From John Boehner: ‘Today’s unemployment report is more proof that all of the Washington spending, taxing, and regulating is devastating our economy”.
Spending: Since the onset of the Great Recession, there has been no spending boom. The only forms of spending that grew much faster during the recession years were those items directly related to the recession itself – unemployment insurance, food stamps, SSI, refundable tax credits etc. Not only are these moral in themselves, but they prop up demand. There was of course, a huge increase in the deficit, largely caused by the recession (partly the increase in income security-related spending, but much more fromcollapsing revenue). Remember, as noted by Martin Wolf of the Financial Times, the difference between private sector income and spending shifted from a deficit of 2.1 per cent of GDP to a surplus of 6.2 per cent – a swing towards frugality of 8.3 per cent of GDP between the fourth quarter of 2007 to the second quarter of 2009. If the corresponding difference between public sector income and spending (what is known as the budget deficit!) has not moved in the other direction to counteract this, the recession would have been disastrously worse. Boehner seems not to realize that a dollar spent is a dollar spent, whether the origin is public or private (the traditional argument is that public spending crowds out private spending by raising interest rates, but this argument has no validity in a so deep a recession when interest rates are rock bottom). Of course, there was a big increase in the deficit under Bush which reduced the room for manoeuvre when the recession came – caused by huge tax cuts and war spending.
Taxing: What Boehner fails to note is that the Bush tax cuts are still in effect. All of them. So they should working their magic, right? Also, the payroll tax has been cut and the Republicans managed to ram through a shameful cut in the estate tax before pretending to be deficit hawks. In fact, taxes are lower today, under Obama, than at any time since 1955. And this is the very reason why the deficit looks unsustainable (it seems that Standard and Poors might agree). The fact is, they are not doing their magic. The Bush tax cuts led to a very weak recovery, with practically no wage growth. And the historical record doesn’t exactly provide much evidence for the view that economic growth is higher when taxes are lower – the opposite seems to be the case.
Regulation: This one is truly bizarre. Three decades of sustained financial deregulation (under both Republicans and Democrats) leads to the biggest financial crisis since the Great Depression, spreading across the whole world. And the answer is…more deregulation (remember, Paul Ryan included a repeal of the Dodd-Frank bill in his “budget”). And as for the other deregulation prompted by Reagan and his acolytes – there was no jump in productivity, just a lot of weakened consumer and worker voices, and rising inequality. And what exactly is the regulation that is supposed to be holding back investment?