steal our freedom; (5) entitlement programs like Social Security and Medicare are out of control and increasing our national debt; and (6) that if we were to plug tax loopholes on those businesses that contribute so much to our economic leadership in the world, we will inhibit them from expansion and from the creation of new jobs. Yet Noam Chomsky (Survey of International Policy Attitudes, Truthout, 5 August, 2011) insists that corporate power’s ascendency over politics, society and both major political parties has moved corporations far to the right of the population which actually overwhelmingly favor taxing the rich, cutting defense spending, promoting education and protecting Social Security.

Slipping From Recession to Depression

Consumer spending is dropping relentlessly because people have less in their pocket and are afraid of the future. The Administration touted the 117,000 new jobs added in July, but carefully avoided mentioning that 175,000 new entry-level workers had hit the streets that same month looking for work. The total number of the unemployed actually rose. True unemployment hovers at 20% with no sign of recovery shown in the past 36 months, (No half-intelligent economist pays any attention to the thoroughly monkeyed numbers from the Bureau of Labor Statistics showing 9.1%). Even the Wall Street Journal (8/8/11) does not expect any improvement in the jobs picture this year. Annual economic growth in the nation has slipped down to 1.3%, well below the Administration’s forecast of 1.8% rise this year. Home ownership is at its lowest level since 1965 (CNN Money 8/8/11). We are well into the second dip of what could well be a real depression or a least very prolonged recession. Yet the debate is all about cutting spending.

So, What Did Roosevelt Do?

Franklin Delano Roosevelt demonstrated near the end of the Great Depression what Keynesian Economy Theory had explained and Republicans and Democrats have since employed whenever they thought about it at all: If economic stagnation is the problem, then put money out there to create public projects, create jobs, rebuild our crumbling bridges and roads, and watch the economy rebuild and expand. The vast majority of practicing economists today support this strategy, yet we are experiencing “the most drastic curtailment of public spending* in American history” (Chossudovsky, Global Research, 4 August, 2011). (*Please note that “public spending” as used here does not include defense spending nor corporate welfare (TARP) to the very large banks, where we have never before spent so much public money, even during WW II, and with so little measurable gain).

The conservative Tea Party cabal does not want to consider economic theory, it just complicates their simple, righteous rant that runs: “you can’t spend what you do not have, the federal budget is no different than our family accounts.” Nor do they want to understand the truth that Social Security funds actually belong to the workers who paid in a portion of their paycheck and cannot be stolen away by Congress or Obama now. They do not comprehend that Social Security is not a part of the national debt. Oh my, that really confounds them.

Obama – What Have You Done To Your Voters?

Obama told us in his first State of the Union message (Jan. 2009) that a 2nd New Deal was in the wind: he promised us a program to rebuild our economy through spending on education, health, housing, renewable energy, and infrastructure programs. Then 2 1/2 years later on the night of August 2nd, he approved a rise in the debt ceiling from $14.3 trillion to over $15 trillion next year and promised us a mammoth austerity program. He agreed to cut $2.5 trillion over the next ten years from domestic programs like schools, roads, health case, and housing. As a concession, he was allowed to make just a little $3 billion cut in spending over a next two years, letting the really painful cutbacks impact us later. He calls this “a first step in solving the deficit crisis” but he apparently cannot see that long term reduction of the federal deficit requires a major near term economic stimulus. Rather, the Obama people feel that such small first year cuts in spending will “avoid harming the recovery” (White House 8/5/11) and still will allow the President to campaign in 2012 explaining how he is all in favor of austerity without anyone really having to feel any pain, at least not yet. The agreed-upon cuts will escalate exponentially after 2012. Can you follow the choreography here? Is George Bush’s buddy Karl Rove still holed up in a back room at the White House?

Paul Krugman of the NYTimes opines: “In case you had any doubts, Thursday’s (8/7/11) more than 500 point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things. It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious – that we are not now and have never been on the road to recovery.” While the new budget compromise seems to cut $350 billion from the Pentagon through 2024, the result is actually to increase defense spending slightly above the level the Ministry of War wanted. Michael Hudson, one of our leading economists and a Professor at the University of Missouri has put it into historical perspective: “Parliamentary control over budgets was introduced in 1917 during WWI to prevent ambitious kings or rulers from waging wars, because that was the only reason that governments ran into debt. Almost all governments, for hundreds of years, have been in balance as to their domestic spending. War is what pushes up the debt, as it has done in the United States” (Democracy Now August 5, 2011). After all, the Pentagon spends 56 cents of every dollar of tax revenues.

Tea Party types have made tax policy the issue behind the debt ceiling debate: they would not agree to raise the debt ceiling, although Congress had already passed all the spending bills that made the deficit soar to this level, unless the President agreed not to raise taxes and not to plug leaks in the taxing system that benefited the wealthiest. The debt ceiling had been raised 83 times since 1963, but this is the only time when tax policy has been allowed to control the debate. The President threatened that there would not be enough money to mail out Social Security checks. This is a deliberate deception. The Social Security Administration and retired Americans that have their money in the program already own the Treasury bills they bought with payroll deductions and can write checks whenever they so wish – for the assets are already in the bank. Our President’s lie is just another way of to frighten us. Under current payroll deduction rates and with the cap on income that can be taxed set at $106,800, Social Security becomes insolvent in 2036. Should this cap be removed, and higher income Americans pay their true share, then the fund will remain solvent far into the future.

Can We Dig Our Way Out and If So When?

Ralph Nader (Truthout Aug. 5, 2011) feels that President Obama has amazingly surrendered to a minority of the Republican Party. “The Republicans never expected Obama to give in entirely on tax increases for the wealthy, and other tax escapees. He foolishly agreed in Dec. 2010 to tie the debt ceiling to a grand bargain regarding deficits and revenues and thus gave himself little room for later negotiation. Roosevelt was advised in 1933, at the height of the Great Depression, that what we needed was spending cuts, but he was wary of the then unorthodox views of Maynard Keynes, and applied a most orthodox mixture of spending cuts and tax increases. By 1938, when conditions were far far worse, Roosevelt finally saw that he had no alternative but to begin pumping money into the economy by any and all means. It is sad to think that history may actually be repeating itself. Today, Obama has almost no weapons with which to stimulate the economy, find new sources of revenues, or force serious cuts in war spending. Maybe he can still invoke the 14th Amendment and ignore the congressional Super-Committee meetings this fall that are intended to cut spending another two trillion, but this President doesn’t not appear to be that much of a risk taker. Not this close to his run for another term anyway.