If President Barack Obama’s response to the economic crisis is imperfect, as he acknowledges, and if the Congressional Democrats leave much to be desired as well, then Americans can at least be thankful that the nation’s fate has not been consigned to the frozen minds on the other side of the aisle. Things are bad, and seem very likely to get worse—but the Republicans seem determined to plunge us into a real depression, gambling that catastrophe would return them to power.
The leaders of the Republican party simply ignore flashing red warnings from the unemployment offices, whose reports now indicate that joblessness in this recession will soon surpass the worst of the 1981-82 slump. They complain about “earmarks,” a miniscule portion of the budget, and they suggest policies that would either have no effect at all or make matters much worse, even according to many of their own most venerated economists.
From those Republican politicians often deemed most thoughtful, such as former House Speaker Newt Gingrich, comes a droning chorus for tax cuts on capital gains. This is the conservative panacea in good times and bad, but it is of little relevance to the problems of the moment. Investors are not fleeing the markets because they worry about enormous returns that will be subject to punitive taxation; they are abandoning stocks and real estate because those assets are deflating like punctured balloons. Until there is a real prospect of capital gains, cutting taxes on them will scarcely affect investment and jobs.
Descending the intellectual scale brings us to the House minority leader, John Boehner. He responded to the frightening February data on job losses—more than 650,000 laid off in a single month—to demand a “freeze in government spending” and a presidential veto of the $400 billion continuing budget resolution.
While Mr. Boehner said he understood that the mass firings meant worsening economic conditions, he seems more worried about “wasteful pork-barrel projects,” a problem that concerned him not at all when his party ran Congress. To him, an unemployment rate surging past 8 percent is a signal that the government should impose a spending freeze “until the end of this fiscal year.” A spending freeze, of course, is precisely the opposite of the policies pursued by the Republicans during the last recession, when their own political butts were on the line.
So is Mr. Boehner suddenly crazy? Is he just economically illiterate? Or is he convinced, like the would-be revolutionaries of the Depression era, that the worse our general situation becomes, the better for his party? All three could be true at once, but his motivation matters less than his ideas, which would be ruinous to everyone if enacted.
What makes someone like Mr. Boehner important and potentially dangerous is not that anyone takes his stupid advice seriously, but that he and his caucus can block or stall policies that might rescue us from the worst consequences of the bust.
The fundamental issue not only in America but in the world economy is a crisis of demand. As the Nobel economist Joseph Stiglitz has explained—most recently at a panel in New York City sponsored by The Nation magazine and the Nation Institute—average wages have fallen for more than three decades. Among the results of that invidious pattern was rising indebtedness, as banks extended usurious credit to working families struggling to maintain their living standards. Years of rising inequality has upset the equilibrium that resulted in rapid and sustained economic growth for most of the postwar period in this country, and created a prosperous, well-educated and optimistic middle-class society.
Back when America worked well, the gaps between the top and bottom of the income scale were far smaller, the public sector was more robust, the labor movement protected living standards and the rewards of work were more fairly distributed. There is only one way to stop the downward slide and begin to restore that proven pattern of economic dynamism with a wage-led recovery.
Public spending, even unto additional trillions, is the only instrument available to prevent a global depression, assuming that we have not already forfeited that chance. The stimulus bill and the Obama budget are only first steps. We will need another strong shot of stimulus before the summer—not a spending freeze—and we can only pray that the president and the Congressional Democrats will have the guts to push the Republicans out of the way.