There's been some worry that Barack Obama would have to put aside his middle class tax cuts to help pay for an ambitious economic stimulus package. The budget deficit would be too big, the argument goes, and this will cause the economy to suffer. You wonder where all these deficit hawks have been for the last eight years. Bush spent money like a drunk in a strip club on his big pet project of rebuilding the middle east in the neocons' image, driving deficits up to historic levels. In return for this massive investment, we've got pretty much nothing. We might as well have piled up money on the capital mall and lit it on fire.
And now that the failures of the new Republican fiscal policy have destroyed our economy, we're being asked to return to those same policies to fix it. It was John McCain who proposed cutting spending (domestic spending, that is -- we'd still be shoveling money into Iraq) in response to the market downturn. In fact, he promised a balanced budget. You know who the last president was who decided to balance the federal budget in a recession? Herbert Hoover. It didn't work.
McCain, more concerned with attracting conservatives than dealing with reality, made a politically motivated choice to run on reducing spending and eliminating earmarks. Nothing could've been worse. "If we were as ignorant as we were in the 1930s, I think we could be facing a second Great Depression," economist Paul Krugman said in a interview on CBS's Face The Nation Sunday. "Really, the only reason that we're not headed for Great Depression II -- at least I don't think we are -- is that we think we learned a few things since then. So we're not trying to balance the federal budget in the face of a recession. But this is big stuff. This is the worst thing, you know, in two lifetimes." In other words, we've learned from Hoover's mistakes -- at least, some of us have.
All of which makes it no surprise that the Obama tax plan is set to go ahead as promised.
Los Angeles Times:
President-elect Barack Obama's top advisors said Sunday that they wouldn't back away from a promise to cut taxes on the middle class and raise them for the wealthiest Americans, as they made the case for a massive new stimulus package geared toward reviving the slumping economy.
Speaking on Sunday talk shows and in a newspaper opinion piece, Obama aides stepped up a drive to build a broad political consensus behind Obama's core economic proposals: a two-year spending package that could exceed $775 billion, coupled with tax policies weighted in favor of the middle class.
Appearing on NBC's Meet the Press, David Axelrod, a senior advisor to Obama, said, "We have to act. Every economist from left to right agrees that we have to do something big in terms of job creation, but we want to do it in a way that will leave a lasting footprint."
In fact, the package will be job one -- Obama wants to sign a bill shortly after he takes office January 20th. The Reaganite supply-side economics will be reversed, with the top earners paying more, while everyone else pays less. Some have said this would hurt jobs, since employers are the ones who create jobs and wealth.
But they're not. Demand creates jobs and wealth -- in other words, consumers. Wealth moves up the economic ladder, not down. If there's no demand for a product or service, you could create all the jobs you wanted and you'd never make a dime. So much for the employer creating wealth.
See, the economy works by having people spend money. And the best way to get money moving is to get it to people who actually need it. No billionaire ever looked at his Bush tax cut and said, "Hey honey, we can finally afford that new refrigerator we've been needing now!"
"[T]he Obama administration... inherits an economy with great potential for the medium and long terms. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national challenges and put our economy on a solid footing for years to come," wrote Lawrence Summers -- former Treasury head under Clinton and Obama's incoming director of the White House National Economic Council -- in the Washington Post.
Summers says that Obama aims to create 3 million new jobs with his stimulus package. "The Obama plan represents not new public works but, rather, investments that will work for the American public. Investments to build the classrooms, laboratories and libraries our children need to meet 21st-century educational challenges," he writes. "Investments to help reduce U.S. dependence on foreign oil by spurring renewable energy initiatives (many of which are on hold because of the credit crunch). Investments to put millions of Americans back to work rebuilding our roads, bridges and public transit systems. Investments to modernize our health-care system, which is necessary to improve care in the short term and key to driving down costs across the board."
"If only because of all the money that the Obama administration is going to spend, I expect to see some pickup late 2009," Paul Krugman agrees. "But I think we're going to be in trouble for several years. This is going to be a tough, long-term slog." This isn't a problem that's going to be dealt with by minor tweaks to economic policy, it's a problem that will have to be dealt with by rebuilding America. The supply-side fantasy will have to be abandoned and hard-headed realism will have to be put in its place.
Even Republicans see the stimulus package as pretty much inevitable. "Regardless of whether I support it or not, a stimulus package is coming," says Senator Bob Corker. "There's too much momentum right now to envision that something isn't going to happen. We can only hope that whatever does happen is something that advances the country's interests." That "something that advances the country's interests" seems to be an end to Republican ideology and waking up from the dream about "self-regulating markets."
In any case, we can be glad we didn't elect Herbert Hoover again.