Boiling It Down

by digby

The gasbags have finally decided that Obama needs to explain to the American people what a stimulus is and what he intends to accomplish with this recovery bill. I have thought from the beginning that that was necessary and I had hoped he would do it when he sent the bill down to the congress. Average people just don't understand what this thing is --- all they've been told for the past 30 years is that tax cuts will solve all economic problems and government spending is pork. They need to hear from the president why that isn't true, how this kind of stimulus works and why it's necessary.

So, to that end, I would offer this post by Robert Reich (which I have excerpted in its entirety against all blogging rules of etiquette) as an excellent starting point for such a speech.

Senate Republicans and the Stimulus: Playing Politics When the Economy Burns


Tomorrow's job report is likely to be awful. January's job losses could easily top half a million. We're deep into the most vicious of economic cycles: Consumers are slashing their spending because they're perilously in debt and worried about keeping their jobs. But as a result, businesses are facing shrinking sales of goods and services, so they're slashing payrolls, which of course makes consumers even more anxious and further reduces their spending power. Meanwhile, businesses are cutting way back on new investments in equipment, which hurts upstream suppliers, who are now slashing their payrolls. And so it goes, downward. The gap between what the economy could produce if it were running near full capacity and what it's now producing continues to widen. The shortfall is projected to be over a trillion dollars this year.

How do we get out of this downward plunge?

Regardless of your ideological stripe, you've got to see that when consumers and businesses stop spending and investing, there's only entity left to step into the breach. It's government. Major increases in government spending are necessary, and the spending must be on a very large scale. In the last several weeks the President has put forward the outlines of a stimulus plan, and has left it to the House and Senate to fill in the details. A tiny portion of the details that made it into the House version should be stripped away because they seem like old-fashioned pork. But most spending in the bill is absolutely appropriate. My worry is there's not nearly enough of spending to fill the shortfall in overall demand.

Yet at this very moment, Senate Republicans are seeking to strip the President's stimulus package of many of its spending provisions and substitute tax cuts. Part of this is pure pander: They know tax cuts are more popular with the public than government spending, even though spending is a far more effective way to stimulate the economy (more on this in a moment). Another part is pure partisan politics: Republicans are emboldened by Obama's willingness to court Republicans (taking three Republicans into his cabinet, bringing Republican leaders into the White House for consultations, putting all those business tax cuts into the stimulus bill in order to gain Republican favor) without getting anything at all back from the GOP. House Republicans snubbed the bill entirely. So, Senate Republicans say to themselves, what's to lose?

Plenty. Millions more jobs and a full-fledged Depression, for example.

Can we get real for a moment? Take a look at this chart, which comes from calculations by Mark Zandy and his colleagues at economy.com. You see that each dollar of spending has much more impact than each dollar of tax cut.

There are three reasons for this. First, most people who receive a tax cut don't spend all of it. They use part of it to pay down their debts or they save it. Most of us did one or the other last spring with that tax rebate. From the standpoint of any particular individual, paying down debts or saving may be smart behavior -- even commendable. But what's intelligent for an individual does not necessarily translate into what's good for the economy as a whole. The only way to get businesses to create or preserve jobs is through additional spending. And unlike tax cuts used to pay down personal debt or add to savings, every dollar of government spending flows directly into the economy and adds to overall demand.

Second, even that portion of a tax cut we might actually spend doesn't necessarily go into the American economy. It goes all over the world. I have nothing against creating or preserving the jobs of Asians who assemble those flat-panel TVs you see at the mall, for example, but right now we're trying to create or preserve jobs here in America. Sure, the retail workers at the mall who sell the flat-panel TV's might benefit, but remember we're talking about how to get the biggest bang for every dollar. When government spends to repair a highway or build a school or help pay for medical services, the money and the jobs stay here in America.

Finally, those who say cutting taxes on businesses is the best way to create or preserve jobs forget about the demand side. Even with a tax cut, businesses won't hire workers unless there are customers to buy what those workers produce. A government stimulus that creates jobs is a necessary precondition.

This isn't a matter of more or less government, however much Republicans and conservatives would like to wedge it in that old ideological box. The issue is how to revive the economy. When consumers and businesses can't or won't spend enough to keep the economy going, government has to be the spender of last resort. Period.



I think if people heard that, in those kinds of words, they would support the president. Most Americans feel that it's counterintuitive for the government to be spending while it's in debt and losing revenue, just as it is for them personally. Obama needs to explain why government has to do the opposite in a recession (potentially a depression)and tell people that his legislation is a necessity to keep things from getting worse --- and beginning the turn-around.

The Republicans have been shoveling so much nonsense (recently aided and abetted by the Blue Dogs and the usual Democratic suspects in the senate) that I don't think most Americans know which way is up. They are scared and I think they will happily back the president if they just understand what he's trying to do. At this point, he's the only one with the credibility and trust to set their minds at ease.



*I would also suggest they consult with Bill Clinton. I always thought his best gift was his ability to speak to average Americans about complicated issues in simple terms. It wouldn't hurt to reach out to him on this.


Update: Ooops. Just found out that he's speaking tonight. Hopefully, he will do some 'splainin' along Reich's lines.

Update II: Also a press conference on Monday.


.