EDITORIAL

Deficit Bamboozle

You’ve got to give the Republicans credit for sticking to their talking points, no matter how far-fetched. But it’s hard to believe that they don’t know when they’re lying.

Republicans delayed the extension of unemployment benefits for 2.5 million Americans for nearly two months because Democrats would not agree to cuts in the economic stimulus program that is supposed to put some of those unemployed people back to work. (This was after the GOP had raised the trial balloon about how the government should not be encouraging hobos.)

When Carte Goodwin (D-W.V.) was sworn in July 20 to replace the late Sen. Robert Byrd (D-W.V.), Goodwin gave the Democrats the 60th vote to break the GOP filibuster and the Senate proceeded to pass the extension bill. (Two Republicans — Maine Sens. Olympia Snowe and Susan Collins — voted to shut down the filibuster, while Sen. Ben Nelson, D-Neb., supported the filibuster.)

Unfortunately, to get the votes of Snowe and Collins, Democrats had to jettison other spending items and aid to financially-strapped states, as well as the COBRA insurance subsidy and assistance to long-term unemployed who have been out of work more than 99 weeks. And the Republicans, unwilling to give the jobless any sort of break, once again used procedural rules to delay the final vote on the bill an extra 30 hours.

Sen. Minority Whip Jon Kyl (R-Ariz.) raised some eyebrows July 12 by insisting that emergency aid to unemployed Americans be offset with spending cuts elsewhere while the Bush tax cuts for the wealthy should not be offset in any way.

Senate Minority Leader Mitch McConnell (R-Ky.) agreed with Kyl. “That’s been the majority Republican view for some time,” McConnell told TalkingPointsMemo.com July 13. He added that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.”

That contradicts mainstream economists as well as the nonpartisan Congressional Budget Office, which reported in 2005 that the Bush tax cuts increased the deficit by $258 billion in 2005. The liberal Center on Budget and Policy Priorities figured that the Bush tax cuts added $1.7 trillion to federal deficits between 2001 and 2008. If those tax cuts are extended, CBPP estimates they would cost $4.4 trillion over the next decade.

Republicans are still putting their faith in voodoo economics after driving the economy into the ditch, but Ezra Klein noted at WashingtonPost.com (July 13) that if tax cuts really generate so much taxable economic activity that they pay for themselves, then unemployment checks should generate even more economic activity. Mark Zandi, an adviser to John McCain’s presidential campaign and one of the few Republican economists willing to talk sensibly on the issue, estimated that a dollar spent extending the Bush tax cuts would generate 32 cents of taxable economic activity, while a dollar spent on unemployment benefits would generate $1.61 of taxable economic activity.

Message discipline extends to blaming Dems for all federal spending. McConnell claimed on CNN (July 18), “The last year of the Bush administration, the deficit as a percentage of gross domestic product was 3.2%, well within the range of what most economists think is manageable. A year and a half later, it’s almost 10%.” Sen. John Cornyn (R-Texas), National Republican Senatorial Committee chairman, played the same tune on NBC, “You know, in the last year that President Bush was in office, 2008, the deficit was 3.2% of the gross domestic product. Today it’s 10%.”

But Steve Benen noted at WashingtonMonthly.com (July 19) that when George W. Bush and Dick Cheney left office, they left behind a $1.3 trillion deficit (increasing the national debt during their misadministration by $5 trillion). Most estimates of this year’s deficit — the first full year under Obama — will be about $1.4 trillion. And the Center for American Progress (americanprogress.org) found that the main factors driving the current deficit are still Bush/Cheney policies such as tax cuts during two wars, Medicare expansion and No Child Left Behind (40%), the economic downturn (20%) and the financial bailout begun by the Bush administration (12%). President Obama’s policies account for 16% and other factors account for 12%.

Economist Paul Krugman, at his New York Times blog (July 19) noted that Republicans “really do think we’re idiots.” The GOP calculation of Bush’s last-year deficit as 3.2% of GDP is based on the 2008 fiscal year, which ended Sept. 30, 2008. That “conveniently lopped off everything that happened post-Lehman — TARP and all,” Krugman noted.

Not only was Bush responsible for spending in the fourth quarter of 2008, but Obama had little impact on the first quarter of 2009, since he didn’t take office until Jan. 20, and his stimulus plan didn’t pass until Feb. 17, 2009, Krugman noted. By that time, the deficit already had surged to almost 9% of GDP. Even in the second quarter of 2009, Obama’s policies had barely begun to take effect, and the deficit already was over 10% of GDP.

What this tells us, Krugman said, was that “the deficit is overwhelmingly the result of the economic slump, not Obama policies. But the usual suspects want to fool you.”

Don’t be fooled. Democrats may disappoint progressives, but Republicans want to keep a drag on the economy until 2012, when they hope to defeat Barack Obama, recapture Congress and get another crack at voodoo economics.

Wall Street Fight Goes On

Now that the financial reform bill is on the president’s desk, battle lines are forming over its implementation. One of the first tests will be President Obama’s choice to head the new Consumer Financial Protection Bureau.

The obvious choice is Elizabeth Warren, the Harvard law professor who has headed the congressional oversight panel for the bank bailout and who championed setting up the consumer protection agency. Sen. Tom Harkin (D-Iowa) circulated a letter in the Senate that urged Obama to nominate Warren as the first head of the bureau. “It will be especially important that the first director be someone who will not cave-in when pressured by the financial industry, which we expect will be enormous,” Harkin said, according to TheHill.com (July 17). “Indeed, someone with a track record akin to that of Professor Warren would be the type of person we believe is necessary to head this bureau.”

Sen. Christopher Dodd (D-Conn.) and Treasury Secretary Tim Geithner are said to oppose Warren’s appointment. Warren has strained relations with Geithner, whom she has aggressively questioned about the Treasury’s role in the bailout and its lackluster foreclosure prevention plan. Wall Street also is said to dread her appointment. Dodd claims a more pragmatic concern, saying on NPR (7/19), “Elizabeth would be a terrific nominee. The question is, ‘Is she confirmable?’ And there’s a serious question about it.”

David Sirota noted at OpenLeft.com (July 20) that the charge of “too controversial” didn’t stop Gary Gensler, the former Goldman Sachs executive appointed by President Obama to head the Commodity Futures Trading Commission, or Larry Summers, a hedge fund executive appointed to a top economic position in the administration, or Citigroup executive Jack Lew when he was appointed to head the Office of Management and Budget. And it did not stop Tim Geithner, who orchestrated massive taxpayer giveaways to major banks at the New York Fed.

“And yet, according to Democratic-run Washington, D.C., Elizabeth Warren — an academic not connected to the financial industry or past corrupt governmental decisions; a regulator working to protect taxpayer’s bailout money — may apparently be too controversial to be confirmed by a Democratic Senate.”

Obama should nominate Warren and let the defenders of Wall Street rogue lenders make their objections. — JMC

From The Progressive Populist, August 15, 2010