Campaign 2002: It's the Economy and It's Going to be Stupid
Philadelphia Inquirer, January 14, 2002
Knight-Ridder/Tribune Information Services, January 9, 2002
Columbus Ledger-Inquirer (Columbus, GA), January 17, 2002
Montgomery Advertiser (Montgomery, AL), January 17, 2002
The 2002 election campaign has begun, all too predictably: it's the economy, and it's going to be stupid. On one side are Republicans who pretend that changing the tax code to slather even more money on rich people and corporations is the best way to stimulate the economy. On the other side are Democrats who maintain that the tax cuts already passed have made the government powerless in the face of the recession.
"The tax cut has taken away our flexibility and left us with only two choices, both of them bad," said Tom Daschle, Senate Majority Leader and Democratic Presidential hopeful, in the opening speech of campaign 2002. "We can shortchange critical needs, such as homeland defense, or we can raid the Social Security surplus and even run deficits to pay for those critical needs."
Well, I'm all for repealing the $500 billion tax cut that went to the richest one percent of Americans -- households with an average income of more than a million dollars. They don't need to buy another Lexus for their kids.
But let's not exaggerate the state of our government's finances. The federal deficit for this year is running well under one percent of our national income. Anyone who worries about this level of borrowing should never consider taking out a mortgage loan to buy a home.
As for "raiding the Social Security surplus," any accountant can tell Mr. Daschle that this is a purely fictional concept. Social Security's finances are not affected one way or the other if its surplus revenues are used to pay for unemployment compensation, for example, or to pay down the national debt.
We do not have a budget problem. We have a recession problem. The private sector has lost over a million jobs in just the last three months. In a recession, tax revenues also fall, while government spending typically increases. This is normal and helps stabilize the economy.
The federal government ran a budget deficit amounting to 4.7 percent of our economy (or GDP) coming out of the last recession. In 1983, at the end of a more serious downturn, the deficit was 6 percent of GDP. This year's projected deficit, at less than one percent of GDP, is really very small.
But the Democrats' pollsters insist that the way to take Congress in 2002 is to play on the public's fear of debt, and portray themselves as the party of fiscal responsibility. This was not a very clever strategy a year or two ago, but it's even dumber during a recession.
Daschle carries this theme further still, arguing that the "dwindling budget surplus" over the next decade is keeping long-term interest rates higher than they would otherwise be. This "leads to less investment, less consumption, more job loss, and bigger deficits, " he says, and so the tax cut "probably made the recession worse."
This is not a believable story, on economic grounds. Businesses have cut back on investment because they had over-invested during the 1990's bubble, and consumers are holding record levels of debt. It is very unlikely that any effect of budget policy on interest rates is having a significant influence.
Why not tell the truth? We're losing jobs at the fastest rate in 20 years, and the House Republicans in October passed an "economic stimulus" bill that contained very little to boost the economy. Instead they loaded it with more tax breaks for the rich, and tens of billions of dollars in refunds for America's largest corporations. To take advantage of September 11th and the recession with this kind of callousness and greed was bound to cost them politically.
The Republicans realized this after Democrats began running attack ads. In the last hours of Congress' 2001 session, they watered down the October "stimulus" bill.
The Democrats would be wise to continue this line of attack, and go after the tax cuts on the grounds of fairness. For nearly three decades we have lived through one of the most massive, un-equalizing redistributions of income in American history. The majority of the labor force has literally been excluded from the gains produced through economic growth.
Now that the economy has ground to a halt, the public's tolerance for increasing inequality may finally reach its limits. Why not ask them: do you want to go without health insurance or prescription drugs so the rich can get even richer? It's a simpler appeal, and a lot more honest and believable than the phony fiscal conservatism that the Democratic leadership has chosen to embrace.