A Lost American Decade?

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July 31, 2011 by Daniel Stack

We used to talk about the Japanese and lost decade. We’ll look at them as a role model. They did better than we’re doing. this is going to go on. I have nobody I know who thinks the unemployment rate will be below 8 percent at the end of next year. With the spending cuts it might be above 9 percent at the end of next year. There is no light at the end of this tunnel. We’re having a debate in Washington, all about, ‘Gee, we’ll make the economy worse, but will we make it worse on 90 percent of the Republicans’ terms or 100 percent of Republicans’ terms?’ The answer is 100 percent.

– Paul Krugman on ABC’s This Week, July 31, 2011

I have a lot of respect for Paul Krugman. A decade ago he argued the Bush tax cuts were a recipe for decimating the federal budget. He also warned that the housing market was heading for a horrific crash.

Mr. Krugman is now arguing, as he did back in 2008 and 2009, that failing to increase government spending to stimulate the economy will lead to a prolonged stagnant decade.

What is almost certain to emerge out of the debate on the debt ceiling is some arrangement which is solely based around cuts and does nothing to increase revenue. Unlike some progressives to the left of me, I am not against modifications to social programs such as social security and Medicare. Means testing and re-examination of retirement age are  reasonable things to do. And if there is waste in the budget – real waste, real inefficiency, then it is certainly reasonable to trim it.

But it seems foolish to refuse to consider new initiatives to stimulate the economy or to raise additional government revenue. I’d like to address some of the arguments against these ideas.

One of the most common is it would be foolishness to increase taxes on corporations and the very wealthy or, as they now seem to be referred to in Congress, “the job creators”. The reasoning behind this is that that would cause them to be unable to hire additional people as they suffer above and beyond their already crushing tax burden. Unfortunately, it is clearly demonstrable from a look at unemployment figures they are not hiring. As far as the argument of a crushing tax burden, the United States has as percentage of GDP, one of the lowest tax burdens in the world – and one that has been going down (source – Reuters – Chart of the day: America’s small tax revenues).  Corporations have proven very proficient in using tax loop holes to keep their tax burden down, yet even the act of closing those loopholes has been rejected by the Tea Party Congress.

 

What about the argument that people just need to get off of unemployment and get a job? That we need to cut unemployment benefits. That sounds nice. Yet given the unemployment rate and the fact that  many companies are refusing to even consider unemployed candidates that argument seems a non-starter to me. And dollars spent on the unemployed tend to go right back into the economy, paying for groceries, mortgages, etc.

 

The argument you can’t spend yourself out of a recession or depression? The argument goes that the Great Depression was not ended by government programs like the New Deal but rather by World War II. As many will point out, whether that is true or not – and there is a lot of debate on that – World War II, economically, was a massive government program. But regardless, the problem we are faced with, as was faced in the Great Depression, is people have needs, needs that without a job become difficult or impossible to meet. Whether creating jobs or paying unemployment will end a recession is in some ways besides the point if doing so allows people to meet their needs.

 

It is worth remembering how we got here. During the presidency of George W. Bush the United States entered into two wars and added an unfunded prescription drug program to Medicare. While so doing, the United States also cut tax rates, thereby bringing Treasury revenue to its lowest percentage of the GDP it has been in fifty years. To claim we do not have a revenue problem is dishonest. We made a deliberate choice to have a revenue problem and a bearing the fruits of that choice.

 

Is shared sacrifice needed. Yes, absolutely. I’m not in the richest 1% but my family isn’t doing horribly, even with my wife currently out of work. So go ahead, raise tax rates to what they were back in 2000. Go ahead and close corporate loopholes. To put a recovery on the backs of those who are suffering the most, which is just what is being proposed, is an act of unchristian cruelty. Anyone who supports suck measures needs to forfeit the right to label the United States a Christian nation.