Brief notes worth remembering:
Paul Krugman, shortly after the midterm election:
So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.
Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.
GOP stalwart Bruce Bartlett, a veteran of the Reagan and Poppy Bush administrations, as well as former aide to Reps. Jack Kemp and Ron Paul:
It is starting to look like 1937 all over again. As the table below indicates, the economy made a significant recovery after hitting bottom in 1932, when real gross domestic product fell 13 percent. The contraction moderated considerably in 1933, and in 1934 growth was robust, with real G.D.P. rising 11 percent. Growth was also strong in 1935 and 1936, which brought the unemployment rate down more than half from its peak and relieved the devastating deflation that was at the root of the economy’s problems.
By 1937, President Roosevelt and the Federal Reserve thought self-sustaining growth had been restored and began worrying about unwinding the fiscal and monetary stimulus, which they thought would become a drag on growth and a source of inflation. There was also a strong desire to return to normality, in both monetary and fiscal policy.
On the fiscal side, Roosevelt was under pressure from his Treasury secretary, Henry Morgenthau, to balance the budget. Like many conservatives today, Mr. Morgenthau worried obsessively about business confidence and was convinced that balancing the budget would be expansionary. In the words of the historian John Morton Blum, Mr. Morgenthau said he believed recovery “depended on the willingness of business to increase investments, and this in turn was a function of business confidence,” adding, “In his view only a balanced budget could sustain that confidence.”
Roosevelt ordered a very big cut in federal spending in early 1937, and it fell to $7.6 billion in 1937 and $6.8 billion in 1938 from $8.2 billion in 1936, a 17 percent reduction over two years.
At the same time, taxes increased sharply because of the introduction of the payroll tax. Federal revenues rose to $5.4 billion in 1937 and $6.7 billion in 1938, from $3.9 billion in 1936, an increase of 72 percent. As a consequence, the federal deficit fell from 5.5 percent of G.D.P. in 1936 to a mere 0.5 percent in 1938. The deficit was just $89 million in 1938.
At the same time, the Federal Reserve was alarmed by inflation rates that were high by historical standards, as well as by the large amount of reserves in the banking system, which could potentially fuel a further rise in inflation. Using powers recently granted by the Banking Act of 1935, the Fed doubled reserve requirements from August 1936 to May 1937. Higher reserve requirements restricted the amount of money banks could lend and caused them to tighten credit.
This combination of fiscal and monetary tightening – which conservatives advocate today – brought on a sharp recession beginning in May 1937 and ending in June 1938, according to the National Bureau of Economic Research. Real G.D.P. fell 3.4 percent in 1938, and the unemployment rate rose to 12.5 percent from 9.2 percent in 1937.
And then there is this, from John S. Irons of the Economic Policy Institute:
The agreement to raise the debt ceiling just announced by policymakers in Washington not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs. The spending cuts in 2012 and the failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012, relative to current budget policy.
It seemed perverse, in November, when I told an associate that congressional Republicans had every reason to keep unemployment numbers high. Such an implication would, once upon a time, have been unspeakable. But the GOP’s well established policy of “No” brings the whole question squarely into focus. In June, Republicans rejected a payroll tax cut extension; after the debt deal, House Republicans left town with the FAA in limbo, forsaking a projected billion dollars in tax revenues—which many airlines are simply pocketing—and putting over 70,000 jobs on the block.
Meanwhile, the Republicans’ employment policy is about what you would expect. Ezra Klein suggests “there’s nothing in this plan that hasn’t been in a thousand other plans”:
When I asked David Autor, an economist at the Massachusetts Institute of Technology and a specialist on labor markets, to take a look at the substance, he pronounced it a classic case of “what Larry Summers would call ‘now-more-than-everism.’ ”
“Here’s how it works,” Autor wrote in an e-mail. “1. You have a set of policies that you favor at all times and under all circumstances, e.g., cut taxes, remove regulations, drill-baby-drill, etc. 2. You see a problem that needs fixing (e.g., the economy stinks). 3. You say, ‘We need to enact my favored policies now more than ever.’ I believe that every item in the GOP list that you sent derives from this three-step procedure.
“That’s not to say that there are no reasonable ideas on this list. But there is certainly no original thinking here directed at addressing the employment problem. Or, to put it differently, is there any set of economic circumstances under which the GOP would not actually want to enact every item on this agenda? If the answer is no, then this is clearly now-more-than-everism.”
If you read Autor’s answer and then guessed at what’s included in the plan, you’d probably get it about right. The GOP wants a separate congressional vote on every significant regulation. It wants to cut taxes for corporations and small businesses led by individuals. It wants a tax break on profit that corporations earn overseas. It wants to pass pending trade agreements, increase domestic production of oil and enact spending cuts. The only two proposals you couldn’t have guessed sight unseen are patent reform and visas for the highly skilled.
But even if you think every item on that agenda is a grand idea, this isn’t exactly fast-acting medicine. “At best, an agenda like this is meant to improve long-term growth by a couple of tenths of a percentage point,” says Larry Mishel, president of the Economic Policy Institute. “It takes a really long time to move the dial. It’s not a response to a cyclical downturn.”
Meanwhile, in the “short” term, Republicans are doing everything they can to “just say no” to jobs. The failed stimulus never actually failed; rather, it simply didn’t do everything we hoped. And this was by design; the smaller stimulus amount and heavy reliance on tax breaks were intended to appease Republican demands. They’re still at it, demanding a debt deal that will wreak havoc on the slow-coming employment recovery and even sending much-needed jobs from much-needed construction projects to the showers.
It almost seems as if the question is whether or not the Republicans can hide in the shadows of dignity. That is, if describing the behavior is a terrible insult, why should they not behave that way? After all, if anyone calls them out, they can just complain about hyperbole.
For instance, one should never say, “Republicans are trying to destroy the United States of America.” Sure, one might argue that their policy approach has every appearance of aiming to sink the nation in pursuit of political desires, but it would be undignified to accuse them of such. Rather, dignity demands that we regard Republicans as if they are serious players with rational ideas to be considered respectfully.
And they are willing to hide there. To behave atrociously and then cry, “How dare you accuse us of behaving atrociously!” After all, it is not polite to accuse people of behaving atrociously. Instead, you just accuse them of being Kenyan anti-colonial Jewish commie Nazis. You know, educated discourse.
But it is worth remembering that Republicans want you unemployed. They want fiscal disaster. They want the nation to fall apart. In the end, as Rush Limbaugh said in 2009, they want President Obama to fail. And if that hurts a lot of people, there’s only one thing to do about that. Blame everyone else.