“Betraying His Ignorance”: Mitch McConnell Blames The Slow Recovery On Regulation Because He Doesn’t Understand How The Economy Works
On CNN’s “State of the Union” Sunday, incoming Senate Majority Leader Mitch McConnell said that Republicans in the 114th Congress will focus on blocking environmental and healthcare regulations: “We need to do everything we can to try to rein in the regulatory onslaught, which is the principal reason that we haven’t had the kind of bounce-back after the 2008 recession that you would expect.” But that is exactly the wrong lesson to take from the slow recovery. Rather than laying the foundation for the GOP’s agenda, McConnell is betraying his ignorance on economic issues.
After the financial crisis struck, consumers cut back on their spending and businesses stopped investing. This created a shortfall in aggregate demand—people weren’t buying enough stuff. As consumers stopped buying goods and services, businesses were forced to fire workers, who then cut back their purchases—a vicious cycle. The government’s role is to fill the shortfall in demand, which it can do either through fiscal or monetary stimulus. We’ve done both in the past few years. The stimulus pumped hundreds of billions of dollars into the economy through targeted tax cuts and spending programs. The Federal Reserve cut short-term interest rates to zero to spur investment and used unconventional monetary policy tools like large-scale asset purchases to lower long-term rates. All of this helped avoid a second Great Depression. In fact, as Paul Krugman explained in Rolling Stone in October, the current recovery is actually above average compared to recoveries from past financial crises.
It’s understandable that McConnell would think that this recovery has undershot expectations. Economic growth has been slow and wages haven’t rebounded for the majority of Americans. In fact, only recently—more than six years after the Great Recession—have Americans become more upbeat about the recovery. In other words, this recovery may be above average, but that doesn’t mean it’s been good.
McConnell’s real sin Sunday was his belief that “regulatory onslaught” has been the “principal reason” for the slow recovery. Republicans have made this argument throughout the Obama presidency. If we would only cut government spending, eliminate red tape, and cut taxes for the rich, they say, the economy would thrive. The problem is that these are all supply-side solutions intended to increase productivity and prevent government from crowding out investment. Yet, the economy has faced a demand problem. The GOP’s job agenda, or what they call a jobs agenda anyway, does little to address it.
That doesn’t mean that their agenda will always be unresponsive to the economy’s issues. As the recovery continues and the economy nears full employment, the demand problems will be much less of an issue. Then, Republican supply-side proposals will look more like a legitimate plan to boost growth. Those ideas still may not make sense for other reasons, but at least they could be considered an actual economic platform. Throughout the Obama presidency, though, they have failed to offer such a platform. By suggesting that excessive regulations are the primary driver of the weak recovery, McConnell is only revealing that the GOP hasn’t learned anything during that time either.
By: Danny Vinik, The New Republic, January 10, 2015
“Presidents And The Economy”: Serious Analyses Of The Reagan-Era Business Cycle Place Very Little Weight On Reagan
Suddenly, or so it seems, the U.S. economy is looking better. Things have been looking up for a while, but at this point the signs of improvement — job gains, rapidly growing G.D.P., rising public confidence — are unmistakable.
The improving economy is surely one factor in President Obama’s rising approval rating. And there’s a palpable sense of panic among Republicans, despite their victory in the midterms. They expected to run in 2016 against a record of failure; what do they do if the economy is looking pretty good?
Well, that’s their problem. What I want to ask instead is whether any of this makes sense. How much influence does the occupant of the White House have on the economy, anyway? The standard answer among economists, at least when they aren’t being political hacks, is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents, let’s revisit a much-mythologized episode in U.S. economic history: the recession and recovery of the 1980s.
On the right, of course, the 1980s are remembered as an age of miracles wrought by the blessed Reagan, who cut taxes, conjured up the magic of the marketplace and led the nation to job gains never matched before or since. In reality, the 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years. And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?
In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral.
Then the Fed decided that America had suffered enough. It loosened the reins, sending interest rates plummeting and housing starts soaring. And the economy bounced back. Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom.
The point is that normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
Not quite.
For one thing, the Fed has had a hard time gaining traction in the wake of the 2008 financial crisis, because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives, who have accused it again and again of “debasing the dollar” and setting the stage for runaway inflation. Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least, even if you think Mr. Obama deserves little or no credit for good economic news, the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest, now and then, that some bankers have behaved badly — is somehow responsible for the economy’s weakness. Now that he’s presiding over unexpected economic strength, they can’t just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we’re doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that’s because they are.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 4, 2015
“Austerity’s End Strengthens U.S. Recovery”: Speechless, Republicans Fall Back To Peddling More Nonsense
For a variety of partisan and ideological reasons, the right finds it necessary to believe austerity helps the economy. Conservatives, on Capitol Hill and off, remain wedded to the idea that taking capital out of the economy and weakening demand will lead to more growth, all evidence to the contrary notwithstanding.
In an amusing twist, as the U.S. economic recovery gains strength, some on the right actually feel vindicated.
Grover Norquist would like Republicans to shut up about how bad the economy is, and instead take credit for the recovery.
The prominent anti-tax crusader hasn’t turned into a bullhorn for President Barack Obama’s economic policies; he still thinks they’re a drag on jobs and wages. But he’s also grown critical of his fellow Republicans for making poor strategic and messaging decisions on several key issues. Rather than tying the economic recovery to spending cuts ushered in by the sequester and to the continuation of 85 percent of the Bush tax cuts, he said, some in the party have insisted their own leaders fumbled those items.
It’s an interesting course correction for the right. In recent years, Republicans have said the combination of the Affordable Care Act, federal regulations, and higher taxes on the wealthy are crushing the economy. That argument obviously doesn’t make any sense in light of the strongest growth and job creation in over a decade.
So Norquist is suggesting his party flip the script: sure the economy is starting to soar, he says, but that’s only because deep spending cuts like “the sequester” gave the nation a big boost. Austerity took capital out of the system, some conservatives are now arguing, and just look at how great the results are!
It’s important to understand the degree to which Norquist has the story backwards. Recent developments haven’t bolstered conservative economic theories; they’ve done the opposite.
First, the national economy hasn’t improved as a result of spending cuts, but rather, the end of spending cuts.
For a long stretch, government spending cutbacks at all levels were a substantial drag on economic growth. Now, finally, relief is in sight. For the first time since 2011, local, state and federal governments are providing a small but significant increase to prosperity. […]
Across the nation, state and local governments, Democratic and Republican alike, are spending on projects that were stalled. Teachers, who were laid off in droves in recent years, are being hired again. Even federal spending in some sectors is on the rise.
The more the public sector starts to reinvest, as opposed to scaling back, the stronger economic growth becomes. This is the polar opposite of Republican economic theory, and yet, the laws of supply and demand don’t much care about politicians’ ideology.
Second, as Danny Vinik explained, “one of the big reasons that the economy kicked into gear in the latter half of this year is that the Murray-Ryan budget deal alleviated much of sequestration. Fiscal policy, finally, is largely not standing in the way of stronger growth.”
Paul Krugman last week seemed to anticipate Norquist’s argument, and preemptively destroyed it.
Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?
It certainly wouldn’t imply that hitting yourself in the head was a good idea. It would, however, be an indication that the pain you were experiencing wasn’t a reflection of anything fundamentally wrong with your health. Your head wasn’t hurting because you were sick; it was hurting because you kept hitting it with that baseball bat.
And now you understand the basics of what has been happening to several major economies, including the United States, over the past few years. In fact, you understand these basics better than many politicians and commentators. […]
[I]n America we haven’t had an official, declared policy of fiscal austerity – but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result.
I can appreciate the dilemma facing Norquist and his allies when it comes to explaining the sudden economic surge. Indeed, after the strongest economic growth in 11 years, Republicans greeted the news with total silence – literally.
And if I were in their shoes, I’d probably be speechless, too. But that’s no excuse for peddling nonsense – those hoping to credit austerity for a healthy recovery clearly have no idea what they’re talking about.
By: Steve Benen, The Maddow Blog, January 2, 2014
“Economic Facts Get In The Way”: For Republicans, Pretending That ‘Up Is Down’ Won’t Cut It
Uh-oh. Now that the economy is doing well, what are Republicans – especially those running for president – going to complain about? And what are Democrats willing to celebrate?
Last week’s announcement that the economy grew at a 5 percent rate in the third quarter of 2014 – following 4.6 percent second-quarter growth – was the clearest and least debatable indication to date that sustained recovery is no longer a promise, it’s a fact.
Remember how Mitt Romney painted President Obama as an economic naïf, presented himself as the consummate job-creator and promised to reduce unemployment to 6 percent by the end of his first term? Obama beat him by two full years: The jobless rate stands at 5.8 percent, which isn’t quite full unemployment but represents a stunning turnaround.
Since the day Obama took office, the U.S. economy has created well over 5 million jobs; if you measure from the low point of the Great Recession, as the administration prefers, the number approaches 10 million. It is true that the percentage of Americans participating in the workforce has declined, but this has to do with long-term demographic and social trends beyond any president’s control.
Middle-class incomes have been flat, despite a recent uptick in wages. But gasoline prices have plummeted to an average of $2.29 a gallon nationwide, according to AAA. This translates into more disposable income for consumers; as far as the economy is concerned, it’s as if everyone got a raise.
The stock market, meanwhile, is at an all-time high, with the Dow soaring above 18,000. This is terrific for Wall Street and the 1 percenters, but it also fattens the pension funds and retirement accounts of the middle class.
All this happy economic news presents political problems – mostly for Republicans but to some extent Democrats as well.
For Rand Paul, Jeb Bush, Chris Christie, Marco Rubio and other potential GOP presidential contenders, the first question is whether to deny the obvious, accept it grudgingly or somehow embrace it.
For years, a central tenet of the Republican argument has been that on economic issues, Obama is either an incompetent or a socialist. It should have been clear from the beginning that he is neither, given the fact that he rescued an economy that was on the brink of tipping into depression – and did it in a way that was friendly to Wall Street’s interests. But the GOP rarely lets the facts get in the way of a good story, so attacks on Obama’s economic stewardship have persisted.
The numbers we’re seeing now, however, make these charges of incompetence and/or socialism untenable. Even the Affordable Care Act – which Republicans still claim to want to repeal – turned out not to be the job-killer that critics imagined. All it has done, aside from making it possible for millions of uninsured Americans to get coverage, is help hold down the cost of medical care, which is rising at its slowest rate in decades.
GOP candidates face a dilemma. To win in the primaries, where the influence of the far-right activist base is magnified, it may be necessary to continue the give-no-quarter attacks on Obama’s record, regardless of what the facts might say. But in the general election, against a capable Democratic candidate – someone like Hillary Clinton, if she decides to run – pretending that up is down won’t cut it.
Likewise, the Republican leadership in the House and now the Senate will confront a stark choice. Do they collaborate with Obama on issues such as tax reform, infrastructure and the minimum wage in an attempt to further boost the recovery? Or do they grumble on the sidelines, giving the impression they are rooting against the country’s success?
Democrats, too, have choices to make. The fall in gas prices is partly due to a huge increase in U.S. production of fossil fuels. “Drill, baby, drill” may have been a GOP slogan, but it became reality under the Obama administration. Is the party prepared to celebrate fracking? Will Democratic candidates trumpet the prospect of energy independence?
Likewise, Elizabeth Warren charges that the administration’s coziness with Wall Street helps ensure that the deck remains stacked against the middle class. Warren says she isn’t running for president but wants to influence the debate. She has. Clinton’s speeches have begun sounding more populist, in spite of her long-standing Wall Street ties.
You know the old saying about how there’s no arguing with success? Our politicians are about to prove it wrong.
By: Eugene Robinson, Opinion Writer, The Washington Post, December 20, 2014
“Uh Oh”: With GDP Growing Strongly, Republicans’ Economic Dilemma Gets More Complicated
We got the latest quarterly economic growth numbers today, and they’re pretty striking:
The U.S. economy grew at its fastest rate in more than a decade between the months of July and October, helped by a surge in consumer spending, according to government data released Tuesday morning.
The Commerce Department said gross domestic product growth hit an annualized rate of 5 percent in the third quarter, revised upward from the previous estimate of 3.9 percent. Not since 2003 has the economy expanded so quickly.
The third quarter performance, coupled with 4.6 percent growth in the second quarter, amounts to the best sign since the Great Recession that the U.S. recovery has hit its stride.
The simple way to look at the political implications of these numbers is to say that it’s good for Democrats, since there’s a Democrat in the White House. And though it’s extremely unlikely for growth to stay over 5 percent for any length of time — it’s been 30 years since we had more than two consecutive quarters at that level — if both growth and job creation remain strong for the next two years, it’ll be somewhere between difficult and impossible for a Republican to win the White House in 2016, since the state of the economy swamps every other issue in presidential campaigns.
That’s the simple way to look at it, and it’s not wrong. But there’s another layer to the state of the country’s economy that could make things more complicated for both parties. It has to do with the difference between the two numbers that get the most attention — job creation and GDP growth — and the rest of how Americans experience their economic and working lives.
If you listen to the way President Obama talks about the economy these days, you’ll notice that he always says both that things are going well and that “we have more work to do.” It’s a way to assure people that he understands that they don’t feel secure and that many may not have gotten back to where they were before the Great Recession. On the other side, for a long time Republicans would say, “Where are the jobs, Mr. President?” But they can’t say that anymore, nor can they complain about growth being weak.
The economic debate of 2016 will start in about a year from now. While there could certainly be a downturn between now and then, let’s assume for the moment that the momentum continues. How could Republicans make a case that although growth and job creation are strong, all is still not well? Even if that’s what Americans feel, it would be a difficult case for Republicans to make, because those top-line figures are what they generally point to when they discuss the economy. What else can they build their case on? They aren’t going to talk about the stock market or corporate profits, not only because those have both performed spectacularly during the Obama presidency, but because they know that ordinary people don’t much care.
And they aren’t going to talk about the things that really make people worried. The most important fact of the American economy in the past few decades may be its failure to produce rising wages, but that’s not something Republicans are particularly concerned with. Their economic focus is usually on business owners — the taxes they pay, the regulations they have to abide by, and so on. Even if you believe that helping those owners is the best way to help the people who work for them, you’re going to have a hard time finding Republicans who want to talk about something like wage stagnation.
And the arguments Republicans always make against Democratic proposals aimed directly at workers, like increasing the minimum wage or expanding health coverage, are that the proposals will cost jobs and hinder growth. So they can’t turn around and say, “OK, so growth and job creation may look good, but the real problem is what people earn and how they’re treated on the job.” That’s just not in the Republican DNA.
If there’s an accompanying problem for Democrats, it’s that voters could look at the Obama years and say that yes, it’s now a lot easier to find a job, but the jobs don’t pay what they should or offer the same security and dignity they used to. The American economy is a much crueler place than it once was, and two terms of a Democratic administration haven’t done enough to reverse that evolution.
That could be a genuinely biting critique. But fortunately for Hillary Clinton (or whoever the 2016 Democratic nominee is), Republicans are the last ones who are going to make it.
By: Paul Waldman, Contributing Editor, The American Prospect; The Plum Line, The Washington Post, December 23, 2014
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