Government Isn’t the Problem…and Austerity Isn’t the Answer

I have a friend who witnessed about half of the Supreme Court arguments on the Affordable Care Act. When he walked out of the courtroom, he wasn’t surprised to find a sea of people protesting the law. What did surprise him was how many of the protest signs were anti-Europe. Apparently, the protestors were worried that universal health insurance was the path to “becoming European” and all the nefarious consequences that implies.

If asked for their opinion on government spending to stimulate the economy, I imagine they’d give roughly the same answer.

But the truth is that fiscal irresponsibility has little to do with Europe’s current crisis.

Just before the recession hit, the European governments with the highest public social spending (relative to the size of their economy) were France, Austria, Belgium, and Germany — none of the so-called “PIIGS” nations that are in trouble. In fact, many conservatives have anointed Germany as the role model that its neighbors should emulate.

Even if you measure all government spending in the middle of the crisis, there is no correlation between a country’s public spending and the interest rates on its sovereign debt (which is the key indicator of financial distress).

From 1999 to 2007, the European government with the highest budget deficit (again, relative to economic output) was Slovakia, hailed by conservatives for its flat tax. France’s budget deficit was about as big as Italy’s, and Germany’s was close behind. Spain and Ireland actually had budget surpluses.

Besides, if government spending were the problem, then the crisis should be over by now. The EU and the IMF have forced the PIIGS nations to slash public expenditures — and the recession has only gotten worse.

Compare that strategy with what happened in the United States, where we took the opposite approach and increased public expenditures.

In the fourth quarter of 2008, real GDP contracted at an annual rate of 8.9 percent in the U.S. In January 2009, nonfarm employment declined by over 800,000. That was the lowest point both statistics — growth in economic output and jobs — would reach.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA), better known as the “stimulus” package.

In the first quarter of 2009, real GDP contracted by 6.7 percent. In February 2009, nonfarm employment losses were closer to 700,000. The recession was clearly not over, but the bleeding had slowed.

On March 6, 2009, the Dow Jones reached its cyclical low of 6,626.94. The next day, it began a strong recovery.

By the third quarter of 2009, when the stimulus money was starting to be spent, the economy was growing again. By March 2010, job growth was positive again. (Job growth always lags behind economic output.) By February 2011, two years after Congress passed the ARRA, the Dow Jones cleared 12,000.

Clearly, the ARRA was the turning point. Its passage was the beginning of the end of the Great Recession.

Coincidence? Perhaps.

But isn’t it odd that none of the critics’ predictions came true? They warned that interest rates would skyrocket with the government borrowing so much money. Instead, interest rates plummeted. They warned that inflation would soar. Instead, it’s been low and stable.

And that’s not all. Several economists have measured the effect of the stimulus since it was spent. Two Dartmouth researchers, for example, compared jobs growth in each state and county to the amount of stimulus funds spent in that state or county. They found that every dollar spent on the poor yielded two dollars in increased economic output, and every dollar spent on infrastructure yielded $1.85 in output.

Another study compared jobs growth in each state to the amount of federal Medicaid matching funds spent in that state. They found that each dollar spent yielded two dollars in output. A similar study found that the ARRA “created or saved about 2 million jobs in its first year and over 3 million by March 2011.”

So it’s no surprise then that Europe continues to flounder while America continues to grow. You can’t beat a recession by cutting government spending. Even Mitt Romney said so.

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This op-ed was published in today’s South Florida Sun-Sentinel.

What to Read on Newt Gingrich

Gingrich Urges War with Iran and Skyrocketing Oil Prices — Juan Cole

Gingrich: “We need a strategy of defeating and replacing the current Iranian regime with minimum use of force. We need a strategy…of being honest about radical Islam and designing a strategy to defeat it…

“We need a strategy in central Asia that recognizes that, frankly, if you’re Pashtun, you don’t care whether you’re in Pakistan or Afghanistan, because you have the same tribal relationships.

“But if we were serious, we could break the Iranian regime, I think, within a year, starting candidly with cutting off the gasoline supply to Iran, and then, frankly, sabotaging the only refinery they have.”

The new round of sanctions on Iran recently announced by the US, the UK and Canada have helped drive the price of Brent crude over $100 a barrel…

Oil supplies are tight, and if the US and Israel really could succeed in taking the 2.3 million barrels a day that Iran exports off the world market, on top of the Libyan reductions, it would likely put the price up to more like $200 a barrel (i.e. for Americans $6-$7 a gallon for gasoline).

The US…cannot hope to both replace Iranian production and meet increasing Asian demand with any known “all-energy” policy in the short to medium term. That is a science fiction scenario.

Iran has more than one refinery. The US doesn’t have the assets in Iran to conduct such extensive and massive “sabotage.” And, Iran could “sabotage” things right back. If he means bombing Iranian refineries from the air, that would be an act of war.

There are no [Pashtuns] in Iran or Central Asia, and Gingrich’s bizarre comments on Islam and Central Asia have nothing to do with Iran or its gasoline and petroleum production. Most post-Soviet Muslims in Central Asia are Tajiks or Turkic and are relatively secular.

As far as I can tell, Gingrich wants war with the whole Muslim world.

Newt’s War on Poor Children — Charles M. Blow

Nearly two weeks after claiming that child labor laws are “truly stupid” and implying that poor children should be put to work as janitors in their schools, he now claims…, “Really poor children in really poor neighborhoods have no habits of working and have nobody around them who works. So they literally have no habit of showing up on Monday. They have no habit of staying all day. They have no habit of ‘I do this and you give me cash’ unless it’s illegal.”

[But, the fact is,] three out of four poor working-aged adults — ages 18 to 64 — work.

[Most] poor children live in a household where at least one parent is employed. And even among children who live in extreme poverty…a third have at least one working parent. And even among extremely poor children who live in extremely poor areas…nearly a third live with at least one working parent.

[Even] as more Americans have fallen into poverty in recent years, the crime rate over all — and, specifically, among juveniles — has dropped.

Gingrich Culls War Hawks for His National Security Team — Ali Gharib

Gingrich announced his national security team…:

  • David Wurmser: In 2007, a U.N. official called Wurmser one of the “new crazies” who wanted to attack Iran. In 1996, Wurmser co-authored a paper…advocating the removal of Saddam Hussein from power.
  • Ilan Berman: Berman…has advocated U.S.-led regime change in Iran… [He’s] also attempted to minimize negative effects of [a military] attack and, in 2005…, said Iran is a “prime candidate” for Iraq-style pre-emption…
  • James Woolsey: Woolsey advocated for the Iraq war, supports illegal Israeli West Bank settlement construction, and now pushes a confrontational stance on Iran. In 1998, Woolsey signed onto a…letter urging the military removal of Saddam Hussein…
  • Robert “Bud” McFarlane: In 1988, McFarlane plead guilty to four counts of withholding information from Congress in the Iran-Contra scandal, in which he played a major role, even secretly travelling to Iran in the early arms-for-hostages part of the affair.

Fact Checking the Tea Party Debate: Republicans Stumble on Tax Issues — Citizens for Tax Justice

Gingrich [said] that he is “cheerfully opposed” to raising taxes by closing the sorts of corporate loopholes that benefit GE and other corporations, while also conveniently leaving out that he actually works as an advisor to GE.

Gingrich and the Destruction of Congressional Expertise — Bruce Bartlett

Gingrich said the [Congressional Budget Office] “is a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that it has not internally generated.”

Most policy analysts from both sides of the aisle would say the C.B.O. is one of the very few analytical institutions left in government that one can trust implicitly.

Gingrich said, “If you are serious about real health reform, you must abolish the Congressional Budget Office because it lies.”

Gingrich did everything in his power to dismantle Congressional institutions that employed people with the knowledge, training and experience to know a harebrained idea when they saw it. When he became speaker in 1995, Mr. Gingrich moved quickly to slash the budgets and staff of the House committees, which employed thousands of professionals with long and deep institutional memories.

In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations.

The amount of money involved was trivial even in terms of Congress’s budget. Mr. Gingrich’s real purpose was to centralize power in the speaker’s office, which was staffed with young right-wing zealots who followed his orders without question.

Sorry, Newt. You Never Balanced the Budget — Robert S. McIntyre

In fact, the budget surpluses that we enjoyed from 1998 to 2001 had nothing to do with [Gingrich’s] balanced budget act. Instead, the surpluses stemmed from a dramatic surge in federal revenues, mainly personal income taxes.

In 1993, Bill Clinton undid some of the Reagan tax cuts for the wealthy, in a bill that every Republican in Congress opposed. In the years that followed, federal revenues shot up. By 1996, the deficit had fallen by more than half from its 1993 level.

In 1998 tax revenues continued to soar… That was enough to produce a $64 billion budget surplus. …this had nothing to do with the ’97 budget act, which, because of its tax cuts, actually reduced the 1998 surplus slightly.

How Newt Gingrich Added $16 Trillion to the National Debt — Bruce Bartlett

According to the latest Medicare trustees report, the unfunded liability of Medicare Part D is $16.1 trillion.

[Just before Congress voted on Medicare Part D], Newt Gingrich [wrote in the] Wall Street Journal: “Every conservative member of Congress should vote for this Medicare bill. […] If you are a fiscal conservative who cares about balancing the federal budget, there may be no more important vote in your career than one in support of this bill.”

The Republican Candidates’ History on Mandates — Sarah Kliff

Newt Gingrich has repeatedly supported the mandated purchase of health insurance… “I agree that all of us have a responsibility to help pay for health care,” he told “Meet the Press” earlier this year.

Newt Gingrich’s Doctoral Dissertation — Robert Paul Wolff

“Belgian Education Policy in the Congo: 1945-1960 A Dissertation Submitted on the Sixth Day of May, 1971 to the Department of History of the Graduate School of Tulane University in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy by Newton Leroy Gingrich.”

There is no evidence in the text that he traveled either to Belgium or to the Congo, and he seems not to have interviewed any of the principal actors, Belgian or Congolese, even though the dissertation was written only a handful of years after the departure of the Belgians from the Congo.

Colonization is seen almost entirely from the perspective of the colonial power, not from that of the indigenous population. The rule of King Leopold II, who literally owned the colony as his private property until, at his death, he willed it to Belgium, is widely understood to have been the most horrifyingly brutal colonial regime in Africa. Gingrich acknowledges this fact once in the dissertation.