In early February, as the House and Senate prepared to resolve differences on the stimulus bill, Sen. Olympia Snowe (R-Maine) commented to the press: “I have consistently advocated … a package that will truly stimulate this economy, not an omnibus bill bloated with frivolous spending.” Snowe along with Susan Collins (R-Maine) and Arlen Specter (R-Pa.) were widely touted by the media as the mavericks who make the legislation happen. Unfortunately their “moderation” served only to add a false air of respectability to a failed orthodoxy. Had they been genuine mavericks they would have bucked their party in far more substantial ways.
If one concedes, as almost every serious economist now does, that deficit spending is essential to revive our economy, one must get the biggest bang for the buck. The deal the moderates struck failed that test.
Washington Post columnist Steven Pearlstein pointed out that “What really irks so many Republicans is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending.”
Snowe, Collins and Specter bucked their party and allowed a bill that was better than nothing to pass. Nonetheless, the actions and rhetoric of the so- called centrists worsened an already overly parsimonious and imperfectly targeted House measure.
The centrist deal inflicted major damage. Despite most states facing huge budget shortfalls, Senators Snowe and Collins imposed draconian cuts on what Paul Krugman has correctly labeled “the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast—because it prevents spending cuts rather than having to start up new projects—and effective, because it would in fact be spent; plus … local governments are cutting back on essentials, so the social value of this spending would be high.”
Republicans often cite as gospel truth the claim that “government does not create wealth, only the private market does.” Such a sweeping assertion would have surprised Adam Smith, whose classic defense of markets included many examples of how government—and only government—can contribute to the prosperity of a market economy. In his day, the private sector had little incentive to build lighthouses but depended heavily on the warnings to mariners they provided. Even more so today, a prosperous economic future requires basic research, community health services, education at all levels.
One especially egregious example of faulty centrist logic was an effort by Sen. Ben Nelson (D-Neb.) to eliminate a $1.1 billion program to fund public research into what drugs are most cost effective. (Fortunately he was unsuccessful.) Big drug companies objected, but the program will reduce the long- term costs of entitlements, a favorite concern of many fiscal conservatives.
The so-called centrists could have served a broader public purpose by attacking the Democrats’s least effective tax ideas. Cuts in middle-class taxes or the Alternative Minimum Tax may be appropriate as part of general tax reform, but they are minimally stimulative and do not belong in this package.
Frivolity, like pornography, is in the eye of the beholder. I won’t defend every spending proposal in the original House package. Nonetheless, Republicans lose credibility by treating frivolity and waste as diseases solely of the public sector. At one time Republicans were defenders of small business, yet today they seem little concerned with corporate domination of markets. Wasteful government subsidies to Hollywood have been a favorite whipping boy. Fair enough. These subsidies, however, pale in comparison to the money wasted by corporate America’s own fantasy purveyors, advertisers.
US corporations pollute our airways with demeaning and deceptive ads that add unnecessary cost to our products, foster corporate monopoly, and undermine the “sovereign consumer” of market myth. Ads from oil giants over the last generation have steered energy policy and consumer priorities away from alternative energy and conservation. They have helped sustain corporate oligopoly. Yet these vast expenditures are treated as a tax deductible cost of doing business.
If conservatives were genuinely interested in economic efficiency and saving resources, they would reform the tax treatment of advertising expenditures. My suggestion for enhancing competition and strengthening democracy would make a clear distinction between established giants and new start- ups. Tax policy should place no limits on ads for small companies with new technologies. Large established firms should not be allowed to treat ad expenses greater than 1% of gross sales as deductible business expenses. In an era when most working class Americans are being forced to live with less, the waste and the injustice occasioned by huge ad expenditures should be curbed.
Today’s conservatives persist in measuring any government initiative against the ideal standard of a purely competitive economy. Firms are small, information is freely disseminated, and there are no barriers to entry. The modern corporate world hardly lives up to that standard—if it ever did. Gone are the self-correcting markets Milton Friedman celebrated. In their stead stand powerful investment banks and manufacturers that rig the market and dump their failures on the rest of us.
Today we need John Maynard Keynes’ irreverent intellectual spirit as much as a reconsideration of his economics. When the facts change, so should the views of any genuine maverick. Unfortunately today’s centrists so beloved by the Washington media manage only to enhance their own reputations even as they give failed orthodoxy a kinder and gentler face.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@prexar.com.
From The Progressive Populist, March 15, 2009
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