11/05/01

KUFM / KGPR

T. M. Power

Coping with the Recession: Ideological Dead-Ends

Economic recessions are strange things. We have workers who want to make use of their productive skills. We have households that have significant unmet needs. We have businesses that could produce what households want. We have the resources, natural, human, and technological, to produce those goods and services. We have all we need for a productive economy, just as we did in the months before the recession began, but we cannot arrange to coordinate all of the necessary elements so that we can go back to being a fully productive economy. Households won’t spend because workers are being laid off; businesses won’t hire workers to produce because households are not buying. So we spin pointlessly downward, laying off workers, driving household spending down further, laying off more workers, etc.

But wartime is hardly ever a time of recession. Even if the anxieties of our fellow citizens lead to reduce consumer spending, the government is usually stepping in trying to divert resources from consumer goods to war goods anyway. Usually the chief problem during war times is to keep growing demand for production from outstripping the productive capacity of the economy. A booming economy and inflation, not recession, are usually the problems.

But this war is different because so few of us are engaged in it and because the war materials are so limited and specialized. Our leaders are not urging us to make sacrifices so that resources can be diverted to the war effort. Instead they are urging us to take a vacation, use our credit cards, go out on the town more often, do anything that spends money. Such appeals during a time of national crisis and war are so weird as to be disorienting.

So we are in the midst of our first war-time recession!

Actually, this is not at all surprising. Having come under foreign attack at home for the first time since the War of 1812, we are understandably shocked, disturbed, and uncertain. With threats facing us from many unknown, even unimaginable, sources, and with our government really no better than the rest of us at predicting and protecting against those attacks, it is not surprising that we have become extremely cautious and tentative about our futures. No one is in the mood to go on a spending binge, despite the urgings of some of our political leaders.

So how do we put ourselves and the resources at our disposal back to work taking care of our own and our nation’s needs? It seems obvious that what we have to do is stop the collapse of spending and get purchasing power in the hands of those who will use it. Without that, our resources, including ourselves, will become increasingly idle for no good reason.

There are several sets of economic actors who are almost certain to spend money that is put in their hands: workers who have been laid off and state and local governments whose balanced budget mandates will soon be forcing them to cut back on their spending on basic public services. In addition, most low and middle income families never participated in all the yuppified spending that went along with the high-tech, high-spending, stock-market bubble. While a small percentage of our population enjoyed the benefits of the “irrational exurberance” of the second half of the 1990s, most families did not. In fact, most workers , adjusting for inflation, found their pay in the mid-1990s to be below what it had been in the mid-1970s. So middle- and low-income households have pent up needs too. They are also, however, burdened by a huge overhang of consumer debt.

The traditional way to fight the declining consumer spending that is leading businesses to lay off workers is to get purchasing power into the hands of low and middle income households, including those hit hardest due to layoffs. Reduced payroll taxes and extended unemployment compensation can do that quickly. Another is to make sure we maintain or expand government spending by, for instance, putting more money in the hands of state and local governments so that they do not have to cut back or raise taxes as their tax revenues fall. Large block grants to states can do that quickly.

But that is not what the Administration in Washington is proposing. Instead, it wants to refund taxes paid by some of the nation’s largest corporations going back many years. It also wants to put permanent tax cuts in place for the wealthiest of our citizens. The justification for this tack is that it is the wealthy and the large corporations who create jobs and therefore it is to them that a stimulus package should be aimed.

This line of argument is simply mind-boggling. Giving the wealthy and large corporations more money will do nothing to stimulate the economy. These business folks are not stupid. They are not going to hire workers to produce things that people will not buy. Without consumer spending and demand, factories and firms will not go back to business.

The Administration’s proposals have nothing to do with coping with the recession. A recession by definition is a cyclical downturn, not a permanent structural dislocation. It calls for temporary policies, not permanent changes in tax and spending laws. It calls for stimulating spending, not enriching a tiny portion of the population.

The Administration’s economic policies appear to be in the hands of a committed group of opportunistic ideologues who will take advantage of any situation, no matter what it is, to single-mindedly pursue their agenda which is to permanently reduce the resources available to government, permanently reduce the scale of the activities the government engages in, and turn the resources of the nation over to a tiny elite of unimaginable wealth.

This is absolutely the wrong time to be doing anything of the sort. The demands on our government to protect its citizens, protect and enhance our public infrastructure, rebuild our public health capacity so as to be ready to respond to biological and chemical attacks, adequately fund our military, etc. etc. have never been greater. As we face the most serious public challenge since the Second World War, these ideologues want to weaken federal, state, and local governments’ capacity to respond rather than strengthen it. In addition, they steadfastly refuse to respond specifically to the deep recession into which we are tumbling. Instead, their proposals are the same as those they made when the economy was booming and the budget was in surplus, just with a faster timetable. Their proposals to scale back government are the same as those they made before September 11^th when we all thought we were invulnerable and massive terrorist attacks and bio-terrorism were only the plot lines of popular novels and movies.

The opportunistic character of the proposals coming from these rigid, single- minded, ideologues would simply be outrageous if those proposals were not also very dangerous. We now face a serious test between those who are trying to craft pragmatic policies that will allow us to stay a few steps ahead of our enemies while guiding our economy out of the current recession and those whose policies would be the same no matter what problems we faced because they are certain that they have the true religion and the rest of us are simply ingnorant or corrupt. In that setting, it is unlikely that bipartisanship can or should be sustained.