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GOP to jobless: Drop dead
Nov 16 2010
By Steven Pearlstein
More than a century ago, a former congressman from Nebraska electrified delegates gathered in Chicago for the Democratic National Convention with a stirring denunciation of Wall Street and the monied interests that would put an over-indebted country through a wrenching recession in order to maintain the gold standard.
"You shall not press down upon the brow of labor this crown of thorns," bellowed William Jennings Bryan as he brought the convention to its feet. "You shall not crucify mankind upon the cross of gold."
The world has supposedly learned a thing or two about economics since Bryan's day, including the limits of clinging mindlessly to hard money during depressions and bouts of price deflation. But you'd never know it listening to the newly empowered and emboldened Republicans who have returned to Washington determined not just to reduce government's role in the economy, but to thoroughly emasculate it.
Their latest target is the Federal Reserve, whose sin seems to be that it has taken seriously its dual mandate to maintain price stability (that is, to prevent inflationary or deflationary spirals from taking hold) while encouraging full employment. Over the summer, when it became clear to Fed officials that their policy of zero interest rates might not be sufficient to stop prices from falling and unemployment from rising, they began laying out publicly the justification for injecting yet more money into the economy by buying $600 billion of longer-term Treasury bonds.
This policy of "quantitative easing," has its detractors, including this columnist, who warned that it would prove more effective at creating asset bubbles at home and abroad than at stimulating productive investment and job creation. There was even some skepticism within the Fed when the policy was finally approved two weeks ago. Now, however, those disagreements have been seized upon by Republican ideologues and partisan opportunists who are intent on punishing the Fed for its participation in the bank bailouts and discrediting all forms of Keynesian monetary and fiscal stimulus.
The first efforts to turn Ben Bernanke into a modern day William Jennings Bryan came from those giants of economic thinking, Rush Limbaugh and Sarah Palin. A few days later the mantle was taken up by a group of Republican economists and policy wonks who gathered at the University of Pennsylvania Club in Manhattan to craft a public letter criticizing the Fed.
Then last weekend at the Group of 20 meeting in Seoul, the Republican campaign for "hard money" received aid and comfort from foreign leaders concerned that quantitative easing might substitute American jobs for Chinese and German ones. Also jumping on the bandwagon was Robert Zoellick, the American president of the World Bank, who no doubt hoped to boost his prospects as the next Republican Treasury Secretary by floating the idea of a partial return to the gold standard.
Finally Tuesday, Rep. Mike Pence, the third-ranking Republican in the House, and Sen. Bob Corker, an influential Republican on the Senate Banking Committee, announced a proposal to strip the Fed of its "dual mandate" that would have the central bank focus solely on ensuring price stability without the distraction of also worrying that 15 million Americans are unemployed and underemployed. "The Fed's dual mandate policy has failed," Pence declared, citing the stubbornly high unemployment rate. It's not exactly clear how unemployed workers would benefit from the Fed's benign neglect.
If you want a serious discussion about changing the structure or mandate of the fire department, the time to have it is not when the entire squad is out fighting a three-alarm blaze. That's exactly the situation with the Federal Reserve and the debate over the dual mandate. Only two weeks after the midterm election, it seems clear that the 2012 campaign has begun. For too many Republicans, the aim is to politicize policy, trash the institutions of government and intimidate anyone who might disagree with their radical ideology.
There's no better proof of that than the so-called debate over extending the Bush tax cuts on incomes above $250,000. Unable to defend more tax cuts for the rich, Republicans like to pretend that their real concern is for job creation, citing the fact that about half of all business profits now flow through partnerships and small corporations that are taxed at personal rates.
But look more closely at the argument and it turns out to be "largely bogus," according to Eric Toder, a former Treasury and IRS official who now works at the nonpartisan Tax Policy Center. Very few of those businesses earn more than $250,000 in profit, and those that do tend to be very successful hedge funds and law firms that are flush with cash and unlikely to be dissuaded from hiring extra employees or make new investments because of a 4 percentage-point change in the marginal tax. Because most hiring and investment can be done with pre-tax dollars, Toder said, the tax rate is largely irrelevant to those decisions.
That's the micro view. The macro view, from the forecasting firm Macroeconomic Advisers of St. Louis, is that not extending tax cuts for high-income households would reduce gross domestic product growth by - drumroll here - two-tenths of one percent in each of the next two years. And the difference in the unemployment rate? A whopping one tenth of one percent!
These inconvenient truths, however, are simply ignored by Republicans, who would have us all believe that extending upper-income tax cuts is the most crucial economic issue we face - not just this year but for all time.
In fact, if Republicans were truly interested in reducing the deficit while stimulating private-sector job creation, they would have jumped to embrace the idea floated last week by Sen. Mark Warner, the centrist Democrat from Virginia: let high-end tax rates return to where they were during the Clinton years and use the $65 billion in additional income over the next two years for tax breaks for businesses that increase investments or hire new employees. After that, the extra revenue would go toward deficit reduction.
And how many of Warner's Republican colleagues have called to express interest in his idea? So far, not a one.