'Deficit Hawks' Leading to a Greater Depression

On Jobs and Teacher Bills:
Some Democrats Ignore
Economics and Politics 101

By Robert Creamer

Political organizer, strategist and author

As of Thursday morning, Democratic leaders are having trouble lining up enough votes to pass two critical pieces of legislation before the Memorial Day Congressional break.

One is a jobs bill that would provide continued aid to states whose budgets have been devastated by the Great Recession, extend unemployment benefits and prevent doctors from having their payments for services to Medicare patients cut by 20%.
 
The other is a provision that would continue federal aid to states to avert 160,000 teacher layoffs.
The difficulty is that many swing Democrats have been pummeled by Republican charges that it is "irresponsible" to engage in spending that is not "paid for" by tax revenues and would increase the short-term deficit.

There is no question that Republicans have done a good job promoting the "deficits -- and government -- are out of control" narrative. Left unanswered, it has traction with some swing voters. But anyone who has studied either Economics or Politics 101 should realize that failure to pass measures that create jobs poses a much graver political danger to members -- and economic danger to the country.



More than anything else, the baseline factor determining the political fate of Democrats in tough races this year will be the state of the economy. Translated to the lives of everyday voters, that means the state of the job market. The major "economic indicator" that average voters will look to is whether they -- or their spouse, brother-in-law, or friend who is job-hunting -- has been hired.

The question that swing members should focus on like a laser beam is the perceptions of swing voters about their own personal economic prospects. That will have far more impact in determining their vote than the position the member has taken on any specific piece of legislation or his "tough" stance on the "deficit."

And -- as any freshman taking macro-economics can tell you -- when the economy is in a recession or is just recovering, it is not the time to cut government stimulus. If 160,000 teachers are laid off next month that will cut in half the monthly job growth we've experienced as our economy has begun to gradually get back on its feet. If states lay off hundreds of thousands of additional state workers, that will cause our economy as a whole to contract.

The notion that we "can't afford" to make sure that teachers, police, firefighters and road repair crews continue to work and provide services to the public is ludicrous. We can't afford to allow them to lose their jobs, because if they do they will cut spending at the supermarket, they won't buy a car, they won't buy new clothes for the kids -- and consequently other people will lose their jobs and the economic recovery will sputter and die.

Whatever you think about the need to rein in deficits in the long run, at a time of economic recession and early recovery, everything we know about economics says that it is not the time to cut government spending.
Of course, politicians have realized for years that this critical economic fact is counter-intuitive to some people. When things get tough a family "tightens its belt," right? That is certainly true of a family -- and all families acting together do the same thing. That's why, if government does nothing when there is a recession, the recession will continue or slide into a depression. Private consumers and businesses cut spending in recessions, so the only way to stop the downward economic spiral -- to prime the economic pump, which is the only source of new demand in the economy -- is for all of us to act together through the government. .
In fact, if it were not for President Obama's stimulus bill (coupled with his moves to stabilize the financial markets) it is likely we would be talking today about another Great Depression.

And as every student of that Great Depression knows, the biggest mistake of the Roosevelt years was to yield to the "deficit hawks" of his day and move to cut the deficit far too early in the recovery. The result was a "double dip" downturn that cost millions of Americans their jobs and delayed full recovery until World War II.
Economically, the deficit we have to worry about most is the deficit between the capacity of our economy to produce goods and services, and the economic demand for those services. When people, plants and equipment lay idle we lose the wealth they would have created forever. The full employment of our workforce and resources -- coupled with constant innovation and increased productivity -- is what will guarantee us long term growth and prosperity. That must be the central measure of the success of any economic policy.

And that, by the way, is another reason why the notion that "we can't afford" to prevent 160,000 teacher layoffs is so absurd. Investment in education is the single most critical thing we can do to increase our long-term economic innovation, increased productivity and widely shared growth.

Before some Democrats pay too much attention to Republican blathering about the economy, they would do well to remember their track record. Under Bill Clinton the economy generated 20 million new jobs, and a Federal Budget that was in surplus as far as the eye could see. Under George Bush the economy collapsed, and the Federal deficit exploded. And during the Bush years the private sector created zero new jobs. That's right, the net growth in private sector jobs under Bush was zero.

Of course there is one other reason why some Democrats are reluctant to vote on the jobs and economic package. The bill eliminates the unbelievable tax loophole that allows hedge fund managers and other "venture capitalists" to pay taxes on their income at a 15% rate instead of the higher rates paid by other mere mortals.
This break means that some hedge fund managers who literally made a half-trillion dollars last year paid taxes at rates lower than the janitors who swept their floors.

This tax change is one of the ways the Democratic leadership plans to reduce the net impact of the Jobs Bill on the deficit. But all of the Republicans and some Democrats have been prevailed upon by the "hedge fund" crowd to defend this outrage. Of course they say, it's all about not killing the geese that lay the golden eggs. These people are "jobs creators," they say. And if you believe that I've got some "golden eggs" to sell you. These people are more often than not high class professional Wall Street gamblers.

Republicans are not going to step up to support critical measures like the jobs and teacher bills. Time for every Democrat to do what's right for our economy -- which also happens to be good politics. Time for them to wake up and remember that for swing voters, this election is mostly about jobs.

Robert Creamer is a long-time political organizer and strategist, and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on Amazon.com.