The GOP Magical World Of Voodoo ‘Economists’: Repeal The 20th Century
If you came up with a bumper sticker that pulls together the platform of this year’s crop of Republican presidential candidates, it would have to be:
Repeal the 20th century. Vote GOP.
It’s not just the 21st century they want to turn the clock back on — health-care reform, global warming and the financial regulations passed in the wake of the recent financial crises and accounting scandals.
These folks are actually talking about repealing the Clean Air Act, the Clean Water Act and the Environmental Protection Agency, created in 1970s.
They’re talking about abolishing Medicare and Medicaid, which passed in the 1960s, and Social Security, created in the 1930s.
They reject as thoroughly discredited all of Keynesian economics, including the efficacy of fiscal stimulus, preferring the budget-balancing economic policies that turned the 1929 stock market crash into the Great Depression.
They also reject the efficacy of monetary stimulus to fight recession, and give the strong impression they wouldn’t mind abolishing the Federal Reserve and putting the country back on the gold standard.
They refuse to embrace Darwin’s theory of evolution, which has been widely accepted since the Scopes Trial of the 1920s.
One of them is even talking about repealing the 16th and 17th amendments to the Constitution, allowing for a federal income tax and the direct election of senators — landmarks of the Progressive Era.
What’s next — repeal of quantum physics?
Not every candidate embraces every one of these kooky ideas. But what’s striking is that when Rick Perry stands up and declares that “Keynesian policy and Keynesian theory is now done,” not one candidate is willing to speak up for the most important economic thinker of the 20th century. Or when Michele Bachmann declares that natural selection is just a theory, none of the other candidates is willing to risk the wrath of the religious right and call her on it. Leadership, it ain’t.
I realize economics isn’t a science the way biology and physics are sciences, but it’s close enough to one that there are ideas, principles and insights from experience that economists generally agree upon. Listening to the Republicans talk about the economy and economic policy, however, is like entering into an alternative reality.
Theirs is a magical world in which the gulf oil spill and the Japanese nuclear disaster never happened and there was never a problem with smog, polluted rivers or contaminated hamburger. It is a world where Enron and Worldcom did not collapse and shoddy underwriting by bankers did not bring the financial system to the brink of a meltdown. It is a world where the unemployed can always find a job if they really want one and businesses never, ever ship jobs overseas.
As politicians who are always quick to point out that it is only the private sector that creates economic growth, I found it rather comical to watch the governors at last week’s debate duke it out over who “created” the most jobs while in office. I know it must have just been an oversight, but I couldn’t help noticing that neither Mitt Romney nor Perry thought to exclude the thousands of government jobs included in their calculations — the kinds of jobs they and their fellow Republicans now view as economically illegitimate.
And how wonderfully precise they can be when it comes to job numbers. Romney is way out front when it comes to this kind of false precision. His new economic plan calculates that President Obama would “threaten” 7.3 million jobs with the ozone regulation that, in fact, the president had just canceled. By contrast, Romney claims his own plan will create 11 million jobs in his first term — not 10, not 12, but 11 million.
When you dig into such calculations, however, it turns out many are based on back-of-the-envelope extrapolations from industry data that totally ignore the dynamic quality of economic interactions.
One recent example comes from the cement industry, which now warns that new regulations limiting emissions of sulfur dioxide and nitrogen oxide could close as many as 18 of the 100 cement plants in the United States, resulting in the direct loss of 13,000 jobs.
Then again, where do you think all those customers of the 18 plants will get their cement? Do you think they might get some of it from the other 82 plants, which in turn might have to add a few workers to handle the additional volume? Or that a higher price for cement might induce somebody to build a modern plant to take advantage of the suddenly unmet demand? Or perhaps that higher prices for cement will lead some customers to use another building material produced by an industry that will have to add workers to increase its output? And what about the possibility that the regulation will encourage some innovative company to devise emissions-control equipment that will not only allow some of those plants to remain open but generate a few thousand extra jobs of its own as it exports to plants around the world.
Such possibilities are rarely, if ever, acknowledged in these “job-scare studies.” Also left out are any estimates of the benefits that might accrue in terms of longer, healthier lives. In the Republican alternative universe, it’s all costs, no benefits when it comes to government regulation. As they see it, government regulators wake up every morning with an uncontrollable urge to see how many jobs they can destroy.
If consistency is the hobgoblin of small minds, then these Republican presidential candidates are big thinkers, particularly on fiscal issues.
In the Republican alternative universe, allowing an income tax cut for rich people to expire will “devastate” the U.S. economy, while letting a payroll tax cut for working people to expire would hardly be noticed. Cutting defense spending is economic folly; cutting food stamps for poor children an economic imperative.
My favorite, though, is a proposal, backed by nearly all the candidates along with the U.S. Chamber of Commerce, to allow big corporations to bring home, at a greatly reduced tax rate, the more than $1 trillion in profits they have stashed away in foreign subsidiaries.
“Repatriation,” as it is called, was tried during the “jobless recovery” of the Bush years, with the promise that it would create 500,000 jobs over two years as corporations reinvested the cash in their U.S. operations. According to the most definitive studies of what happened, however, most of the repatriated profits weren’t used to hire workers or invest in new plants and equipment. Instead, they were used to pay down debt or buy back stock.
But fear not. In a new paper prepared for the chamber, Republican economist Douglas Holtz-Eakin argues that just because the money went to creditors and investors doesn’t mean it didn’t create jobs. After all, creditors and shareholders are people, too — people who will turn around and spend most of it, in the process increasing the overall demand for goods and services. As a result, Holtz-Eakin argues, a dollar of repatriated profit would have roughly the same impact on the economy as a dollar under the Obama stimulus plan, or in the case of $1 trillion in repatriated profit, about 3 million new jobs.
It’s a lovely economic argument, and it might even be right. But for Republican presidential candidates, it presents a little problem. You can’t argue, at one moment, that putting $1 trillion of money in the hands of households and business failed to create even a single job, and at the next moment argue that putting an extra $1 trillion in repatriated profit into their hands will magically generate jobs for millions.
It took a while, but even Richard Nixon came around to declaring himself a Keynesian. Maybe there is still hope for Perry and the gang.
Fact Checking The CNN And Tea Party Express Debate In Tampa
The Republican presidential debate in Tampa, Fla., co-hosted by CNN and the Tea Party Express, was feisty and provocative, with many of the candidates relying once again on bogus “facts” that we have previously identified as faulty or misleading.
The debate marked a remarkable shift in tone by Texas Gov. Rick Perry on the issue of Social Security, barely five days after he labeled the venerable old-age program “a Ponzi scheme” doomed to fail. This week, he said it was a “slam dunk guaranteed” for people already on it.
Last week, we explained why the Ponzi scheme label was not true — and also provided readers with a primer on Social Security for those who want to learn more. In Monday night’s debate, Perry and former Mass. Gov. Mitt Romney tangled over the issue again, and Romney had better command of the facts, as far as the two men’s books were concerned.
“The real issue is that in writing his book Governor Perry pointed out that, in his view, that Social Security is unconstitutional, that this is not something the federal government ought to be involved in, that instead it should be given back to the states … . Governor Perry, you’ve got to quote me correctly. You said ‘it’s criminal.’ What I said was Congress taking money out of the Social Security Trust Fund is like criminal, and that is, and it’s wrong.”
— Mitt Romney
Romney gets points for correctly quoting both Perry’s book, “Fed Up,” and his own book, “No Apology.” On page 58, Perry labels Social Security, Medicare, Medicaid and even unemployment insurance as “unnecessary, unconstitutional programs.” While promoting his book last year on MSNBC’s “Morning Joe,” Perry went further, suggesting Social Security should be dismantled and simply become a state responsibility.
“Get it back to the states. Why is the federal government even in the pension program or the health-care delivery program?” Perry said on Nov. 5, 2010. He said that ending the federal government’s role in Social Security would be “one of the ways this federal government can get out of our business.”
(Perry also added: “I wouldn’t have written that book if I wanted to run for presidency of the United States. … I have no interest in going to Washington.”)
Romney’s book, by contrast, contains mostly a sober description of various ways to fix the long-term funding problems of Social Security, with the exception of the suggestion that members of Congress are doing something criminal with Social Security funding (page 158). People can differ, but we think comparing Social Security (a government retirement and disability insurance program) to a trust fund managed by a bank is an inappropriate analogy.
“We know that President Obama stole over $500 billion out of Medicare to switch it over to Obamacare.”
— Rep. Michele Bachmann (Minn.)
“He cut Medicare by $500 billion. This, the Democrat president, the liberal, so to speak, cut Medicare — not Republicans, the Democrat.”
— Romney
Bachmann in particular loves to make this claim, but we have repeatedly explained why it just isn’t correct.
Under Obama’s health-care law, Medicare spending continues to go up year after year. The law tries to identify ways to save money, and so the $500 billion figure comes from the difference over 10 years between anticipated Medicare spending (what is known as “the baseline”) and the changes the law makes to reduce spending.
The savings actually are wrung from health-care providers, not Medicare beneficiaries. These spending reductions presumably would be a good thing, since virtually everyone agrees that Medicare spending is out of control.
In fact, in the House Republican budget this year, lawmakers repealed the Obama health-care law but retained all but $10 billion of the nearly $500 billion in Medicare savings, suggesting the actual policies enacted to achieve these spending reductions were not that objectionable to GOP lawmakers. So it is misleading for Romney to say that Republicans did not make these cuts.
For a more detailed explanation, please see our longer examination of this subject in June, when we gave Bachmann two Pinocchios for making this claim at the first GOP debate.
“Let me say I helped balance the budget for four straight years, so this is not a theory”
— Former House Speaker Newt Gingrich (Ga.)
Gingrich at least indicates there was a president — Bill Clinton — when the nation briefly began to run budget surpluses. And certainly the Republican Congress led by Gingrich prodded Clinton to move to the right and embrace such conservative notions as a balanced budget.
But the budget was balanced in part because of a gusher of tax revenues from Clinton’s 1993 deficit-reduction package, which raised taxes on the wealthy and which Gingrich vehemently opposed. The budget was also balanced because the Democratic White House and Republican Congress were in absolute legislative stalemate, so neither side could implement grand plans to increase spending or cut taxes.
Gingrich is wrong to suggest there were four years of balanced budgets when he was speaker. He left in January 1999; the budget ran a surplus in the fiscal years 1998, 1999, 2000 and 2001. So he can at best claim two years.
During the surplus years, moreover, the gross debt (including bonds issued to Social Security and Medicare) rose by $400 billion. Gross debt is the figure that conservatives tend to use. During Gingrich’s time as speaker, the public debt was essentially flat and the gross debt rose $700 billion.
Obama “had $800 billion worth of stimulus in the first round of stimulus. It created zero jobs.”
— Perry
Perry is wrong. The surplus created jobs; it also saved jobs. But there has not been a net gain in jobs because so many jobs were lost early in Obama’s presidency. Since the stimulus bill was signed, the number of overall jobs in the United has declined by about 1.9 million.
Economists differ on the effectiveness of the stimulus, but most say it has at least some effect (ie, created at least some jobs.) A recent review of nine different studies on the stimulus bill found that six studies concluded the stimulus had “a significant, positive effect on employment and growth,” and three said the effect was “either quite small or impossible to detect.”
“I was one of the only people in Washington that said: Do not raise the debt ceiling. Don’t give the president of the United States another $2.4 trillion blank check. You’ve got to draw the line in the sand somewhere and say: No more out-of-control spending.”
— Bachmann
Ever hear of a “blank check” with a number attached to it? In any case, Congress has already committed to spend much of this money, under budgets passed in previous years. Lifting the debt ceiling merely means that the Treasury now has the authority to make good on bills that are coming due.
“We have cut taxes by $14 billion, 65 different pieces of legislation.”
— Perry
That’s one side of the ledger. We are not sure if Perry’s figure is correct but as Politifact Texas has documented, he has also raised taxes repeatedly, including on cigarettes, to make up revenue for cuts in local property taxes.
“What we saw with all of the $700 billion bailout is that the Federal Reserve opened its discount window and was making loans to private American businesses, and not only that, they were making loans to foreign governments. This cannot be.”
— Bachmann
Bachmann is significantly overstating the case. Bloomberg News, which filed the Freedom of Information Act request that resulted in the disclosure of the Fed loans to foreign banks (some of which had had some government ownership), noted: “The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount-window credit.” All of the loans were paid back, according to Fed officials.
“And I happen to think that what we were trying to do was to clearly send the message that we’re going to give moms and dads the opportunity to make that decision with parental opt-out. Parental rights are very important in the state of Texas. We do it on a long list of vaccines that are made.”
— Perry
Perry skated close to the edge of the truth here as he tried to defend his controversial order to require the vaccine that is said to prevent cervical cancer. As Politifact Texas reported in 2010, Perry “ordered the Department of State Health Services to allow parents dissenting for philosophical or religious reasons from all immunizations — not just this one — to request a conscientious objection affidavit form.”
Just 0.28 percent of students filed such forms, which must be updated every two years to remain viable — and not all private schools accept the form. So as many as 15 percent of girls did not have the possibility of opting out of the requirement to receive the vaccine if they wanted to continue in their schools.
While Romney denied Bachmann’s charge that there was a connection between his order and a $5,000 campaign donation, Texas media reported that Perry’s chief of staff held a meeting on the vaccine plan on the same day the donation was received. Perry’s aides said the timing was a coincidence.
“This is the election that’s going to decide if we have socialized medicine in this country or not. This is it. Why? I just have to say this. It’s because President Obama embedded $105,464,000,000 in Obamacare in postdated checks to implement this bill.”
— Bachmann
It’s wrong to say the health-care law — which builds on the existing private system — will result in socialized medicine, but apparently some people will never be convinced.
But Bachmann’s assertion of $105 billion “embedded” in the health-care law is another bogus claim for which she has previously earned four Pinocchios. We looked closely at her assertion in March and concluded that her charge that this money was “hidden” does not have credibility. The money for these programs was clearly described and analyzed by the Congressional Budget Office before the legislation was voted into law. And since then, the Obama administration has issued a new release every time it spent some of the funds.
By: Glenn Kessler, The Fact Checker, The Washington Post, September 13, 2011
Corporations Can Show Their Patriotism By Hiring
Former President Bush was roundly derided a decade ago for urging Americans traumatized by the September 11 attacks to go shopping. He may, in fact, have been onto something.
Certainly, shopping on its own is a facile and inadequate response to a tragedy that required a new assessment of our national security procedures and how much of our revered American civil liberties we were willing to give up to achieve security—or perhaps, a sense of security. That conversation needs to continue, especially in the area of civil liberties retrenchment.
But Bush was right about something, and that is that ours is a consumer-driven economy. This is arguably a bad basis for a modern economy; there is only so much we can consume (the obesity epidemic is only one sign of our over-indulgence). And people were foolishly taking out home equity loans on wildly over-valued properties and then using the money not to improve the property (thus, theoretically, increasing its value), but to buy other things. This is not sensible. But the reality is, our economy runs on people buying things, and with the economy in the state it’s in, people aren’t shopping anymore. Since people aren’t buying, companies aren’t creating jobs. Many corporations are making record profits and holding huge amounts of cash, but they don’t want to take on more workers because the demand is not there.
So, here’s a 10-years-after tweak of Bush’s suggestion: if corporate America wants to shows its collective patriotism, its leaders should hire someone. Hire even a dozen people, if you run a large company, or even one employee, if you own a small business. Some public officials are worried about raising taxes on the wealthy, arguing that the well-off are job creators. Well, create some jobs, first, and that argument will have more merit. And remember: taking on another employee isn’t a cash loss, ultimately, because it creates a new customer (and a taxpayer who won’t be getting unemployment insurance anymore, either). If shopping was the answer a decade ago, hiring someone is the answer now. It’s the patriotic thing to do.
By: Susan Milligan, U. S. News and World Report, September 12, 2011
Romney’s Stupidest Idea Of The Week
One of the signature policy proposals that Mitt Romney outlined in his economic plan and highlighted in his USA Today op-ed last week is a policy that is as pernicious in practice as it sounds unthreatening. On page 61 of his plan, Romney proposes to cap the rate at which agencies would impose new regulations at zero. This means that if an agency is required by law to issue a new regulation, it must offset the costs, presumably by eliminating some other regulations. Essentially, Romney is proposing to adopt pay-as-you-go budgeting to regulations.
It’s not entirely clear if this rule applies to each agency—would the Food and Drug Administration have to eliminate some food inspection rules if they created some new regulations of food?—or if this is government-wide policy, so if the government creates rules in one area, it would be required to undo rules in another, unrelated area. But either way, this policy would have far-reaching negative consequences. Imagine, for instance, if a cap on regulations was in place after the financial crisis, when lack of regulation of Wall Street led to the cratering of the economy. Under this proposal, in order to regulate Wall Street to ensure that economic devastation couldn’t happen again, the federal government would have to eliminate regulations on food or water or air, or some other protections. Where is the logic of undoing clean air regulations because new consumer protections are needed?
Behind this policy response is a simple animosity towards any rules for businesses that come at the expense of profits. Republicans have been arguing that regulatory uncertainty is hurting job growth because businesses supposedly refuse to make hiring decisions when they don’t know what the rules will be. But if anything were going to feed uncertainty, it would be a rule that haphazardly and randomly picks old rules to eliminate once new rules were created. Companies make decisions about their future assuming those regulations stay in place; eliminating old regulations will simply favor some firms over others.
The bigger point to be made, however, is that regulations are not what are ailing our economy now, nor are they hindering growth. McClatchy recently surveyed small business owners on why they weren’t employing additional people—none offered regulation among the barriers to hiring. (That’s why it’s particularly unfortunate that the president recently fed the Republican obsession with his suspension of the ozone rule, citing “regulatory uncertainty, particularly as our economy continues to recover,” as part of his rationale.) In fact, if anything, greater regulation can be correlated with greater growth: Over the last 50 years, the decades of the highest growth rates for our economy saw the greatest expansion of government and its regulations. Growth rates were highest in the 1960s at 4.55 percent for the decade, when we created Medicare, Medicaid, and the Great Society poverty programs—our greatest expansion of government. And growth rates were the lowest in the last decade, averaging only 1.38 percent. I think it is safe to say George Bush was not a friend of regulation.
But if regulations aren’t the culprit, what is? What’s holding up hiring now is that there is not enough demand in the economy. Even bond traders like Bill Gross acknowledge the need for direct federal help for job creation and growth. To actually create jobs, Republicans should come to the table with the president and pass ideas they have supported in the past, like investment in roads and bridges and hiring teachers who have been laid off. But because Republican ideology will not tolerate federal policies that actually help create jobs, they are reduced to pithy sounding policies on regulations that are just another way of getting rid of protections for consumers in order to help corporations.
As a former policy director on a presidential campaign, I am sympathetic to the desire to try to propose “new” policy ideas that sound good in a speech or a press paper. In the back and forth of a campaign, reporters, campaign press staff, and even the candidates can demand new policies in areas that have been well-trodden and don’t typically make for exciting speeches. But a serious candidate has to put forward serious ideas to solve actual problems. And for a candidate trying to distinguish himself from a Texas governor ready to shoot from the hip, Mitt Romney’s cap on regulation does not meet that test.
By: Neera Tanden, COO, Center for American Progress, Published in The New Republic, September 12, 2011
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