Monday, August 30, 2010

The Republican “wreck-the-economy” strategy

The Republicans adopted a political strategy shortly after Obama’s election centered around opposing every Obama administration or Democratic Party initiative no matter how good it was or how necessary for the country.  Political strategists such a Karl Rove convinced Republican Party leaders that their best chance of winning the mid-term elections was to make Obama and the Democrats look incompetent or worse.  The Republicans have consistently followed that strategy.  They opposed the stimulus, health reform, financial reform and practically every other Obama/Democratic Party effort.  In each case, while they have not been able to defeat the major initiatives, the Republicans have been able to stall, obstruct and fear monger enough to force Democrats to water down their proposals.  The stimulus is a good example.

Many economists such as Paul Krugman argued from the beginning that a large stimulus would be needed and it had to kick in as soon as possible.  Anyone with the least understanding of economics and what was happening with the economy in 2008 and 2009 knew that the economy was stalling because of lack of demand.  Americans were shell-shocked from the damage the collapse did to their 401-Ks and home values.  Just about everyone pulled back on their spending.  When Americans didn’t spend, demand for goods and services dropped.  Businesses soon responded by laying off workers and cutting back on inventories and spending in general.  Unemployed Americans couldn’t spend and those who remained employed were afraid to spend for fear that they would be unemployed soon.  We were in a downward spiral that the private sector could not fix.

Our economy is driven by spending—demand for goods and services.  There are only three sources of demand—consumers, businesses, and the government (federal, state or local).  Think of it as a wheel.  Consumers spend, business respond by hiring workers and increasing inventories and investment, governments get revenue from increased taxes spend and hire workers and so on.  The economic wheel goes round and round and the country prospers.

We were in a recession.  Consumers weren’t spending and not about to start back spending anytime soon.  Business weren’t going to start spending again until their customers started coming back.  State and local governments saw their sources of revenue dry up.  The economic wheel stopped turning.  The only entity that could spend was the federal government.  That’s why a stimulus involving direct spending by the federal government was critical.  It needed to be big and immediate because it takes a lot of energy to get the big economic wheel spinning and the longer we waited the worse the situation would become.

The Democratic/Obama stimulus worked.  By this spring, we were beginning to turn the corner.  Then, the stimulus began to run out of steam.  It was perfectly obvious that the original stimulus had been too small (primarily because of Republican opposition) and that we needed a second stimulus, perhaps even larger than the first one and it needed to include a heavy dose of direct job creation such as the creation of a new federal jobs corps.  However, the Republicans and Tea Party backers (primarily Rupert Murdock and the Koch brothers through Fox News) had been scaring the shit out of Americans for a year about the deficit.  The Obama administration and liberals did a poor job of convincing Americans that short-term the deficit didn’t really matter but was very necessary if we were going to get the economy going again.  By the spring, enough Democrats were afraid of Fox News-created anger about the deficit from a vocal minority of the population that a passing a further stimulus became impossible.

So, here we are.  Unemployment remains high.  The economic is slipping backward.  There is the chance that even if we avoid a second recession, we could see a long, long recovery and risk the possibility of deflation (See Paul Krugman’s article on why deflation would be a disaster at; ).  If that happens, watch out.  Some very, very bad things could happen.

Deficits don’t matter as long as our government can borrow at a reasonable rate.  Right now, that’s happening.  Long term deficits are bad since those who lend us money might get nervous and stop lending or at least might ask for a higher interest rate.  Financing the stimulus with debt isn’t bad if the stimulus is big enough and in place long enough to get the big private economic wheel turning again.  If that happens, people and companies start paying taxes again, the federal government can start paying off its debt, and the deficit shrinks.  The scenario is simple.  Pump money into the stalled economy in large amounts for a short time and don’t worry about the short-term deficit.  Once the economy gets going again, rein in government spending and begin to bring the deficit down.  The Republicans know that as well as anyone but they don’t want the economy to improve.  They want unemployment and the deficit to remain high through 2010 and ideally through 2012.

Remember the Republican strategy is to make Obama and the Democrats look incompetent.  The best way to do that is to make sure they preside over continuing high unemployment and an ever-increasing deficit.  The more economic trouble the country is in, say the Republican strategists, the better for Republican candidates.  It’s a wreck-the-economy strategy.

Right now, the Republican’s wreck-the-economy strategy seems to be working.  Election Projection estimates that they stand to pick up at least seven seats in the Senate and 36 in the House as things stand today.  That won’t be enough for Republicans to take control of either the House or Senate but all trends seem to be in the Republican direction.  A Republican takeover of either the House or Senate, if not both, seems plausible and perhaps likely.  If that happens, the country’s economy is in big trouble. 

Republican gains, and in particular a Republican takeover of the House or Senate or both, will mean that the Obama administration will find it even more difficult to take any effective action to further stimulate the economy or reduce unemployment.  Success in the mid-term elections will only embolden Republicans to bare down even harder on their wreck-the-economy strategy  They will do even more to make the economy even worse assuming that if they cause unemployment and deficits to be even higher than they are now in 2010, then they have a good chance taking the House, Senate and White House.  Murdock and the Koch brothers will run the country.

It’s a nightmare scenario.  Republicans are gambling that their strategy won’t result in a true economic meltdown.  They are risking the country’s future for short-term political gain.  They may win.  However, there is a better than fifty-fifty chance that their political gains may bring a lot of misery to a whole lot of people for a very long time.  I hope that doesn’t happen, but it is not unlikely.

Consider this.  The Republicans have done nothing to make the economy better or to reduce unemployment.  Everything they have done has been designed to make the situation worse.  Yet, Americans are prepared to go to the polls and put in charge the people who have done the most to prolong the suffering of average Americans.  That makes me angry.  I hope you have the same reaction.

Urge every Democrat, Liberal and Progressive to do whatever they can to defeat Republicans in November.  The country’s future depends upon it.

A final suggestion.  If this discussion has depressed you, I suggest you mix yourself a good martini, put your feet up and put on a good recording of Gershwin songs.  Try The Gershwins in Hollywood ( or Manhattan (

No comments: