Working in Iowa

 

 

Fear makes politicians act awfully funny.  While it amuses me to no end to hear one after another self-proclaim his or her “boldness,” they are as a group very timid and easily spooked – most especially in the run-up to the mid-term elections.

 

We learned precisely how timid politicians are in the summer of 2002 as President Bush beat the war drums for an Iraq invasion.  While Section 8 of the U.S. Constitution is unequivocal in that the Senate shall have the power “to declare war …”, Congress, in the face of an off-term election and not wanting to appear the least bit soft on terror, ceded to President Bush the authority, without a war declaration, to wage war in Iraq. That short term burst of election-year expediency yielded a long-term disaster.

 

So here we are facing another mid-term election, and politicians far and wide, left and right, and smart and not so smart have collectively decided, in the throes of the longest economic downturn since the Great Depression, what really ails us is the federal deficit.  And because we are looking at a sharp rise in the nation’s debt, the smartest policy during a time of economic collapse and accumulating household misery is to get federal spending under control.

 

Granted, public debt has increased atypically in the past 20 months (we also had huge debt run-ups during the Reagan Administration and the Bush war years).   It rose in part because of the financial crisis and the implementation of the Targeted Asset Relief Program (TARP), which was enacted during the final quarter of the Bush administration.  Politicians are now scurrying for cover on their votes authorizing it because polls say the public is quite upset about this massive bailout of the financial industry.  After all, it is common knowledge that taxpayers footed $800 billion in assistance and subsidies to the banks, right?  

 

Wrong.  As the bailed out banks have substantially repaid their TARP funds, the current estimated cost of the TARP program is less than $90 billion.  It is still a huge cost, but it is nowhere near the deficit-exploding conclusions driving voter and politician reactions.

 

The second near term boost to the debt was the American Recovery and Reinvestment Act (ARRA).  That was an Obama Administration initiative, and it too came in at just under $800 billion in authorized spending plus tax breaks.  Not a single House Republican voted for it, and only three Republican Senators did.  Democrats truly own that one.  ARRA did four major things. It implemented the largest tax cut in history.  Next it increased unemployment assistance along with other safety net programs that help the swelling number of unemployed and low-income families hit hardest in a recession.  ARRA provided a temporary surge of federal funds to assist local governments to deliver essential public services like education, police, and fire.  Last, ARRA boosted national economic output by allocating around $80 billion for road building and other critical infrastructure nationwide.

 

I am one who argues that ARRA funding was much too low, but ARRA did nonetheless boost economic growth over the past two quarters. The Congressional Budget Office concluded in May that ARRA at its peak in the 3rd quarter this year will account for 1.4 million to 3.7 million created or retained U.S. jobs.

 

The ARRA money has been mostly spent, yet the recession lingers.  National unemployment is at a worrisome 9.7 percent, and the median duration of unemployment is 23 weeks, a full 10 weeks more than the previous historical high posted in 1983.  In the face of a protracted recession with many more idled workers than ever, how did Congress recently react to a bill to extend unemployment benefits They’d done enough.  Deficits are now a bigger problem than the lingering misery of millions of unemployed.  Extending benefits failed.

 

And as to extending federal assistance to support essential public services like teachers?  Lawmakers were rebuked to make the assistance “revenue neutral,” meaning the money has to come from other spending cuts or increased taxes.  That failed too.

 

The federal government has the ability to provide powerful counter-cyclical resources through its borrowing powers to stabilize essential government services and to sustain national economic output until the economy begins to recover on its own.  Congress, with its reelection-fear refusal to extend assistance to the needy or to state and local services will achieve two things.  It will assure that across the U.S. teachers and police are laid off, and it will assure that the well being of millions of U.S. households decline.  

 

What they will not do at all through their pettiness and collective cowardice is put a meaningful dent in the deficit.