Congress soon may enact an economic reconstruction program. The devil will be in the details. Maine has an immense stake in this debate. As House Speaker Hannah Pingree pointed out recently, Maine faces a cumulative shortfall of more than $800 million over the next two years. If the economy decelerates further, that figure will grow higher.
Although current unemployment rates remain far below expected rates for January 2010, food pantries already are struggling to meet needs. The Westside Food Pantry, serving our tiny Mount Desert Island communities, gave out more than $10,000 in vouchers last month alone.
The debate in Washington will have an immense effect on how many Maine residents will need assistance and on how much communities can provide. Though some package is virtually inevitable, many Republicans will fight to slow its passage via the filibuster, limit its scope, reduce assistance to the poorest, and load it with further reductions in business taxes.
Barack Obama and some Democrats incline toward including substantial business tax cuts, presumably to secure immediate bipartisan consensus. This pre-emptive bipartisanship, however, is unlikely to work and has political risks. No matter how many business tax favors Obama offers, he is unlikely to satisfy most Republicans. More fundamentally, business tax cuts — just like cuts in the interest rate — will not extricate us from this recession. Democrats may be held responsible for the failure that results from a flawed package.
The rapid increase in layoffs and the fragility of the financial system make this an unusually dangerous recession. It affects pocketbook and psychology. Businesses will not invest and consumers will not spend beyond necessities just because interest rates or taxes are lower.
Even in prosperous times, capital gains tax reductions are ineffective. New investment in plant and equipment is funded by retained profits, not the stock market. Already low capital gains taxes under George W. Bush only turned stock and derivative markets into speculative, job-destroying casinos. Corporations invest when they see prospects of marketing their goods. Government must spend if business is to have the market growth on which new investment can be based.
Since the shortfall in corporate and consumer spending likely will be very large, Obama must think in terms of an initial trillion dollars.
When I suggested this to the generally progressive students at College of the Atlantic last week, some were disturbed. I view their reaction as one symptom of the power of conventional corporate media. Failure to act boldly, however, still will mean vast increases in the deficit. Unemployment compensation and welfare grow dramatically. In addition, the unmeasured but consequential burdens to private charity — or the likelihood of starvation or freezing to death — will escalate.
Economists distinguish between cyclical and structural deficits. As the business cycle moves downward, deficits grow. But with appropriate government spending, the economy can rebound and tax revenues begin to increase. When the economy reaches full potential, government can increase taxes or cut spending. The debt as a percentage of total output (the real measure of the debt) then falls.
Conservatives argue that Franklin D. Roosevelt did not end the Depression. They are right. He listened to them, and in 1937 and 1938, well before the economy had rebounded, FDR cut government spending. Unemployment soared. The war tells a different story. Chapman University professor Timothy Casanova points out that after 1940, there was a different scenario: “The Greatest Generation [invested] on a scale much greater than today,
spending billions of dollars on the Second World War, the Marshall Plan … and the G.I. Bill of Rights that housed, educated, and integrated more than 16 million returning war veterans. As a percentage of GDP, the U.S. government … borrowed more than 15 times as much as today.”
Compromise often is necessary, but Democrats should compromise only at the end of the day. Demand the best progressive package, one that emphasizes unemployment relief, food stamps, shovel-ready infrastructure projects, revenue sharing for slashed programs, and energy saving initiatives. Citizens deserve an up or down vote on a genuinely progressive package. The best bipartisanship gives each side a chance to make its clearest case, then authorizes a vote. Such bipartisanship gives citizens a chance to evaluate their representatives and the consequences of real policy differences.
In this vein, I hope Sens. Olympia Snowe and Susan Collins would vote to block any anti-democratic filibuster on this vital measure.
John Buell is a political economist who lives in Southwest Harbor. This is a shorter version of a recent talk he gave at College of the Atlantic. Readers interested in the full talk may reach him at jbuell@acadia.net.