Taking Advantage Of The Moment
[M]any members of Congress are doing far more damage to the country with their mindless pursuit of deficit reduction in the middle of the worst downturn in 70 years. This push for deficit reduction could do more damage to the economy and cost more jobs than 1,000 Bridges to Nowhere.
The basic story is straightforward and should be well known to anyone in a policy position. The collapse of the housing bubble reduced annual demand from the private sector by almost $1 trillion. Huge overbuilding of both residential and non-residential real estate led to a falloff in annual construction spending of close to $500 billion. The loss of more than $6 trillion of housing bubble wealth has forced consumers to cut back their annual consumption spending by close to $500 billion.
The only force that can replace this $1 trillion shortfall in demand is the federal government. The government can spend based on the confidence of the public in the long-term strength of the U.S. economy. This means that it can run large deficits with little fear of either the sort of investor panic that has recently afflicted the Greek economy or inflation.
With the unemployment rate near 10 percent and the vast amounts of idle capacity almost everywhere, we have more to fear from deflation than inflation. All measures show that inflation is very low and falling, as would be expected in an economy with so much slack.
There you have it, a nice easy to understand explanation of our current situation.
Now for the ongoing sabotage and idiocy of the deficit hawks:
In spite of a situation that demands more government stimulus to boost the economy, deficit hawks in Congress are now demanding cuts in spending to reduce the size of the deficit. This effort will slow growth and throw people out of work. Therefore these deficit hawks deserve serious ridicule for doing so much harm to workers and their families.
Today's object of special ridicule is Pennsylvania Congressman Jason Altmire. Mr. Altmire insisted on paring back a package of unemployment benefits and aid to deficit strapped state governments. Altmire told the Washington Post: "We've hit the wall. We've come to the tipping point where we're not going to do anymore... I think the case can be made that there are still more people who need jobs than there are jobs available. ... But what's the limit?"
That's pretty good. The unemployment rate is at 9.9 percent. Prior to the recession, unemployment had not been this high in 27 years, and Mr. Altmire thinks: "the case can be made that there are still more people who need jobs than there are jobs available."
This is not a marginal call. It's kind of like saying that AIG may have become somewhat over-extended. Unfortunately, Mr. Altmire has apparently left planet earth and decided that his top priority is reducing the size of a supplemental appropriations bill... This will throw more than 300,000 people out of work.
In fairness, Representative Altmire probably doesn't know squat about the economy. He probably just takes his cue from wealthy friends who enjoy muttering about "fiscal responsibility" when the issue is items like unemployment benefits and aid to state and local governments.
But, ignorance is not much of an excuse when you are crafting economic policy. Because of Mr. Altmire's blind pursuit of deficit reduction, hundreds of thousands of people will suffer needlessly and the nation as a whole will see growth curtailed. If ridicule were proportional to the damage done by their policies, given the treatment of Senator Stevens, we would have to start a new television network dedicated to this purpose to ensure that Representative Altmire received the proper level of ridicule.
It will definitely have to be a new TV network because the existing ones are all in full blown deficit fever and are unlikely to recover.
I know it's a cliche at the point, but this really is a shock doctrine move. The worst economic downturn in seventy years, natural disaster everywhere, two confusing and exhausting wars and more have created a very fertile environment in which to push through this policy. And they are doing it, along with the help of useful idiots who think that if they just do a little tweaking of the safety net today, the right will be completely disarmed and everything will be perfect. It's a very scary, perfect storm.