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Friday, June 25, 2010

Republicans Fail Economics

Let's take a moment and pretend that the common political idea of running government like a business makes any damned sense at all. And let's not wonder which business we should model our government after; Enron, Lehman Brothers, Bear Stearns, BP, etc. Let's just take it at face value and assume this is the best idea anyone ever had. Now, ask yourself this question; is debt a bad business plan?

If it is, then American business is screwed. One of the first problems we had in the Great Economic Unraveling of 2008 was that banks weren't lending money -- to businesses. And this was bad, you'll remember. Businesses relied on credit to keep things rolling. If they couldn't get loans, they wouldn't be able to make payroll or meet other obligations. It became clear that American business, like businesses all over the world, relied on credit. This shouldn't be all that surprising. If your profits are x and the interest rate is y, then it makes good business sense to borrow money if it means the value of x will exceed the value of y. In other words, if credit allows you to make investments in your business that result in profits that exceed the what you have to pay back -- interest included -- you'd have to be a fool not to borrow money to make that investment. We know that debt is good for business, because we witnessed a period when credit wasn't available and we know that it was really, really bad. If our government is running like a business, there will be times that running a debt will be not only necessary, but the wisest course of action. The "government as a business" types like to pretend that businesses don't carry debt, but they're just plain lying. In capitalism, debt is not only good, but crucial -- one of the factors in the creation of wealth are interest payments.

So, in our "government as a business," we can't automatically argue that debt is bad. Before we can do that we have to show that the borrowing won't pay off in the long run. For example, leading causes of our current debt are the wars in Iraq and Afghanistan and Bush's top-heavy tax cuts. In terms of investment, our "government as a business" was shoveling money into a hole with the wars -- we still are -- and the tax cuts were a gamble that didn't pay off. Despite Bush promises that we'd "grow our way out of debt," we never actually did. In this government business, war and tax cuts have turned out to be pretty lousy investments.

But, given all this, we still see Washington and the media freaking out about debt. Not bad debt or bad investments, but just debt -- as if it's all the same. Debt and deficits are bad for the economy, they say -- without ever explaining how, exactly -- and this is the big problem we have to address now, now, now. Never mind that, as a business, there's no reason for us to give a crap about how we influence the economy (think Lehman Brothers did?), but I guess this whole "government as a business" thing requires that we ignore a lot of obvious facts. We're apparently in the Good Economy business.

Part of the problem here is that the media has joined in on this "government as a business" idea. It's suddenly become the consensus. Everyone in America agrees that government really is a business and that debt and deficits are always bad. Period. End of story.

This is what you call "accepted wisdom" and, as is so often the case, the accepted is just plain wrong.

Fairness and Accuracy In Reporting (FAIR):

In the June 21 New York Times, John Harwood wrote, "The same polls that show voters upset about joblessness also show them upset about deficit spending, which Democratic leaders consider their only short-term method of reducing joblessness."

The Washington Post (6/19/10) put the same narrative on its front page under the headline, "Election-Year Deficit Fears Stall Obama Stimulus Plan." Reporter Lori Montgomery acknowledged that many economists see a greater threat looming if the government doesn't provide additional stimulus. But, she countered, "a competing threat--the exploding federal budget deficit--seems to be resonating more powerfully in Congress and among voters." The piece went on to note that the first stimulus package does not appear to poll very well, and that voters "are sending mixed signals about whether Washington should spend more on jobs or start minding the national debt."

But most recent polls show far more public concern over unemployment than deficit spending or the federal debt. As FAIR noted (FAIR Blog, 5/19/10), recent surveys from CBS/New York Times and NBC/Wall Street Journal asked voters to rank problems facing the country. Unemployment was more important by a spread of 49 percent to 5 percent in the CBS/NYT poll, 35 percent to 20 percent in the NBC/WSJ survey, and 47 percent to 15 percent from a recent Fox poll. Blogger Ben Somberg raised similar questions (6/19/10) in response to the Post story.

So the people know something that the "government as a business" types in Washington and the media don't; deficits aren't the problem, unemployment is. And we're right. The problem with the economy is that no one's spending money. And if we have a big pool of people without money, then that just makes things worse. Our economy, like all economies, is consumer-driven. If people aren't spending money, the economy isn't healthy.

What you want to do is get money to people who don't have it. Why? Because there is no one on earth so certain to spend money as the person who needs it. They're going to stop buying rahmen noodles and start buying something a little more real. And, if they have money while they're looking for work, they aren't going to take the first crappy job that comes along. Reducing unemployment isn't necessarily good in itself; if everyone's being paid less now, you really haven't helped things much. In our Good Economy business, we've done a pretty lousy job.

Which means that, last night, government was a very bad business.

The Hill:

By a 57-41 vote, Senate Majority Leader Harry Reid (D-Nev.) failed for a third time to advance legislation that would have extended unemployment benefits through November and resuscitated scores of individual and business tax breaks that expired last year.

Today's vote marks the third time that Reid has failed to advance the legislation.

And you know what's craziest about this? It's not going to reduce the deficit. It's not going to pay off any debt. In effect, the senate has turned down a loan that would've been a very good investment -- and they did it in favor of nothing. To further wear a threadbare phrase, they'll bend over backwards to bail out Wall Street, but they won't do a thing to bail out Main Street. A Republican filibuster just hamstrung our recovery.

Here's the thing; it's a Republican myth that business creates jobs. It doesn't. No business is ever going to hire someone they don't need to do a job that doesn't need to be done. Demand creates jobs. If I want a bunch of widgets right now, a business would hire more widget-makers to keep up with demand. On the other hand, if the business hires a bunch of widget-makers, people aren't going to magically start needing them. And if no one has any money, no one needs any widgets. No consumers=bad for business=bad economy=bad job by the Good Economy business.

If this is running government like a business, these businessmen suck.


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