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1888 - 8:15 a.m.: Newhall's luxurious Southern Hotel burns to the ground [story]


Out of Left Field | Commentary by Charlie Vignola
| Monday, Mar 11, 2013

charlievignolaWe had a lot of positive economic news last week: The stock market closed on Friday to 14,397, setting a new record, 236,000 new jobs were created and the unemployment rate fell to 7.7 percent, the lowest level since the recession hit in 2008.

I can’t help but believe that if Mitt Romney had been elected instead of President Obama, Romney would be doing a victory lap about now and the right-wing media would be bragging about how it was the confidence inspired in the markets by Romney’s election that dramatically turned the economy around so quickly – even though by this point, Romney would’ve only been president for around 6 weeks.

And remember, this is all happening in the months after tax rates went up – you know, that thing that’s supposed to be so apocalyptic and soul-crushing that it saps all of our incentive, causes hiring to freeze and drives the rich to consider moving to other countries. Yeah, apparently America didn’t get that memo.

In fact, compared to the rest of the world, America’s economy is actually doing pretty good, which is the reason why global investors are still putting their money in America. Conservative pundits may try to convince you that a U.S. growth rate of 2 percent sucks despite the fact that we still haven’t completely pulled out of this recession, but try telling that to Europe, who’d kill for that growth rate right now.

And why is Europe still limping along? Well, one of the main reasons is that they’ve been doing what Republicans have been advocating we do in America for the past several years: they’ve been taking drastic austerity measures to deal with their mounting debt and weakened economies.

Countries like Britain and Greece have sought to “restore confidence” to their markets by severely cutting government spending. However, as predicted by Keynesian economists like Nobel Prize-winning Princeton Prof. Paul Krugman, rather than reassuring investors, this strategy has ground these economies to a halt, deepening and extending their recessions.

Up until recently, President Obama has resisted Republican calls for austerity, seeing Europe as the canary in a coalmine, and instead has followed the Keynesian belief that when private businesses and average people pull back their spending due to uncertain economic times, the only other player big enough to make up for the shortfall in spending is the government, and so by pumping stimulus money into the economy it helps restore balance and shorten the potential recession.

It has taken four years, but it looks like things are finally starting to turn around. Republicans would have you believe that if we followed their prescription of tax cuts for the rich and austerity measures for everyone else in the form of spending cuts for social programs and service cuts across the board, the economy would’ve been back on track a long time ago.

You’d have to take that assessment on faith, of course, since the Great Recession of 2008 was the worst economic downturn since the Great Depression of 1929, and it took 13 years to pull out of that tailspin – and only then because America plunged into World War II.

After World War II, America experienced the greatest economic expansion in its history, a 35 year boom that offered broadly shared prosperity. The rich got richer despite having a 90 percent top tax rate for much of that time (so much for high taxes sapping the incentive of the productive class), but everyone else came along for the ride as well as America’s thriving middle class was the envy of the world.

So when did that broad-based prosperity screech to a halt and start reversing, turning instead into widening income inequality that’s continued now for over 30 years? It began with a little thing called supply-side economics, otherwise called “Trickle-Down Economics”, which was enthusiastically put into practice by that patron saint of the right, President Ronald Reagan.

Reagan bought into the now thoroughly discredited economic theory that tax cuts pay for themselves with the new growth they encourage, and that the free market is so efficient that the subsequent macroeconomic gains are equitably distributed so that a rising tide lifts all boats.

Well, a rising tide lifts all boats so long as those boats are yachts. As has now been exhaustively documented, the three decade experiment in Supply-Side Economics has resulted in explosive financial gains for the top 1 percent of earners, with pretty much everyone else getting the royal screw-job.

And far from than those lower tax rates paying for themselves, they’ve actually resulted in less and less revenue flowing into the U.S. government, helping to create a national debt that now tops $16 trillion.

Granted, there have been other factors that have contributed to the growing income inequality: huge productivity gains thanks to technological advancements that have resulted in more profit for companies at the expense of fewer workers, lower labor costs in third world nations causing manufacturing jobs to migrate overseas, and trade policies that are beneficial to big corporations but deadly to domestic job growth.

But all of these other factors are the reasons why lowering taxes for the rich never result in more job creation. The rich don’t create jobs because they suddenly got a tax cut; they create jobs because there’s increased demand for their products and services, which only comes from consumers having more money to spend – and consumers only have more money to spend if they have jobs and their wages go up.

Due to Republicans stubbornly refusing to close special interest tax loopholes that only benefit the rich (they’ve decided that closing those loopholes represent “tax increases”, even though this was exactly Mitt Romney’s suggestion for generating more revenue), we’re about to see $85 billion get sucked out of the economy thanks to the sequester – which again, only exists because Republicans demanded these spending cuts as their ransom for raising the Debt Ceiling in the summer of 2011.

Conservatives have accused President Obama of ginning up fear over the potential consequences of the sequester cuts. They claim that given the U.S. Government’s $3.8 trillion budget, $85 billion in cuts is a drop in the bucket that will have minimal effect. Perhaps under a normal, healthy economy that might be true, but we’re still in a recovery and digging ourselves out of a once-in-a-lifetime economic hole where the normal rules don’t apply.

To give you an idea of how big an impact $85 billion can be to the economy: Back in 2008, when Detroit was on the verge of bankruptcy and grabbed a lifeline from the U.S. government, the economic impact between the car companies and the auto parts manufacturers and the dealerships was close to $85 billion a year. If the U.S. government hadn’t interceded and those companies had gone belly up, you’d be looking at around 1.6 million more people out of work.

As it is, leading economists are predicting that the sequester cuts may result in over 1 million jobs lost. A chunk of those jobs are likely to be lost right here in the 25th Congressional District due to the huge defense cuts baked into the sequester, partially thanks to our own honorable Congressman Howard “Buck” McKeon (R-Ca.) who voted for those sequester cuts. Will McKeon face any political consequences for this in the midterm? Only time will tell.

In the meantime, it’s just worth noting that President Obama’s balanced, common-sense economic strategies are in fact working – no thanks to Republican obstructionism – and leading to a steady, stable recovery.

However, if the extremists in the Republican’s Tea Party Caucus continue to throw bombs as we face the deadlines for the Continuing Resolution that finances government operations and the next showdown over the Debt Ceiling, that fragile recovery could be endangered.

If that happens, it’ll be up to the voters in the 2014 midterm election to decide which politicians will find their own political futures endangered.

 

Charlie Vignola describes himself as a former College Republican turned liberal Democrat.  A resident of the Santa Clarita Valley since 1999, he works in the motion picture industry and loves his wife and kids.

 

 

 

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