Ideological Cowboys Corralling Their Herd

It’s a terrible thing when an individual loses his or her grip on reality. But it’s much worse when the same thing happens to a whole political party, one that already has the power to block anything the president proposes — and which may soon control the whole government.  – Paul Krugman

The recent actions by TeaParty-led Republicans in the U.S. House and Senate to quash  the President’s job plan sends a clear signal that their primary goal of making Obama a one-term president is still on target.  It also displays a mental exclusiveness that rejects arguments that don’t support purest laissez-faire market principles.  Republicans opposed this plan because its includes more spending to stimulate the economy and puts a tax surcharge on millionaires and billionaires.  This intransigent view that such action will hurt a recovery rather than help it is one that is not even supported by many conservatives in business and economics.

It is a belief however that some self-serving people want to keep alive for personal reasons.  For fear that small tax increases on millionaires and billionaires will become popular with the lower 95% (I hesitate to use the currently popular figure of 99% because the top 5% includes many millionaires) wealthy people are desperate to create the pie-in-the sky delusion that such a thing can happen to all Americans.   The likelihood however that any significant number of us will ever join their elite club is a myth that stems back to the early Horatio Alger stories of the 19th century.  Mary Sanchez speaks admirably to this in a recent column of hers at the Kansas City Star upon reflection of Cain’s insulting comments about the OWS protesters:

Herman Cain just doesn’t get it.  His allegiance to the Horatio Alger myth makes him far too dismissive of real world problems facing recent college graduates.

Cain demonstrated how out of touch he is when asked his opinion about the Occupy Wall Street demonstrations now gripping New York and other cities around the country. Many of the protesters are young people from middle-class backgrounds and with college educations.

“If you don’t have a job and you are not rich, blame yourself,” he chided, adding a finger-wagging explanation that his parents didn’t raise him to look enviously at those with more wealth.

The classic Alger virtues — determination, focus and work ethic — worked for Cain (age 65) and fellow candidate Mitt Romney (age 64) when they were young in a world where America’s expanding economy was dominant. Young people today are no less entrepreneurial or driven than previous generations. The problem is that times have changed, and the Republican candidates might want to take note.

It’s a bogus notion to believe that all government spending will fail to create jobs because it allegedly “robs” the rich of money they would otherwise invest to create jobs.  Here’s some factual information and data that lays this notion to rest:

• Following Herbert Hoover’s top tax rate increase from to 25 to 63 percent in 1932, the new President, Franklin Roosevelt, “begins spending at the same time that the new tax hike comes into effect. The Depression bottoms out.  Recovery begins. The GNP rises 7.7 percent, unemployment falls to 21.7 percent.  Further tax increases and spending occur through 1936 as GNP continues to grow while unemployment drops even further. – SOURCE
• The claim by those on the right that lower taxes mean higher revenue is a “voodoo proposition” according to Pulitzer prize-winning economist Paul Krugman: “A more sober assessment from the nonpartisan Congressional Budget Office tells a different story. It finds that a large part of the supposed savings from spending cuts would go, not to reduce the deficit, but to pay for tax cuts. In fact, the budget office finds that over the next decade the plan would lead to bigger deficits and more debt than current law.” – SOURCE
• The record of the Bush tax cuts is undeniable: their enactment coincided with the weakest economic expansion of the post-war period, blowing up the national deficit and debt, while not bringing any of the promised gains. – SOURCE
• Rich People’s Taxes Have Little to Do with Job Creation.  “In the past 60 years, job growth has actually been greater in years when the top income tax rate was much higher than it is now.  If you ranked each year since 1950 by overall job growth, the top five years would all boast marginal tax rates at 70 percent or higher. The top 10 years would share marginal tax rates at 50 percent or higher. The two worst years, on the other hand, were 2008 and 2009, when the top marginal tax rate was 35 percent.” – SOURCE
• Even Billionaire Warren Buffet warns the GOP to “Stop Coddling the Super-Rich – SOURCE
• “Business investment, while recovering, remains historically low. Corporations are not directing their rebounding profits to productivity-enhancing activities, instead holding cash or spending the money on buying back their own shares and paying out dividends to shareholders.” – SOURCE
• The temporary tax [cuts and] incentives to support business investment and hiring in the House stimulus plan do not provide a particularly large economic benefit. Accelerated depreciation by large businesses and expensing of investment by small businesses lowers the cost of capital only modestly and is not a critical factor in businesses’ investment decisions, particularly when sales and pricing are so weak. The carry-back of business losses helps cash-strapped businesses, perhaps forestalling some cuts in investment and jobs, but it is unlikely to prompt much additional business expansion as it does not improve businesses’ prospects. – SOURCE

 

 

 

 

 

 

 

And about spending and its effects on the economy

• Cutbacks to public services and public investments by state and local governments have proved to be a persistent drain on the overall U.S. economy since the start of the recession, with widespread detrimental results. Unsurprisingly, states making the largest cuts in spending are experiencing the worst outcomes with respect to economic growth, private-sector employment gains, and reductions in state unemployment.  SOURCE
• Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too.  “Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco,said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”  He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker – SOURCE
• Job Creation Requires Spending.  Economists Across the Political Spectrum Get It   SOURCE
• Government Spending Can Create Jobs—and It Has.  The lessons are clear when our economy Is in trouble. There is an empirically grounded body of literature documenting the effectiveness of fiscal expansion during recessions and the importance of economic multipliers in creating jobs above and beyond those directly created by one firm or one government project. – SOURCE

During primitive times there were beliefs held by people who took the word of the authority figures in their tribe, either the chief or some medicine man or soothsayer.  Much of what was concocted was derived from their interpretation of events which was severely limited by any real in-depth knowledge of what makes the world go round.  Yet it helped them explain their world for the time being and piece of mind was more important to them until things happened later to give them cause to doubt.

This was invariably going to happen so when the sacrifice of the virgin didn’t appease the volcano gods, the chief or medicine man would attribute this failure to the virgin herself or because there was not enough faith amongst the tribe to satisfy the gods.  Rather than employ any critical thinking on the matter and make necessary corrections, the tendency was to defend the absurd notion that allowed the problems to continue while always finding other dubious acts to explain why their original inclination didn’t pan out as expected.

This is the type of behavior we see in play with the TeaParty-Republicans today.  Their adamant ideological belief in the principles of free markets and the inerrant word of Milton Friedman and Ayn Rand inhibits them from seeing the warts that are inherent under close scrutiny.  Even in the face of overwhelming evidence there is still denial amongst such zealots that anything that “free-marketers” did had a causal effect on our economy that went south back in 2008.

Paul Krugman points out this delusional behavior in his recent column.

Suddenly, you find yourself in a fantasy world where nothing looks or behaves the way it does in real life.  And since economic policy has to deal with the world we live in, not the fantasy world of the G.O.P.’s imagination, the prospect that one of these people may well be our next president is, frankly, terrifying.

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking.

No, in the universe of the Republican Party we found ourselves in a crisis because Representative Barney Frank forced helpless bankers to lend money to the undeserving poor.

Talk to a free-market ideologue though and all you’ll get are bumper sticker responses that always include the word “socialist” in it.  The fact that some government spending and tax increases are really necessary under certain economic conditions is rejected by them and their likely response regarding failures of the free market is apt to be that the virgin was really a closet whore.  Today’s GOP leaders are nothing more than ideological cowboys keeping their herd contained for as long as they can, hoping that a bolt of reality-based lightning won’t strike and send them stampeding.