Thursday, December 08, 2005

The Economy, Uber Alles

It is increasingly the case that politicians, especially the current crop of GOP politicians, discuss The Economy like it is an entity that must be kept alive at all costs, as though on life support. They see themselves, and the American population writ large, as paramedics to The Economy and insist that we take extraordinary steps to ensure that It is doing well. They will prattle on about how we, as citizens, must support the Economy, rather than viewing the economy as that which circumscribes the natural economic activity in which humans engage themselves. Indeed, so fearful of the expiration of the body economic are they, that after 9/11, Bush would insist to America that it go about its normal business and to please, please go shopping. The livelihood of the Economy depends on you! Shopping and, by extension, supporting the Economy was promoted as a patriotic act.

In fact, the notion that the economy is merely an indicator of human economic activity appears to be fairly lost in current political rhetoric. And, for too many pols on Capitol Hill, the Economy has come to be defined by one narrow and not very instructive metric: the Gross Domestic Product (GDP). As long as GDP growth is maintained, everything else can be ignored.

Yesterday, the House just passed three more tax cuts, which will trim $94 billion from federal revenue and more or less wiped out any gains against the deficit that may had been made with the recent cuts to Medicaid, food stamps and education. I'm not going to get into the mendacity on display with that move because the new tax cuts demonstrate that well enough.

The House and Senate had strained and stressed over the budget cuts and some serious dissent was making itself known, even within the normally solidified ranks of the GOP. But now, a few weeks later, Congress spun around and introduced revenue reductions that were almost double the amount of the budget cuts. Today, the House will consider a fourth tax cut that will introduce a revenue reductions amounting to some $56 billion. This cut will extend rate reductions on dividends and capital gains and will be the biggest of the four cuts passed.

In justifying this action and believing that the rash of tax cuts that have been directed by Bush are good for the economy, House Rep. Deborah Pryce (R-Oh), says this:
We are in the middle of one of the strongest economies this country has ever seen.
This has been the standard line from tax cut advocates since Bush launched his tax reduction agenda in 2001. There are many, many people in this country who would probably take issue with this claim but, as indicated above, Pryce is likely staking it on one, and only one, parameter: GDP growth. Rep. David Dreier (R-Ca) enforces the party line, though there is no evidence for the claim that he makes:
By cutting taxes, you grow the economy, and you generate an enhanced flow of revenues to the Treasury.
An "enhanced flow of revenues" has just not been seen in Bush's Treasury, but the unsupported assertion that cutting taxes "grows the economy," rears its ugly, myopic and malformed head. In fact,
the tax revenue measured against the size of the economy remains below the 2002 level and well below the level of 2001.
Economic activity is dependent on a vast spectrum of stimuli, only one of which might be tax rates but there is little -- some would claim no -- historical correlation between enhanced tax revenues and tax cuts that would back up this statement. If anything, recent history would argue against such a notion. The raging economy that was defined by the dotcom bubble and saw the Clinton administration claim a budget surplus by the late '90s followed directly on the heals of Clinton's tax increase in 1993 and serves as a notable counterexample. But we can concede this point and still argue against the larger and wrong headed notion that the economy is strong when we measure how well actual people are performing within it.

Clinton's former National Economic Advisor, George Sperling, points out a number of problems extant in the current economic climate, none of which is reflected in that single and misleading metric of GDP growth:

- Real hourly earnings are down in the four years since the last recession
- Real weekly wages are down in the four years since the last recession
- Real hourly wages have fallen 2.2% since the 2003 tax cut
- Real median household income has fallen each year of Bush term
- Monthly private employment growth has averaged a meager 59,700 per month
- Labor force participation is low
- The 4. 5 million job growth in the last two and a half years is weak by historical standards.
- The poverty rate has risen each year since the end of the recession
- African American poverty has increased
- Child poverty rate is on the rise
- The personal savings rate has plummeted this year, hitting -2.18%
- Americans now pay a record 13.6% of their disposable income to service their debt.
- net national savings have dropped from 4.9% when Bush took office to -1.0%
- The current account deficit has exploded and is expect to hit $800 billion this year.

These are not numbers that would indicate to anyone the American public is doing well. But as we hear from apartchiks on the Hill, this is not what is of concern. Their concern is the Economy and as long as the GDP is on the rise, then everything to them appears to be just fine.


Post a Comment

<< Home