Shutdown: Since When Does Losing Give One A Mandate?

In a republic such as ours, while the interests of the minority are supposed to be protected from extreme trampling, the minority is not supposed to rule outright. The Republican Party holds a minority position. They have dominance over but one chamber of Congress. They lost the Presidential election. Although they officially retained the House majority, they got fewer total votes in the elections for the House than Democrats did (which hints at their having retained that technical majority only by way of gerrymandering).

As such, nobody should expect the GOP to be getting their fondest desires in a big way, re-writing standing law to eliminate major legal accomplishments of the other party. The GOP lost in 2012! They LOST! One does not lose an election season and come out of that loss with a mandate for one's platform ... the platform that lost ... the platform that the electorate by and large rejected.

Yet despite that loss, they've managed to push significant reductions in spending, overwhelming the voices of economists pointing out that reduced government spending is the last thing our economy needs right now. And the Democrats, whether just seeking to get something done or perhaps also not listening to economists, have compromised quite frequently. Much to the displeasure of the Democrat's base. Those who're writing apologetics for the Republican Party today had to work very hard to spin this one as anything other than the GOP overreach that it was.

In the Wake of the Election, Can the GOP Face Reality?

David Frum, former economic speechwriter for President George W. Bush, says that the GOP has, "been fleeced, exploited, and lied to by a conservative entertainment complex".

When Republicans Were Great: The Once and Future GOP?

Where would you guess the following quote came from?

"We are proud of and shall continue our far-reaching and sound advances in matters of basic human needs—expansion of social security—broadened coverage in unemployment insurance —improved housing—and better health protection for all our people. We are determined that our government remain warmly responsive to the urgent social and economic problems of our people."

If you guessed the 1956 Republican Party Platform, congratulations! Once upon a time, Republicans stood for far-reaching advances in matters of basic human needs. Once upon a time, Republicans stood for expansion of social security. Once upon a time, Republicans stood for broadened coverage in unemployment insurance. Once upon a time, Republicans stood for improved housing. Once upon a time, Republicans stood for better health protection for all our people. Once upon a time, Republicans stood for being warmly responsive to the urgent social and economic problems of our people.

Over the past several decades, the "Reagan Revolution" political dogma stamped out what was left of those golden days when traditional, proven, sensible, responsible, balanced policy drove the Republican party. The party leadership and much of its base turned against the policies that built our economic strength on a larger middle-class as the engine of commerce. At this point, Republicans stand for ignoring basic human needs. Current Republicans stand for privatizing social security and turning seniors over to the topsy-turvy stock market as fodder for those who would like nothing better than to gamble with those funds. Now Republicans stand in the way of extending unemployment insurance. Today's Republicans seek every opportunity to repeal better health protection for more of our people. Contemporary Republicans stand for leaving the urgent social and economic problems of our people to the whims of the short-sighted, momentary-profit-driven market. And if answering their social and economic problems should happen to be thought unprofitable in the short-term, post-Reagan Republicans see no reason not to sacrifice the long term good of the people.

It doesn't have to be that way. Obviously. The Grand Old Party really was grand before the Reagan Revolution. It could be again. All it would need to do is rediscover traditional American values -- the old-school Republican values -- and repudiate the "starve the beast" platform of ever lower taxes in an effort to force abandonment of social and economic progress. Balancing the budget in the average year isn't bad and was even embraced in the 1956 platform too, but today's GOP pitches snake oil when it claims the only way to balance the budget is to cut. The party used to know better. There are values it should rediscover from it's past, such as:

• "Republican action created the Department of Health, Education and Welfare as the first new Federal department in 40 years, to raise the continuing consideration of these problems for the first time to the highest council of Government, the President's Cabinet."
• "The Republican Party will renew its efforts to enact a program based on sound principles of need and designed to encourage increased state and local efforts to build more classrooms."
• "Stimulate improved job safety of our workers, through assistance to the States, employees and employers;"
• "Protect by law, the assets of employee welfare and benefit plans so that workers who are the beneficiaries can be assured of their rightful benefits;"
• "Assure equal pay for equal work regardless of Sex;"
• "Provide assistance to improve the economic conditions of areas faced with persistent and substantial unemployment;"
• "We have supported the distribution of free vaccine to protect millions of children against dreaded polio."
• "Republican leadership has enlarged Federal assistance for construction of hospitals, emphasizing low-cost care of chronic diseases and the special problems of older persons, and increased Federal aid for medical care of the needy."
• "We have asked the largest increase in research funds ever sought in one year to intensify attacks on cancer, mental illness, heart disease and other dread diseases."
• "We have supported measures that have made more housing available than ever before in history, reduced urban slums in local-federal partnership, stimulated record home ownership, and authorized additional low-rent public housing."
• "We shall continue to seek extension and perfection of a sound social security system."

Traditional American values. Every one of them. Those are values the Republican party once knew. The heartless ideologues of the Reagan Revolution have lead the GOP astray. But parties change. There's still time for the GOP to reclaim those traditional values and learn to rediscover the art of appropriate taxation instead of always starving our government and undermining its work of building infrastructure, commerce, and a growing, prospering middle class. Building a safety net under our people, working to lift up the least affluent, and strengthening the middle class leads to strong, lasting, stable prosperity for us all. Wealth grows best on a diet of steady commerce from a rising middle class. To get there, we must pull our heads out of the hole that is cutting at all costs. Budgets must be balanced by growth ... not by slash and burn. As the 1956 GOP platform quoted President Eisenhower, "America does not prosper unless all Americans prosper. Government must have a heart as well as a head."

What Part Was The Mistake Rep Ryan? The Jobs Perhaps?

"Representative Paul D. Ryan said on Thursday it was a mistake to have requested funds in 2009 from the federal stimulus bill after voting against it."

So what part of that was a mistake? Could it be the effort to help create jobs for his constituents?

"The Congressional Budget Office said the stimulus increased employment by 1.3 million to 3.3 million people."

So why would it be a mistake to increase employment? Could that be because the Republicans figure that anything that helps employment during President Obama's term hurts their 2012 election chances? Could that be because they've cynically decided that helping the American people is against their political interests? Could that be because they've fanatically decided that they know what's best for us so much that they figure it's OK to hurt us for a while as long as it helps them get back in power in the long run?

Grunwald Clarifies Exactly Where Ryan Stands

Highlights from Grunwald on Ryan in "Paul Ryan and the Stimulus: A Match Designed to Make My Head Explode":

"Funny, Ryan somehow forgot to mention that he was one of those proponents. He had voted for the Bush stimulus, along with the Bush tax cuts, the Bush wars, the Bush security spending binge, the Bush prescription drug benefit, the Bush highway bill that included the Bridge to Nowhere, and the Bush bank bailout. Fiscal conservatism!"

and

"Republicans never explained how $715 billion worth of tax cuts and spending could be good public policy while $787 billion worth of tax cuts and spending was freedom-crushing socialism. In the minority, they didn’t have to. And Paul Ryan? As usual, he fell off both sides of the horse. He voted for the ideological tax-cut bill that would have increased the deficit, and the political spending bill that would have increased the deficit. And then he railed about Obama and the Democrats increasing the deficit."

Grunwald, of course, gave more detail around the above, but those're the real biting crux of it. For all of his reputation, Paul Ryan really turns out to be about nothing more than GOP partisan politics. His records shows that he's got the typical Republican history of ranting about Democrats and deficit spending out of one side of his mouth while voting for Republican budget-busting policies with the other.

Gross Govt Impact

The idea that we should make huge govt budget cuts is premised on the notion that our economy would be better off that way, wouldn't be hurt by it, or at least would soldier on about the same. Sometimes the best insight into that notion comes from people who weren' even discussing budget cuts directly. Daniel Gross's recent article about whether to buy bonds or not didn't touch on the idea of budget cuts at all. It's one and only focus was on whether US govt bonds are still a safe-haven investment compared to stocks. To explain that, he covers the impact on stocks if the US runs up against the debt ceiling and stops spending to not default on bonds.

"The U.S. government occupies a pretty large footprint in the economy. It employs 2.85 million people directly. Next, think of all the businesses, many of them publicly held, that rely on the government  for a big chunk of their business. For-profit education companies, defense contractors, the entire health care industry, Wal-Mart and other retailers that cater to people who depend on federal benefits to help pay their grocery bills. Every large consulting firm, every large tech firm (from Microsoft to IBM) has a large unit that provides services and products to the federal government.

Should the U.S. bump up against the debt limit without resolution, it's possible the Pentagon would delay indefinitely the signing of new contracts for fighter jets. Or agencies would cancel or slowdown payment on IT projects. Or Congressmen and their staffers would see their wages reduced. Or fewer people would get food stamps. The cumulative impact would be less demand, less economic activity, more uncertainty."

In pointing this out, Mr. Gross was ostensibly more concerned with explaining why bonds seem a relatively safe investment at this point. He says, "government reliance on debt to fund of operations and investments is so great that they'd rather alienate workers and citizens and taxpayers than anger the bond market." So all the explanation of what they'd have to do to avoid angering the bond market just explains why stocks are the more risky bet despite debt ceiling fears.

Yet there's a far more important take away than Mr. Gross's surface question of whether it makes more sense to invest in bonds versus stocks. Those payments we'd have to avoid making? They're a lot like the cuts the GOP wants to make. If the Republicans got their way -- the whole thing for which they're playing chicken with the debt ceiling -- we'd see most of those cuts. No wonder they don't care about the debt ceiling, if what they figure we'd avoid paying to avoid default are the things they don't want to fund anyway. And "Of course, all these moves would be contractionary — they'd help slow economic growth."

Contraction, by the way, is more or less a general term for things like recessions and depressions. Mr. Gross didn't speculate on whether those non-payments (or cuts, if de-funded in a relatively orderly manner) would cause a mere recession or a full-fledged depression. But that's really the remaining question for anyone who might be paying attention to where the Republicans goals would shove us. If the Republicans get their massive budget cuts, the question isn't whether it'll hammer the economy, the question is only how hard ... and whether we've ever seen it hammered that hard before.

The Sprint Towards Insanity

Wow. And we thought things were getting a bit nutty in the 2010 elections. One has to wonder, since the Democrats have adopted so many of the Republican ideas (e.g., cap-n-trade, etc.) years after the Republicans brought them up: For 2016 will the Democrats also embrace something like what's going on in the Republican party today?

Michael Tomasky said it well, in "The Lies and Lunacy in Tim Pawlenty's Economic Plan", "The Republicans have lost any connection to earth, and the Democrats are afraid (with a few noble exceptions) to tell the American public the truth."

It is in this context, that perhaps we shouldn't be entirely surprised that among the notable celebrated likely serious contenders for the GOP Presidential nomination are Santorum, Romney, and Gingrich. Santorum is so far right-wing that he's been known to make other conservatives nervous. Romney is best known for a plan from which he's desperately trying to disassociate himself and claim it wouldn't be good for the country. And Gingrich has that remarkable contradiction of championing the "Defense of Marriage" while himself going through wives like tissue during cold-n-flu season.

In a nutshell, the GOP is running a bowl of mixed nuts.

Ah, but there's Pawlenty, right? For quite some time, most of what we heard about Pawlenty was that he might be a bit boring ... that he lacked charisma. Perhaps he's not so boring after all. He's put forward a "plan" that's more or less total fiscal insanity. That's some exciting stuff. You can't be entirely boring when you put forward a plan that ridiculous. Then again, it does rather come across as the natural extension of the direction in which Republican policy has been heading.

As Tomasky put it,

"The lie, which one hears from Republicans on cable television on a daily basis, is that “we spent our way into this crisis.” Yes, federal spending has gone up significantly in the last decade. But increased spending wasn’t as decisive as decreased revenue. The truth can’t be said often enough: We did not spend our way into this crisis; we de-taxed our way into it."

If folks take that lie and base their world around it -- around the madness that cutting taxes would always be good and couldn't possibly be the real cause of deficits -- then they're going to come up with some really absurd plans.

Cuts Damage: Even for the Body Politic

"For every $1 the government doesn't spend, economic activity shrinks by as much as $2."

from Insights on Stimulus, Thanks to the Mafia

This insight comes from an Italian study showing that when they freeze spending for government project in areas where Mafia corruption was found, the reduction in government spending leads to an even larger decrease in economic activity in the region than the amount of the initial cut. Not only do private sources not step in to make up for whatever the government doesn't spend, but without the government project there is even less private spending than there would be otherwise.

There are, of course, limits to how much the ratios seen in that study will match the ratios one would see elsewhere, such as in the U.K. austerity programs or the massive budget cuts that the GOP is attempting to foist upon the American people. However, the general mechanism will apply. When you're looking at useful infrastructure improvements [roads, rail, bridges, etc.] and/or programs upon which businesses rely for stability -- such as having their healthy, able-to-work labor supply not bogged down with personally looking after their grandparents -- [Social Security, Medicare, etc.], these things will generally hurt economic activity if government significantly cuts spending.

GOP Seeks Lower GDP

Sen. Rand Paul

Sen. Richard Shelby (R-AL) feels we can cut 30% across the board. Or maybe 10%. According to Ben Armbruster of ThinkProgress, "It is unclear which reduction figure, 10 percent or 30 percent, he is officially advocating." On ABC's "Top Line", Rep. Michele Bachmann (R-MN) says that she's found "about $450 billion worth of cuts." That'd be around 12%. Sen. Mike Lee (R-UT) has talked about cutting the budget by 40%. Sen. Rand Paul (R-KY) strikes it at a balanced budget, which means roughly 33%.

As previously detailed, when we cut the budget to avoid borrowing, those cuts don't come from nowhere. They come out of spending, reducing demand, lowering our nation's GDP. In good times, that's fine. When GDP growth is high enough, we can afford to cut. But we can't afford to drop our growth below around 2.5%. Otherwise we get rising unemployment. One would hope that these members of Congress understand national budgets, have done the math, and wouldn't propose a drop that would take us below 2.5% GDP growth, right?

So what would each of those figures mean? We can plug these into a rough formula. Some of the lower estimates figure the government around a 25% share of GDP. To give these members of Congress the most benefit of the doubt, we'll go with this low estimate. So when you cut government spending by a percentage, you effectively cut the GDP (or more precisely lower the percentage change in GDP) by roughly 1/4 of the percentage by which government spending was cut. Applying Okun's Law (or Okun's Rule of Thumb), we can expect roughly a 1% drop in employment per 2% reduction of the GDP growth below 2.5%. It's a rough figure, but it tells us more or less what we should expect.

Govt budget cut % / 4 = -% GDP impact

Our baseline is 3%. Why? That's a typical estimate for our GDP growth for 2011. Since the stable point for unemployment is around 2.5%, we might theoretically be able to take about a 0.5% drop in GDP without adding more to the unemployment roster and reducing our payroll tax revenue (thus increasing the deficit).

Let's start with the most modest of these, Sen. Shelby's 10% (assuming he didn't really mean 30%).

10% budget cut / 4 = 2.5 % GDP impact

est. 0.5 % GDP meaning 1% added to unemployment rate

Well, that's not very pleasing. So what do we get from the others?

Rep. Backmann's 12%:

12% / 4 = 3%

est. 0% GDP meaning 1.25% added to unemployment rate

Sen. Paul's 33%:

33% / 4 = 8.25%

est. -5.25% GDP meaning 3.875% added to unemployment rate

Sen. Lee's 40%:

40% / 4 = 10%

est. -7% GDP meaning 4.75% added to unemployment rate

So just how much unemployment do they suppose we can handle? Either the answer is above, or they just don't realize that their slash and burn plans would raise unemployment. Even the most modest of them would cause unemployment to rise at this point of not particularly fast growth.

Meanwhile, each of these increases in unemployment would mean fewer people on payrolls. That means less income tax revenue. Since a drop in revenue doesn't generally cause our costs to drop, that means that assuming we went with Sen. Paul's balanced budget, we'd build ourselves a brand new deficit because of that extra almost 4% tacked onto the unemployment picture. So to use Sen. Paul's "ironclad" balanced budget rules, we'd have to make further cuts. Assuming nothing else rescued our GDP from outside, that'd mean a further drop in GPD and more unemployment. Let's not do that. Not now. Not while we don't have enough growth to afford cuts.

Austerity in Modern History

"Those who cannot remember the past are condemned to repeat it" - George Santayana

On the Dylan Ratigan show, Mark Ames, founder of exiledonline.com, describes what happened in the Weimar Republic when they implemented the measures that the GOP are currently pushing in America::

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"The incoming Republican congress is promising to deliver a megadose of austerity this year and the media and financial elites are telling us we need a major dose of austerity for our own good, whether we like it or not. But what none of the dictionaries or politicians or financial experts are telling us us is that austerity's been tried before -- many times, which might make you think "Oh great, so it's been tried and it works, right?" And that's where things get a little tricky. For example, one of the most infamous austerity programs was tried out in Germany in 1930 by Chancellor Bruning, one of those fiscal responsibility buffs who was sure that the answer to Germany's economic problems was to balance the budget and strengthen the currency by slashing unemployment benefits, pensions, and wages, hiking taxes, and sticking to the gold standard. The result: unemployment exploded, riots in the streets, the collapse of democracy, and the rise of Adolf Hitler. The rest is history. But hey, at least he got that deficit under control."

(Ames also added a further example that he witnessed first hand, the total collapse of the Russian economy in the 1990s after they implemented austerity measures.)

Republicans are fond of referring to the Weimar Republic whenever they're fear-mongering about inflation and advocating the ransacking of our social safety net. What they don't mention -- perhaps cannot remember -- is that the Weimar Republic coped with its inflation and stabilized its currency. It was not their hyperinflation that caused the demise of the Republic by descent into fascism.

Not that inflation was nothing. The hyperinflation was painful. And it was used politically. But the Republic survived the inflation itself, handled the situation, and got on with life after the hyperinflation with a currency that had been mostly stable for years after the reset of 1923/1924 established the Reichsmark. They didn't just achieve stability. The prosperity of the Roaring Twenties ran beyond the United States. In the latter 1920s, Germany also boomed after the hyperinflation under the Weimar Republic.

Then the Great Depression hit, giving the Nazi party more discontent with which to work. Then Chancellor Brüning slashed and burned what remained of the German economy with austerity programs. In theory, austerity was meant to deal with the financial problems of debt and the Great Depression while avoiding a return to inflation. But it was those austerity efforts and their side effects that collapsed the Weimar Republic and the launched Germany into fascism.

A Cycle: the GOP, the Chamber, and China

What cycle could wrap together the Republican party, the Chamber of Commerce, and China (among other foreign interests)?  The natural cycle of money, influence, and power, of course.  China is just one of the homes of the foreign companies behind the US Chamber of Commerce.  We can't tell how many of the Chamber's dues-paying members are from each foreign country; although given the size of China's economy, we can guess that a fair amount of the dues probably come from China.  (China is the world's 2nd largest economy and of the top 50 economies, China is by far the fastest growing.)  The Chamber in turn funds much of the political campaign effort for the Republican party, operating in the interest of their members as best they can.  For their part, the Republicans seek to promote the causes of their donors.

The steps of the cycle:

1. Of the dues that make up the general budget of the US Chamber of Commerce, the biggest spending lobbying organization in the United States, much comes from foreign members.  (Such as operations in China and India to whom we outsource work from American companies.)
2. The Chamber of Commerce funded many of the campaign commercials that lead to Republican wins in the 2010 elections, enough that a Republican would have to be fully brain-dead to not understand that the Chamber is a big source of the power the party has.
3. The Chamber of Commerce lobbied
1. against the 9/11 health bill to "keep open a tax loophole benefiting foreign corporations", which makes perfect sense given that many of their members are foreign corporations
2. against the DISCLOSE act, which would have shed light on their funding situation and campaign activity
3. on behalf of foreign companies that are some of the highest growth investment opportunities and thus likely to get a lot of investment money from the upper class tax cuts
4. The GOP voted
1. against the 9/11 health bill (most House Republicans voted against the bill; the Senate Republicans successfully filibustered it)
2. against the DISCLOSE act
3. for upper class tax cuts.  That's an understatement:  they didn't just vote for it, they made it their top priority and refused to let anything else through the Senate until they got it.  It'll mean more money for the wealthy to invest wherever they choose, which might be in foreign companies ... especially if they decide to invest where there's the highest potential rate of return.
5. The Republican efforts bring more money to foreign business.
6. Foreign businesses pay more dues to the Chamber, which feeds back into step #1

Foreign business gives cash to the Chamber, the Chamber gets the GOP elected, the GOP supports foreign business, foreign business has more cash to give to the Chamber, repeat ad nauseum.

I'm not saying the Republicans have thought this out and realize all the implications, but there they are.

It's not a conspiracy.  Let's be clear about that.  A conspiracy would require that those responsible were knowingly working together towards a common goal.  A cycle just means that individual parts are acting in a manner where the set of relationships feed into each other in a repeating chain.  It's a cycle.

Anyone else find this to be a rather bad cycle?