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Today's Top News
Failure to Enact Bigger Stimulus Was Fatal Mistake
As expected, the Democrats took big losses in the midterm Congressional
elections on Tuesday, holding on to the Senate but losing the House. It
is typical for the party of the President to lose some seats in midterm
elections, and it is doubtful
that this election result represents the beginning of another
conservative era. But the Democrats’ losses were big by any measure.
The
overwhelming reason for the Democrats’ losses was their failure to take
the necessary measures to ensure a robust recovery from the recession.
This
is a case where it clearly would have been better to fight for
something that you want, and lose, than fight for what you don’t want,
and win. Had the Democrats fought for a stimulus large enough to move
unemployment to more normal levels over two years – and lost the battle
in Congress – they would at least have a case that they tried and were
stymied by the Republicans.
Of course, the Republican mantra
that the American Reinvestment and Recovery Act of 2009 act didn’t do
anything but pile up debt is sheer nonsense. The non-partisan
Congressional Budget Office has estimated that between 1.4 and 3.3 million more people were employed by mid-2010, because of the stimulus.
But it was not enough. As my colleague Dean Baker has pointed out,
the federal stimulus – after subtracting the state and local government
budget tightening – amounted to about one-eighth of the private demand
that our economy lost from the bursting of the real estate bubble.
The
economy is always an important issue in national elections, but seldom
more important than it is today – with 9.6 percent unemployment,
millions more underemployed or dropped out of the labor force, and
millions of Americans losing their homes. But our politics today – year
round, not only during election season -- is based primarily on
manipulating voters through media and advertising, rather than trying to
explain even a minimal amount of substance to them.
The
Democrats would have done better by telling the truth from the
beginning: not only that they inherited this mess but explaining that it
would take a huge amount of government spending to restore full
employment. Enough to make up for the private spending that was lost.
And that the alternative was – well, we are looking at it. This is not
rocket science.
The irony is that our economy remains in a
situation where we could spend this money without even adding to the
public debt burden. This may seem like magic but it is not. When the
economy is this depressed, with high unemployment and unused capacity,
the Federal Reserve can create money and loan it to the Treasury – and
such money creation does not cause any problem of inflation. In fact,
since 2007, the Fed has created more than $1.4 trillion and used it to
buy mostly mortgage-backed securities from Fannie Mae and Freddie Mac.
But inflation is still running at just 1.1 percent annually – a level
that is too low, even for the Fed.
Now the Fed is talking about
creating more money and using it to buy long-term Treasury bonds. Since
the interest on these bonds will return to the treasury, there is no
cost to the taxpayer. This money creation can be – and could have been –
used to finance enough job creation so that there would be no question
about our economic recovery.
By failing to stimulate economic
recovery, the Democrats gave Republicans a populist card on a platter,
which the Republicans played, with pitchforks held high and torches
blazing. With unemployment and economic insecurity generating mass
anger, the Republicans paid little price even for extremist excesses. In
this election, the Democrats’ one big mistake on the economy outweighs
any others.
- Posted in
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13 Comments so far
Show AllYes it is not rocket science. Economics 101 from Joseph Stigliz:
" If we don’t stimulate the economy, the economy is going to get weaker. When the economy gets weaker, tax revenues go down and expenditures go up. Already, more than 40 million Americans are on food stamps. Number of people on Medicaid is reaching record levels. So, revenues go down, expenditures go up, deficits get worse. If you stimulate the economy, then people get jobs, they spend money, tax revenues go up."
The usual reply from anyone questioned about evidence that the stimulus didnt work
is silence. It is rather frustrating that the democrats and Obama dont simply state the obvious
and continue repeating it.
It seems our dear leaders ignored even mainstream economists like Stiglitz, as tango2 points out.
Instead the hard-core neo-lib kleptocrats like Summers, Rubin and Geithner were dictating policy. The rest of Congress is largely under the spell of the von Hayek/Fridemanite story-lines, narratives and fairy-tales as well.
Econ professors like Richard Wolff and Michael Hudson have been proven correct time and again. Forget Stiggy and Kruggie
http://www.rdwolff.com/
http://michael-hudson.com/
A more effective stimulus would have helped some, but mostly it was failure to achieve even one of the following:
1. Failure to appoint genuine progressive-populists to his cabinet and staff
2. Failure to prosecute the previous administration's torturers and criminals.
3. Failure to get out of Iraq and afghanistan, and declare Isreal as just another country that better learn to get along with its neighbors.
4. Failure to nationalize, then and break up the crooked banks.
5. Falure to push for single-payer medicare for all.
6. Failure to vigorously push for the Employee Free Choice Act.
7. Declare that all the Bush Tax cuts will be allowed to lapse.
8. Push for a serious clean energy bill - using a broad-based carbon tax to direct economic stimulus money directly to clean energy projects.
If Obama and the Democrtic leadership had vigorously puhed for just a few of these things, there would have been armies of young poeple pounding the pavement and on doors for the Democrat's campaigns. Yes, I know, only in an alternate universe; right?
B.S. Then again, this is what I'd expect from the Press / McClatchy/Tribune
The simple and ugly truth is here: http://www.commondreams.org/view/2010/11/05-13
Not only was the stimulus too small, it was poorly executed and not well targeted. It did save many jobs though, and we would be worse off without it.
http://texshelters.wordpress.com/2010/09/04/how-the-stimulus-money-saved-my-job-and-many-others/
And then you have the Fox and Republican lie machines telling us the "stimulus did no good". That is an outright lie, but it could have done more.
http://texshelters.wordpress.com/2010/09/04/how-the-stimulus-money-saved-my-job-and-many-others/
Peace,
Tex Shelters
In fact the republicans who fought against stimulus knew this and "compromised" down to 60% of what was needed and sought ... just enough to fail to stimulate adequately but enough for the republican effort to make Obama a failed, 1-term president.
Mistake?
Maybe it was deliberate, at least on the part of Obama's advisers. Now they've got political momentum to demolish Social Security.
Not enough stimulus?
Duh. Let the bubble explode. We would be rid of Goldman Saks, we would be rid of AIG. Who is going to miss them?
Bcgd,
Social Security was a done deal before Obama arrived on the scene. We contributed our money, thinking it was to an "individual retirement account", but the powers that be took our retirement and invested it in Iraq, the paying of Israel their $3 billion per year, plus their other $3 billion per year in grants that we never require them to repay, the giving of all of the proceeds to Halliburton and Cheney for their efforts in Iraq and Afghanistan (plus, before in Bosnia). We never revolted when they put our Social Security retirement into the "general budget". We cannot moan too much for being so stupid.
We can't afford the current stimulus package and we can't afford another stimulus package.
The economy is destructing because of wars and giving jobs away.
Just because the economy is in trouble doesn't mean we can afford a stimulus.
It doesn't mean we can ignore the real causes.
Who is this "we" that "can't afford" things? Workers are more productive than ever. Of course that means that we - working class people - can afford just about anything we need. "More productive" means producing more wealth. Where is it? Where did it go? Why is it not being invested back into communities? Why is it out of our hands? "We can't afford it" means "we, the wealthiest few, who have been extracting more and more wealth out of the country, out of the pockets of the working class people, don't feel like giving any of it back." That is all that it means. No working class person should ever be repeating that phrase.
We - those struggling along to survive week to week, the majority of the people in the country - can no longer afford them - those amassing more and more of the wealth that we produced.
Increasing liquidity means the following:
1. Cheap loans for playing the stock market in USA
2. Cheap loans in USDollars for stimulating asset bubbles in emerging markets in Asia ect.
3. More Dollars for Pentagon contractors in the Middle East.
4. A mean to forcing foreign currencies to rise vis a vis the USDollars and so reduce the values of their foreign reserves in USDollars.
5. A mean to bring inflation in domestic economy to make it even less worthwhile to save.
6. The liquidity makes imports a little bit more expansive but not expansive enough for Americans to buy locally produce products or for industry to relocate their production lines back to USA.
7. The increase liquidity does not make it worthwile for banks to lend to small productive companies compared to playing the stocks and foreign markets.
8. The liquidity does not means American citizens willing to pile on more debts when the prospects for jobs is dim. This is putting the carriage before the horse kind of economic stimulation.
9. There have been numerous stimulus packages since the time of Greenspan and we continue to have one bigger bubble to replace an old collapsed bubble. The government has simply runs out of gas and everybody knows this decades long ponzi scheme has to end sooner or later