Subject: [big campaign] New Huff Post from Creamer-Repulibcan Spending Cap Would Have Caused Depression
From: [email-masked]
To: [email-masked], [email-masked]
Date: Sun, 6 Feb 2011 23:28:02 -0500 (EST)
List-Id: <bigcampaign.googlegroups.com>

Republican Spending Cap Would Have Caused 
Depression if It Were Law in 2009

     Republicans  have proposed legislation that would cap federalspending at 20.6% of the country’s Gross Domestic Product (GDP) – just below theaverage of the last forty years.  Soundsreasonable, right?
 
      Only if you like the idea of another GreatDepression.
 
     Over the last forty years federal spendinghas averaged about 20.7% of Gross Domestic Product (GDP), so Senator Bob Corker(R-TN) has proposed the altogether reasonable idea that Federal spending shouldbe capped at 20.6%.  To exceed this cap,a two- thirds majority of the House and Senate would be necessary.  Unfortunately, this proposal has beenendorsed by several Senate Democrats.
 
     But – as the events of the last two yearsshould have made clear to everyone -- this reasonable- sounding proposal isactually a prescription for economic suicide. Had it been in effect when the recklessness of the Wall Street bankscollapsed the economy in 2008, the Great Recession would have nose dived intoanother Great Depression.
 
     As most economists will confirm, the majorfactor that saved us from another depression was the very fact that Federalspending as a percentage of GDP substantially increased in 2009 and 2010 – toabout 24.7% of GDP.
 
     When the bottom fell out of the economy,the GDP shrunk.  The level of spending byconsumers and businesses – and demand for American exports – alsodeclined.  As a result, millions of peoplelost their jobs and had less money to spend, so there was even less demand andmore people were laid off.  That downwardeconomic cycle can only be broken when some actor has the ability to increaseeconomic demand and break the downward spiral.
 
     The only actor that can take that kind ofaction is the Federal Government, and in 2009 when Barack Obama took office,that’s exactly what the Federal Government did. Of course, even withoutaffirmative action by Congress or the President, Federal spending as apercentage of GDP would have gone up because most Federal spending on thingslike Social Security, Medicare, Medicaid, Defense, etc. continued at the samelevel as the overall economy shrunk. Other areas of Federal spending also automatically increased – likespending on unemployment insurance.  ButPresident Obama and the Democratic Congress also passed an $870 billioneconomic stimulus bill that further supplemented economic demand – and furtherincreased Federal Spending as a percent of GDP. 
 
      Ifthe Federal Government had been required to cap its spending at 20.6% of GDP in2009 and 2010 there is little question what would have happened.  Federal spending on things like unemployment,Social Security, Medicare, money for state governments, etc. would have beenslashed.  That would have meant that Millionsof additional Americans would have lost their jobs, the economy would havecontinued in its downward spiral, and the financial system could easily haveexperienced complete meltdown. 
 
     Of course Corker would argue that heprovides an escape hatch to his cap with the two- thirds vote of eachhouse.  But the economic stimulus billthat was so critical to preventing complete economic disaster did not even gettwo- thirds vote of the Senate. 
 
     What’s necessary in the face of aneconomic emergency is fast action. Why would you make it harder for Congress totake the actions that are necessary to prevent economic Armageddon.   You might as well put a device on a car thatmakes it harder to turn the steering wheel when you see an oncoming vehicle. 
 
      And that’s not the only reason whyCorker’s cap proposal is such a disaster. As everyone knows the demographic make up of America is changing.  We have more and more retired Americans who havepaid into Social Security their entire working lives.  That will mean that the percentage of GDPspent by the Federal Government will naturally rise as the number of SocialSecurity and Medicare recipients increases. 
 
     If Corker’s cap were to be in effect inthe future it would require acrossthe board cuts to every category of Federal spending – including SocialSecurity and Medicare.  So in fact, hisproposal is a stealth attack on Social Security benefits. 
       
     The Corker proposal is just anotherexample of right wing economic proposals that sound reasonable rhetorically,but are catastrophic in practice. 
 
     Republicans often go on about how, whentimes are tough, your family has to tighten its belt and the same should betrue with the Federal Government.  Thissounds reasonable too – right?   But itis 180% degrees wrong.
 
      When times are tough for your family, youhave fewer goods and services available to your household, so you have totighten your belt – that’s true.  But whenthe economy of the United States collapses it’s not because we have access tofewer goods and services.  In fact,economic downturns happen because we produce more goods and services than thereare people with money to buy.  Recessionsand depressions don’t generally happen because there are too few goods andservices available, but because there is a demand deficit – there is too littleeconomic demand. 
 
    Real wealth is the sum total of goods andservices in our economy.  Money and theflow of money is not real wealth.  Itrepresents goods and services – it enables the exchange of goods and servicesso that we can meet our needs in a highly- differentiated economy of millionsof people. 
 
     Most recessions do not involve thecollapse of productive capacity at all. They involve the collapse of the system of exchange we use to trade thegoods and services created by that productive capacity.  
 
      When the Federal Government increases itsdemand for goods and services, that stops the downward economic spiral thatdevelops when that system of exchange is disrupted by something like the WallStreet meltdown. If the Federal Government behaved like a typical family andtightened its belt, the breakdown in the system of exchange would continue andwe would lose more and more wealth because fewer and fewer people would beemployed producing goods and services. 
 
      Some times it is amazing how quicklypeople can forget the lessons of the very recent past.  It was just a little over two years ago thatthe economic philosophy espoused by Senator Corker and others Republicanscaused the worst economic collapse in nearly eighty years. Time for the rest ofus to take a stand against economic amnesia. 
 
RobertCreamer is a long-time political organizer and strategist, and author of thebook:  Stand Up Straight: HowProgressives Can Win, available on Amazon.com.

     

 

 

-- 
You received this message because you are subscribed to the "big campaign" group.

To post to this group, send to [email-masked]

To unsubscribe, send email to [email-masked]

E-mail [email-masked] with questions or concerns
 
This is a list of individuals. It is not affiliated with any group or organization.