Economists: Now is wrong time for Congress to cut spending

Reply Sat 30 Jul, 2011 09:55 am
Did we learn anything of the mistakes Hoover made during the Great Depression? Are we going to repeat that disaster? ---BBB

July 29, 2011
Economists: Now is wrong time for Congress to cut spending
By Kevin G. Hall | McClatchy Newspapers

WASHINGTON — Lawmakers trying to reach a deal on spending cuts in order to raise the nation's debt ceiling risk causing serious economic harm if they cut government programs too much in the near term, economists warn.

The U.S. economy grew at an anemic 1.3 percent rate from April to June, the Commerce Department reported Friday. It also revised downward the growth rate over the first three months of 2011 to just 0.4 percent.

Despite the weak growth, politicians aren't arguing about stimulating the economy; rather they're debating how quickly and how much to cut spending, thus shaving economic growth in the process.

The U.S. Chamber of Commerce called on lawmakers Friday to be mindful of the weak economy.

"The recovery is clearly on a lower trajectory, and it will likely be some time before the economy rebounds to the point it will create much in terms of job growth," Martin Regalia, the group's chief economist, said in a statement.

That means, he said, that "the stakes on the debt limit debate ... are that much higher. With growth rates this low, even a small negative impact resulting from failure to increase the debt ceiling and defaulting on our obligations could turn the economy back into a recession."

While Republicans in the House of Representatives capture headlines by demanding steep spending cuts, the version proposed by Senate Democrats actually would thwart economic growth potentially more, according to two economic research groups.

Macroeconomic Advisers, a leading forecaster, said Thursday that a rewritten plan offered by House Speaker John Boehner, R-Ohio, would shave more than a tenth of a percentage point off of growth next year, while the plan being pushed by Senate Majority Leader Harry Reid, D-Nev., would cause an even larger hit on growth in fiscal 2013 — shaving almost half a percentage point.

That view was shared by Thomas Lam, Singapore-based chief economist at OSK-DMG, a joint venture of Malaysian securities firm OSK Holdings Bhd. and Germany's Deutsche Bank AG.

"Our calculations ... suggest that the Senate and House proposals, respectively, could lower economic growth on average by less than 0.5 percentage points, all else equal, over the next five years (from 2012 to 2016)," Lam said in a research note that suggested the Senate Democrat plan would hit the economy harder.

The chief economist for forecaster IHS Global Insight, Nariman Behravesh, warned Friday that "a weak economy will only make the tough decisions on the budget even more difficult and the case for fiscal austerity in the near-term even weaker."

Some House Republicans backed by tea party groups demand even deeper front-end cuts, perhaps as much as $100 billion, arguing that politicians can't be trusted to keep their promises further out.

That'd be dangerous, warned Mark Zandi, chief economist for forecaster Moody's Analytics.

"I think the idea is a very serious policy error," he said. "This would be the fodder for another recession. The economy may be able to digest $25-30 billion more (in federal spending cuts) ... but $100 billion, I don't think it could digest that."

Zandi, who's frequently cited by Republicans and Democrats alike, favors spending cuts "when the economy is off and running," but he cautions that "to add more fiscal restraint in the latter part of 2011 and 2012 would be a mistake."

Read more: http://www.mcclatchydc.com/2011/07/29/118762/congress-proposed-spending-cuts.html#ixzz1TbXG11pg
  • Topic Stats
  • Top Replies
  • Link to this Topic
Type: Discussion • Score: 0 • Views: 1,426 • Replies: 1
No top replies

Reply Sat 30 Jul, 2011 11:05 am
What we Should Learn from the Tragic Mistakes of Herbert Hoover

The current debate between Democrats and Republicans on how to handle our worst economic crisis since the Great Depression of the 1930s is reminiscent of the debate between Franklin Delano Roosevelt and incumbent President Herbert Hoover, in the 1932 presidential campaign.

Few historians would say that Hoover caused the Great Depression. His failure was in his adamant reluctance to take the appropriate steps to resolve or ameliorate it. He was stuck in the Republican ideology of his day. That is an ideology that has persisted to this day, though for 48 years, from the onset of the FDR presidency in 1933 until the onset of the Reagan presidency in 1981 it was submerged beneath the surface. The reason that it was submerged during that period of time was the unprecedented success of the 12-year FDR presidency, which brought us out of the Great Depression and whose programs led to what Nobel Prize-winning economist Paul Krugman calls the “greatest sustained economic boom in U.S. history”.

Even Republican presidents during this period of time had to go along with most of the FDR programs. President Eisenhower explained why, in a letter to his brother:

Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are…. a few Texas oil millionaires… Their number is negligible and they are stupid.

But with the onset of the Reagan Revolution in 1981, things began to change radically for the worse. Herbert Hoover’s tragic mishandling of the Great Depression had ended 48 years in the past, so few Americans remembered the tragedy of the Hoover presidency or how FDR’s New Deal pulled us out of it. Ronald Reagan brought back the failed right wing economic ideology of the pre-New Deal Republican Party.

The result, with an 8-year respite during the Clinton administration, has been increasing poverty, a declining middle class with runaway economic inequality, and ballooning national debt, culminating in our current economic crisis. During this time, even President Clinton had to pay homage to failed Republican ideology by proclaiming “The era of big government is over”.

Now our nation and President Obama are faced with a problem similar to the one we encountered in 1933. The American voters have rejected right wing anti-government ideology, electing both a Democratic President and Congress. But in their attempts to get our nation back on the road to economic recovery, they are faced with intense Republican opposition. In 1933, perhaps that opposition was somewhat understandable, since we had little historic precedent to learn from. Today we have the lessons of pre-New Deal Republican ideology, represented in Herbert Hoover’s failed policies, to learn from. If we fail to make use of that historical lesson we will pay dearly for it.

The failed ideology of the pre-New Deal Republican Party, manifested by President Hoover

James Barber explains the problem with Herbert Hoover’s ideology, attitude, and approach to policy in his book, “The Presidential Character”. That ideology, attitude and approach can be summed up with one short sentence: Government has little or no direct role to play in alleviating the economic problems of ordinary Americans. Barber describes how that played out in 1930, shortly after the Stock Market crash of 1929 that set off the Great Depression:

In the summer of 1930, a severe drought hit the Southwest; the Secretary of Agriculture called it the worst in our history and recommended a relief fund of $25 million. Congress preferred a bill authorizing $60 million, to which the President responded “prosperity cannot be restored by raids on the public treasury” or by “playing politics with human misery.” Millions of farmers went bankrupt… The President pressed forward a plan to provide loans… but not direct relief, not cash to the hungry, not the dreaded “dole.” … The President and his Congressional allies fought off proposals to “put a man on a basis of equality with a mule” by providing food for the hungry farmers…

In the fall of 1930, he appointed an Emergency Committee for employment, its work to be guided by the principle that unemployment was strictly a local responsibility. The Committee’s chairman drafted a message for the President to submit to Congress calling for public works, slum clearance, low-cost housing, and rural electrification. The Committee also favored… public works planning and a national employment service. The President rejected both. The chairman resigned…

Hoover made absolutely clear his adamant aversion to federal government action to help ordinary Americans in his December 1930 message to Congress:

Economic depression can not be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of… the producers and consumers themselves… requires that every individual should sustain faith and courage; that each should maintain his self-reliance… that the vast majority whose income is unimpaired should… seek to assist his neighbors who may be less fortunate; that each industry should assist its own employees; that each community and each State should assume its full responsibilities…

In other words, the economic health of our country is the responsibility of business, industry, ourselves, our neighbors, our communities – anything but the federal government.

The roots of right wing Republican anti-government ideology

At the root of right wing Republican anti-government ideology is the same problem that has plagued mankind since the beginning of human history: Class warfare. Those with wealth and power trying to do everything they can to keep everyone else down, so that their own wealth and status is certain to be preserved. Therefore, the status quo must be maintained at all cost.

I don’t claim that President Hoover’s own personal motives were malevolent. There is much evidence, beyond the scope of this post, that he did have concern for the American people. Unlike George W. Bush, he worked very hard to find a way out of our economic difficulties. But he was incapable of shedding the right wing ideology that caused the problem in the first place and that obstructed its solution.

James Barber describes in his book what was at the root of this toxic right wing ideology:

In the fall of 1930, Pennsylvania Governor-elect Gifford Pinchot protested that the time for “gentle bedside language” had passed. “Industry and business are not giving men the chance to work. Nor are they feeding the unemployed…” And then he said what was so rarely brought forth in these debates: opposition to federal relief came from “fear lest the taxation to provide that relief be levied on concentrated wealth – fear lest the policy of years, the policy of shielding the big fortunes at the expense of the little ones, should at long last be tossed into the discard.” At the same time that Congressmen and Governors were pleading for a few more millions in federal relief, Hoover’s Reconstruction Finance Corporation, operating in secret… was disbursing millions of dollars a day in loans to business… A Congressman noted that “President Hoover has given an outright dole to the railroads. He would give a dole to the building and loan associations. He would come to the aid of banks with frozen assets… but to starving American women and children he wouldn’t give a red cent…

It is important to note that FDR – the man who brought us out of the Great Depression – exhibited just the opposite attitude towards this subject. In his speech at the 1936 Democratic National Convention, in which he explained the rationale for his New Deal, he also discussed the class warfare that made the New Deal necessary:

Out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital … the whole structure of modern life was impressed into this royal service. There was no place among this royalty for our many thousands of small business men and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer…

The privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property…. The savings of the average family – other people's money – these were tools which the new economic royalty used to dig itself in.

The ideology and goals of the current Republican Party

The ideology and goals of the current Republican Party are pretty much identical to those of the Republican Party that brought us the Great Depression and kept us there until the American voters voted them out of office. The whole story of American economic history, from the Stock Market Crash of October 1929 (First bar – economic inequality at peak high), to the Great Depression, to the New Deal that brought us out of the Great Depression, through the “greatest sustained economic boom in U.S. history” (when economic inequality was at sustained low levels), to the Reagan Revolution of 1981 (Begins with second bar, followed by a precipitous rise in economic inequality, with a brief respite during the Clinton boom of the late 1990s), to the present (Third bar – economic inequality at new record high), can be summed up in one chart that depicts economic inequality throughout those many decades. This chart plots income inequality in the United States over time, as calculated by the ratio between the average income of the top 0.01% of U.S. families and the bottom 90%.
0 Replies

Related Topics

  1. Forums
  2. » Economists: Now is wrong time for Congress to cut spending
Copyright © 2024 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.04 seconds on 04/25/2024 at 07:43:48