While We Were Away, Republicans Were Trying to Kill The Economy

While the mess in Wisconsin drags on, the economic recovery remains fragile and anemic.

And the Republicans in Congress—almost unnoticed—are doing everything they can to exacerbate its fragility and deprive it of much-needed iron—government spending.

Most every economist this side of Rush Limbaugh understands that there is a deficiency in demand in our economy.  That’s one reason (but not the only one) why American businesses are sitting on a Chris Christie-size pile of cash.   But what to do about the demand problem is the issue.

The Republican answer is austerity.  Crippling austerity, it turns out.  Last week, Speaker Boehner famously said he doesn’t much care (“so be it”) if the GOP spending cuts kill jobs, because they would be government jobs.

But yesterday, the Financial Times published a story indicating that it won’t just be government workers who take a hit from Republican budget-cutting hysteria. The headline was:

Goldman sees danger in US budget cuts

The story began:

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

Even if—to avoid a government shutdown—Democrats managed to whittle down the budget cuts in a compromise deal with Republicans, say, to $25 billion, that will still “lead to a smaller drag on growth of 1 percentage point in the second quarter.”

Mark Zandi, chief economist at Moody’s Analytics, and former John McCain campaign adviser, concurs:

The betting is that we’ll see cuts somewhere close to $25-, $30 billion that take affect beginning in the second quarter of this year. And that could shave growth by as much as a percentage point. So it would weigh on growth. It would have longer lasting affects, but near-term it would be a negative.

Kudos to at least one Senate Democrat Chuck Schumer, who said,

This nonpartisan study proves that the House Republicans’ proposal is a recipe for a double-dip recession. Just as the economy is beginning to pick up a little steam, the Republican budget would snuff out any chance of recovery. This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy.

Unfortunately, the cut-and-grow fantasy is not that easy to kill.

Paul Krugman, wrote a few days ago:

It’s amazing how this whole crisis has been fiscalized; deficits, which are overwhelmingly the result of the crisis, have been retroactively deemed its cause. And at the same time, influential people around the world have seized on the idea of expansionary austerity, becoming ever more adamant about it as the alleged historical evidence has collapsed.

Since the fall of 2008, there has emerged two diametrically opposed approaches to solving our (and the world’s) economic predicament:

(1) Stimulate the economy through government (deficit) spending until consumer demand picks up sufficiently to sustain a strong recovery

(2) Drastically cut government spending because deficits are a drag on the economy

It appears to me that the balance of economic opinion—from real economists—agrees with (1).  But Republicans—energized by anti-government deficit-phobes in the Tea Party movement—have successfully changed the debate from nurturing the economy back to health and creating jobs to killing labor unions, dismantling government programs, and making draconian cuts in government spending.

It’s fair to ask: What does killing Big Bird and collective bargaining have to do with lowering the unemployment rate?

Mark Thoma, Professor of Economics at the University of Oregon, wrote in The Economist:

Policymakers are not taking proper account of the risk of an extended period of stagnation. We should be pursuing additional fiscal stimulus along with quantitative easing as insurance against a stagnant economy that persists into the future, in fact this should have happened months ago.

He wrote that in October of 2010.

But Thoma is a real economist.  He doesn’t just play one on TV or radio.  And as Krugman said,

From where I sit, it looks as if the ascendant doctrines in our policy/political debate are coming precisely from people who don’t know and don’t care about technical economics. The revival of goldbuggy sentiment, the fear of hyperinflation in the face of high unemployment, the continuing force of the notion that tax cuts don’t increase the deficit, aren’t coming from some subtle battle among mathematical modelers; they’re coming from the same people who reject evolution, climate science, and more. They don’t need no stinking technical analysis. The truth is that the economics profession is proving far less relevant to public debate, even in the face of economic crisis, than was dreamed of in our philosophy.

Now, whether you think it good or ill that professional economists have lost their clout, the fact remains that in their place have come fiscal and monetary policy geniuses like Michele Bachmann and Glenn Beck and, God forbid, Ozark Billy Long.  People like these three have more to do with how we are fighting this crisis than those who have spent a lifetime studying economics.

And if that doesn’t scare you, then you must be a wealthy Republican.

[J.S. Applewhite / AP (left, center); Cliff Owen / AP]

Obama’s Socialist Chickens Are Coming Home To Roost

You may not have noticed it, given the propensity of media outlets to accentuate the economic negatives, but domestic manufacturing is improving. 

First, though, let’s review. During the Bush years almost 4½ million manufacturing jobs disappeared.  Oh? Don’t believe me?  Would you believe Patrick J. Buchanan?  Two years ago Buchanan, who isn’t exactly Eugene Debs, wrote:

Beginning and ending in recession, the Bush presidency added a net of 407,000 private sector jobs over eight years, less than 51,000 a year, the worst eight-year record since 1927-35, which includes the first six years of the Great Depression.

By January 2009, the average workweek had fallen to 33.3 hours, the lowest since record keeping began in 1964.

From Jan. 31, 2001, through Jan. 31, 2009, 4.4 million manufacturing jobs, 26 percent of all of the manufacturing jobs in the United States, disappeared.

Semiconductors and electronic component producers lost 42 percent of their jobs. Communications equipment producers lost 48 percent of their jobs. Textile and apparel producers lost, respectively, 63 percent and 61 percent of their jobs.

As a source of American jobs, manufacturing, for the first time in our history, fell below health care and education in 2001, below retail sales in 2002, below local government in 2006, below leisure and hospitality, i.e., restaurants and bars, in 2008.

Between this unprecedented loss in manufacturing capacity and jobs, and the $3.5 trillion in trade deficits in manufactured goods alone, run up by George W. Bush, the correlation is absolute.

Of course, Buchanan, ever pessimistic, saw our national doom in the numbers:

These statistics, these realities — factories closing in the United States, manufacturing jobs being outsourced in the millions to China and Asia, enormous, endless trade deficits in goods — testify to a painful truth: America is a receding and declining world power.

Not so fast, Pat.  Perhaps there is some hope for us yet. From the AP today:

U.S. manufacturers are finally adding jobs after years of shrinking their payrolls. They added 136,000 workers last year, the first net increase since 1997. And in January, the manufacturing sector added 49,000 jobs – the most in any month since August 1998.

From the Financial Times last week:

US manufacturing activity expanded last month at the fastest rate since 2004 on the strength of robust new orders and production, offering hope that the sector will add momentum to the economic recovery…

The US manufacturing sector has shown growth for the last year and a half, with activity accelerating steadily during the last six months. Fourteen of the 18 industries that ISM tracks grew in January.

“This only confirms that the US is at the leading edge of the global pick-up in manufacturing,” said Alan Ruskin, strategist at Deutsche Bank.

Wow! How can that be in the Age of Obama?

And from CNN yesterday:

Demand for capital equipment in the US is starting to pick up strongly, manufacturers say, boosting confidence in the health of the economic recovery and raising hopes of a revival in American industry.

St. Louis County-based conglomerate, Emerson, is cited as telling its investors,

that it expected non-residential investment in the US to grow by 8-9 per cent this year; as much as the average for emerging markets.

Honeywell executive David Cote is quoted as telling the Financial Times:

I do believe the US economy is more resilient now. Barring any unforeseen circumstances, we’re on the comeback trail.

Wow!  With a anti-colonialist Kenyan in the White House?

And Caterpillar, “the world’s largest manufacturer of earthmoving equipment,” will spend more than $1.5 billion “in the U.S. to build capacity.”

And this:

Eaton, the Ohio-based manufacturer of industrial equipment and components, has said it expected its US sales to grow faster than its international sales this year. Sandy Cutler, Eaton’s chief executive, told the FT that demand was “far stronger than people had thought it would be”.

Oh, I know that Republicans—who instead of jobs are currently focused on the old abortion debate—will take credit for this resurgence.  Just their calming, pro-business presence in Washington, as newly installed controller of 1/2 of 1/3 of the federal government, is enough to account for this release of pent-up investment, right? 

But we know the truth: Some of the socialist policies of the anti-capitalist, America-hating, African usurper in the White House are finally coming home to roost.

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