Tuesday, February 10, 2009

Can we all DEMAND some change now?

Listening to Michael Steele, newly minted Republican National Committee Chair on ABC’s This Week with George Stephanopolous, I started having really bad 1980’s flashbacks. As the interview unfolded, it became clear why all the House Republicans and many of the Senate Republicans were so opposed to the Democratic stimulus bill then in the Senate for debate. Here’s the exchange that really got me going, from the ABC website transcript (emphasis mine):

“ STEPHANOPOULOS: He suggests that you and Republican Party leaders here in Washington are on the wrong side of the biggest issue, jobs.

STEELE: Well, no -- you know, with all due respect to the governor, I understand where he's coming from. Having been a state official, I know what it means to get those dollars when you're in tight times. But you've got to look at the entire package. You've got to look at what's going to create sustainable jobs. What this administration is talking about is making work. It is creating work.

STEPHANOPOULOS: But that's a job.

STEELE: No, it's not a job. A job is something that -- that a business owner creates. It's going to be long term. What he's creating...

STEPHANOPOULOS: So a job doesn't count if it's a government job?

STEELE: Hold on. No, let me -- let me -- let me finish. That is a contract. It ends at a certain point, George. You know that. These road projects that we're talking about have an end point. As a small-business owner, I'm looking to grow my business, expand my business. I want to reach further. I want to be international. I want to be national. It's a whole different perspective on how you create a job versus how you create work. And I'm -- either way, the bottom line is...

STEPHANOPOULOS: I guess I don't really understand that distinction.

STEELE: Well, the difference -- the distinction is this. If a government -- if you've got a government contract that is a fixed period of time, it goes away. The work may go away. That's -- there's no guarantee that that -- that there's going to be more work when you're done in that job.

STEPHANOPOULOS: Yes, but we've seen millions and millions of jobs going away in the private sector just in the last year.

STEELE: But they come -- yes, they -- and they come back, though, George. That's the point. When they go -- they've gone away before, and they come back. And the point is that the small-business owners take the risks. They're the ones that are out there in the morning putting that second mortgage on the house, taking the risks that are necessary so that they can employ your -- your kids and my kids and future generations. That's sustainable, long-term growth. Otherwise, then why do we need the small-business community? Why don't we all just get a government job and call it a day? “

What’s so remarkable here is that Mr. Steele has all but admitted that, in spite of the current economic state, including the recent loss of over 500,000 jobs in a single month, the Republican Party still believes that the government can not create jobs. It can only make work. So, opposition to the stimulus, even sweetened as it is with a variety of tax cuts, incentives and reductions, is all about sticking to a deeply held political and economic principle, no matter what the facts on the ground or the truth in evidence.

I'd love to see MR. Steele, who is no moderate, try to make that distinction to a family now living in a homeless shelter because they have lost their house to foreclosure after loosing their jobs inthe last year. He'd fail miserably, since to many unemployeed, the distinction is meaningless. Sure, as my colleague Mike at the Big Stick points out, it would be better to have high demand for high skilled labor created by the stimulus package. It would be ideal. We're way past ideal.

So why are Republicans clinging so tightly to this line of reasoning? Several thoughts come to mind. First, the Republican Party is still a Social Darwinist, supply side economics, monetarist policy party. They firmly believe that markets can indeed solve economic crises, and that market failures of any type should not ever be addressed through government action – which is welfare in their world view. Second, any economic action taken by government must be directed at businesses, not workers, because it is businesses that create jobs, and supply. And finally, Republicans still believe in supply side economics, no matter what the evidence of the last 30 years shows.

The biggest problem with this world view, however, is that if we follow their reasoning we’ll spend an aweful lot of time, and money (yours and mine incidentally) trying to fix what is now a demand side problem with supply side glue. As unemployment continues to rise, and the economy continues to contract, demand drops like a stone. President Obama said as much last night in his first Prime Time press conference:

Question: Thank you, Mr. President. Earlier today in Indiana, you said something striking. You said that this nation could end up in a crisis without action that we would be unable to reverse.
Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?

Obama: No, no, no, no. I think that what I've said is what other economists have said across the political spectrum, which is that, if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.
We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the lost decade, where essentially, for the entire '90s, they did not see any significant economic growth.
So what I'm trying to underscore is what the people in Elkhart already understand, that this is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.
We've lost now 3.6 million jobs, but what's perhaps even more disturbing is that almost half of that job loss has taken place over the last three months, which means that the problems are accelerating instead of getting better.
Now, what I said in Elkhart today is what I repeat this evening, which is, I'm absolutely confident that we can solve this problem, but it's going to require us to take some significant, important steps.
Step number one: We have to pass an economic recovery and reinvestment plan. And we've made progress. There was a vote this evening that moved the process forward in the Senate. We already have a House bill that's passed. I'm hoping, over the next several days, that the House and the Senate can reconcile their differences and get that bill on my desk.
There have been criticisms from a bunch of different directions about this bill, so let me just address a few of them.
Some of the criticisms really are with the basic idea that government should intervene at all in this moment of crisis. Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who've suggested that FDR [President Roosevelt] was wrong to interfere back in the New Deal. They're fighting battles that I thought were resolved a pretty long time ago.
Most economists almost unanimously recognize that, even if philosophically you're -- you're wary of government intervening in the economy, when you have the kind of problem we have right now -- what started on Wall Street, goes to Main Street, suddenly businesses can't get credit, they start paring back their investment, they start laying off workers, workers start pulling back in terms of spending -- that, when you have that situation, that government is an important element of introducing some additional demand into the economy.
We stand to lose about $1 trillion worth of demand this year and another trillion next year. And what that means is you've got this gaping hole in the economy.
That's why the figure that we initially came up with of approximately $800 billion was put forward. That wasn't just some random number that I plucked out of -- out of a hat. That was Republican and Democratic, conservative and liberal economists that I spoke to who indicated that, given the magnitude of the crisis and the fact that it's happening worldwide, it's important for us to have a bill of sufficient size and scope that we can save or create 4 million jobs.
That still means that you're going to have some net job loss, but at least we can start slowing the trend and moving it in the right direction.
Now, the recovery and reinvestment package is not the only thing we have to do. It's one leg of the stool. We are still going to have to make sure that we are attracting private capital, get the credit markets flowing again, because that's the lifeblood of the economy.
And so tomorrow my treasury secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.
And that means having some transparency and oversight in the system. It means that we correct some of the mistakes with TARP [Troubled Asset Relief Program] that were made earlier, the lack of consistency, the lack of clarity, in terms of how the program was going to move forward.
It means that we condition taxpayer dollars that are being provided to banks on them showing some restraint when it comes to executive compensation, not using the money to charter corporate jets when they're not necessary.
It means that we focus on housing and how are we going to help homeowners that are suffering foreclosure or homeowners who are still making their mortgage payments, but are seeing their property values decline.
So there are going to be a whole range of approaches that we have to take for dealing with the economy. My bottom line is to make sure that we are saving or creating 4 million jobs, we are making sure that the financial system is working again, that homeowners are getting some relief.
And I'm happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested, and they have failed. And that's what part of the election in November was all about.”

Stop and think about that for a second. $ 1 Trillion in DEMAND lost each year for two years. DEMAND. How do you stem that with supply side approaches like tax cuts? How does a machinery reinvestment tax credit address this? And what good would a two year payroll tax holiday (that’s Social Security, Medi-care and Medi-cade, BTW) do to increase DEMAND? The only way I know of to increase demand is this – put people to work, and make sure they can work for long periods of time. Get the credit markets flowing again (Hello TARP, the people are still waiting) so people can borrow again, and then let them DEMAND so that supply can again be ramped up.

Of course, to make Republicans happy, we’ll probably have to use another term besides DEMAND to describe our position. It sounds too personal, too much like something an individual might control, rather then a business. And we’ll especially have to make sure we don’t “make work” while we do it.

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