Time to stop bickering over percentage points of growth and speak instead to people’s everyday concernsby James Kwak / February 27, 2018 / Leave a comment
Photo: MIKE THEILER/UPI/PA Images In passing a $1.5 trillion tax cut, mainly for businesses and business owners, and then voting to lift spending caps that they had demanded only a few years ago, US Republicans have not only vastly inflated federal government deficits as far as the eye can see. They have not only executed another perfect 180-degree spin away from the fiscal rectitude they draped themselves in during the Obama years. In addition, they have finally delivered the economic stimulus that Democrats have demanded for a decade—putting their opponents again on the back foot. A bit of background: most economists believe that the government can stimulate the economy by cutting taxes or increasing spending, both of which increase deficits. Either way, more money ends up in the hands of households and businesses, which can spend more on consumption goods or durable investments (houses, factories, etc.). That extra economic activity puts more people to work and induces them to spend more in turn. Throughout the administration of President Barack Obama, Democrats argued that the US government should do more to stimulate an economy struggling to recover from the devastation caused by the 2008 financial crisis. But Republicans, determined to deprive Obama of legislative victories, used the spectre of rising deficits to block every attempt after the initial stimulus bill of early 2009. Only with their recent package of tax cuts and spending increases have they provided the economic boost that they refused to the Democrats, producing headlines like “Liberals Wanted Fiscal Stimulus. Conservatives Delivered It” (in the New York Times). “That’s not what we meant!” Democrats respond. We are stuck arguing that Republican policies are the wrong kind of stimulus at the wrong time: the wrong kind because tax cuts for the rich have relatively little economic impact (since rich people are more likely to save their additional money); the wrong time because unemployment is already low, so the result is likely to be higher inflation rather than more jobs. If inflation does rise, the Federal Reserve would then likely raise interest rates in response, increasing the risk of a recession. We’re right about the economics, of course—we usually are—but politically, no one cares. This is part two in a mini-series on the US economy. Read part one For more than three decades, while Republicans have taken every opportunity to cut taxes and increase military spending, Democrats have adopted the role of sober macroeconomic managers. In 1993, Bill Clinton entered the White House hoping to increase spending on social programmes. Instead, he focused on reducing deficits with the goal of appeasing the bond market and lowering interest rates. It succeeded—and Democrats got little credit for it. President Obama repeatedly sought bipartisan agreements to reduce future deficits. In 2011 he even offered up a reduction in social security cost-of-living increases (long sought by Republicans) and then commissioned a (failed) “supercommittee” on deficit reduction. We keep waiting for someone to congratulate us for our hard choices. But Democrats can’t simply keep arguing that our economic policies are better than the Republicans’, even if they are. We’re not taking an economics exam, where some professor will congratulate us for our macroeconomic competence. We’re not going to convince voters that we are more likely to deliver a few more tenths of a percentage point of economic growth and a few more jobs. But instead, we can offer them the concrete things that they really care about: public pre-kindergarten education, paid family leave, housing, health care (not just health insurance with unaffordable deductibles and co-payments), and expanded social security. The economic problem in America today is that you can have a job and you can still be struggling—barely able to feed your family, unable to afford decent housing, buried by student loan debt, bankrupted by medical costs, and terrified about not being able to retire. We need an economic vision that addresses those problems. Saying “our fiscal stimulus would have been better than your fiscal stimulus” isn’t going to cut it.