Are We About to 'Starve' the Unemployed?

During the Bush administration, the federal debt " nearly doubled," going from $5.7 trillion to $10.6 trillion. This was no accident, but rather part of the Republicans' "starve the beast" strategy for shrinking government. While this was going on, many of us warned that if big trouble hit, and if we had high deficits at the time, it would limit our ability to respond in the most effective manner. E.g., from January 2006:

We are in a better position with respect to monetary policy now, but for awhile we had very low interest rates coupled with very high budget deficits. In such a case, when you've already thrown your two best punches, what do you do if trouble hits? It's important to reload the policy guns - get deficits and interest rates in order - so when trouble hits you won't have already fired your best shots. I'm also wonder if we are saving enough for the next rainy day.

We weren't, and as I said, that was intentional. You see, the advocates of starve the beast policies believed that capitalism had entered a new era since Reagan. We had thrown off the limitations imposed by intrusive government making us, unlike Europeans who had not followed suit to anywhere near the same degree, highly resistant to shocks.

Much was written about how effectively the relatively government free U.S. economy could absorb shocks relative to Europe (Phelps comes to mind). We could take a licking and keep on ticking. So they saw no real danger in pushing a large deficit, starve the beast type policy. Many denied that government could help, government is always the problem, never the solution, but in any case big shocks - the kind that produce depressions - couldn't happen in a free, capitalist system, and they would point to the Great Moderation and events such as Katrina where the economy hardly lost a breath as evidence for that position.

But they were wrong about that, and what many of us were so worried about has now come to pass. Because of the high levels of government debt, our hands are not as free as they should be to deal with the crisis.

Republicans - the very party that created such a large problem by denying that it could ever occur - are now the ones wringing their hands about increasing the deficit any further. But instead of complaining, they should be apologizing profusely for leaving us in such a bad position.

Their belief that capitalist economies, if only freed of government, can absorb any shock almost without blinking, and their conscious decision to try to starve government, particularly social insurance programs so necessary in a downturn like this one, has left us in a bad position. We may not be able to do as much as we need to do because of the objections to increasing the debt as much as will be needed. And if we cannot do what we need to do, it won't be the beast that is starved, it will be families who no longer have jobs, healthcare, etc., and have no place to turn to get the help that they need, at least not in sufficient quantity. "Starving the unemployed" may not have been the goal, but if Republicans get their way and limit the recovery package based upon deficit fears, it could very well be the result.

Comments

[De Graaf:]

Mr. Thoma, well said.

I honoustly think the Republicans should be held accountable for this kind of short-sighted policies that led us to this financial situation. Although I do understand that bipartisan is key to solve this issue with the necessary approvals in the House and Congress, I find it appalling that the Republicans Party still thinks they have something to say about the issues they created. Its time to open up, and open the blinds for the GOP.

The ignorance and 'bipartisanship' the Republican Party tells us, is something that delays the Democratic effort for countering the deflationary waves in the private sector. Inflation is necessary at this point, to (arguably) avoid the US and its indebted citizens to default.

Its more appropriate to have a fresh mind on this one. GOP exit, at once.
Restructure on the background and try again in 10 years or so.

Furious.

Jan 09 08:12 AM

[Citizen X:]

How is it that otherwise intelligent people can liberate one party or the other from involvement in the government as if the 'innocent' were blindfolded and tied up behind a tree pleading to be set free and 'fix' the problems brought on by too much government intervention?

Both parties created this mess by allowing Greenspan, and then Bernanke, free reign to run slipshod all over the economy in order to promise their constituents exponential quality of life upgrades at the expense of future Americans.

There has been much warning, beginning in 2002, about the interest rates and GSEs bringing too much attention to the housing sector. To frame this as a partisan, "free market" problem is not doing reality any favors.

I'm an independent and think that Bush policy was misguided and maybe even a little evil. But the Democrats did nothing but sit back and push lending to people that should not have been borrowing.

I welcome your perusal of this excellent article about the fact that both parties are now ensconced in a game of protecting their seats and accommodating their real constituents. Powerful banking and corporate interests:

www.downsizedc.org/blo...

Representative Ron Paul (R) on the housing bubble in 2002:

www.house.gov/paul/con...

Jan 09 08:26 AM

[Joyful Alte...:]

A lot of Democratic politicians were complicit, but it's the Republican ideology (particularly the neocon and Norquist sectors) that is to blame for the horrors encircling us.

Jan 09 11:31 AM

[BerkeleyBob:]

Perhaps a more neutral way of making your central point is to observe that the disconnect between fiscal and monetary policy has been profound and set the stage for the present crisis. LBJ attempted to finance his Great Society and the military adventure in Vietnam by deficit spending--both parties have been complicit in this. It is objectively true that deficits have run much higher during GOP administrations. Clinton did nothing to make matters worse, and benefited from a rising tide of corporate profits, but did post a surplus... Ultimately, Greenspan did more damage than Bernanke in setting the stage for the S&L meltdown. The neo-con position may be summed up as "Socialism (and wealth transfer via tax policy and subsidy) for the rich and the blessings of Victorian-era capitalism for the poor." If you don't like this message, take a look at the changes in distribution of wealth and decline in real wages.

Jan 09 01:12 PM

[notsosmart:]

& the unemployed are taxed.as an independent i say this pres. will go down in history as the worst.he had 6 years of all republicans running the govt. & " no mission accomplished". i guess the "i am the decider" is deciding on more pardons.

Jan 09 01:34 PM

[ain't no fo...:]

good article, good comments

republikans and their hitmen the neocons created the twin lies of free markets and free trade... when what they wanted was just the opposite - namely, let their pals bleed everything they could out of the markets through a total lack of regulation, and send the high cost jobs (and those dirty nasty benefits) overseas where they're cheap and non-existent, while they open the borders to the slave trade that works for less than minimum wage and has NO benefits.

And all the while the republikan congressional majority just blew the deficits through the roof and sent the pork back home to bribe their oh so patriotic constituents into re-electing them.

And if anyone complains, well, they just use despicable cretins like Limbaugh and that blonde witch to shout the "libs" and dems and socialists down and claim they're anti-American muslim lovers.

The saying "America, love it or leave it" comes to mind from the Vietnam years... if Limbaugh had been around spreading his poison then I would have attributed it to him... the problem now is, we can't leave it - no one else on the planet wants us.

Jan 09 01:42 PM

[Joyful Alte...:]

To encourage a couple of million people to become self-employed is easy: single-payer universal health insurance.

Jan 10 11:16 AM