Thursday, February 05, 2009
Mythology is overshadowing history in the debate over President Barack Obama's plan to stimulate the depressed economy. Excessive airtime isdevoted to the prejudices of cable hosts and radio personalities who regurgitate ideas they barely understand (and who haven't entertained an original thought since the Reagan era). Urgent action that could prevent enormous suffering is delayed by all the same old agendas that have dominated Washington for the past three decades.
So let's dismiss the myths and get back to the facts.
At the top of the myth list is the Republican faith in tax cuts, particularly those designed to benefit wealthy investors. Anyone who has been paying attention knows that for every problem, conservatives have a consistent solution that involves reducing corporate or capital-gains taxes, or lowering the top rate, or instituting a regressive flat tax or consumption tax. (They like spending, too, on certain favored contractors, notably in the defense sector, that donate generously to Republican and right-wing causes.)
But the argument for tax cuts -- unless they are targeted toward lower-income workers, who will spend them immediately -- is contradicted by recent history and basic economics. As Moody's forecaster Mark Zandi has pointed out repeatedly, what creates the greatest stimulative effect is putting cash in the hands of people who must spend that money immediately, namely the poor and working families. The smallest stimulus is created by tax cuts, and in particular the capital-gains and corporate tax reductions most beloved by conservative Republicans.
It is worth recalling that the last time Congress debated these fundamental questions came during the winter and spring of 1993, when Republican members unanimously rejected President Bill Clinton's first budget. Back then, Dick Armey, a Republican representative from Texas and former economics professor, warned that Mr. Clinton's proposed increase in the top tax rate would lead to economic disaster. Those predictions were echoed by every right-wing politician and talking head and soon proved utterly wrong by the historic growth rates of the Clinton years.
Now we hear Armey offering the same kind of predictions about the Obama stimulus plan -- and he is treated as a sage rather than a dolt who bet the ranch on his ideology and lost.
Another persistent myth denigrates spending on food stamps, unemployment insurance, tuition aid and similar programs as "welfare" that doesn't promote growth. According to this argument, assistance to the poor doesn't qualify as "stimulus" because it doesn't create public assets such as roads or bridges. But the real purpose of fiscal stimulus is to boost demand in the economy and prevent the bottom from dropping out under prices for goods and services -- in short, to forestall a deflationary spiral.
Giving money to families that will purchase things immediately is the best kind of boost, as both Moody's and the Congressional Budget Office have noted in recent studies.
It is true that we need to make real investments in transportation, energy, education and technology for the future -- and that our future fiscal difficulties will be eased if we make those investments now. Yet the most immediate need is to promote demand, which will restore confidence and encourage investment.
What we ought to learn from this episode is that extreme inequality reduces national economic stability. The falling wages of working families forced them to rely too much on credit to maintain and improve their standards of living. Restoring the American dream means putting a floor under family incomes and reducing the gap between the richest and poorest, not only for the sake of simple justice but because that is the most reliable economic policy for the nation as a whole.
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