Campaign 2002: It's the Economy and It's Going to be Stupid
By Mark Weisbrot
This article was published in the following news outlets:
Knight-Ridder/Tribune Information Services - January 9, 2002
Philadelphia Inquirer - January 14, 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.
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