The DC Disconnect

The disconnect between reality and beltway rhetoric has never been more obvious when it comes to the economy.  The NYT editorial page has an op-ed up today– ‘The Numbers are Grim’–in which they call for more attention to the unemployment crisis.  As I mentioned when these numbers came out, a decrease in domestic household consumption is a troublesome signal in an economy where nearly 68% of production usually goes to domestic consumption.

When consumers are constrained, so is hiring, because without customers, employers are hard pressed to retain workers or make new hires. A recent Labor Department report showed a greater-than-expected rise in the number of people claiming jobless benefits even as private-sector economic forecasts are being revised downward — both very bad omens for continued job growth.

Republican lawmakers have responded to renewed signs of weakness with a jobs plan that prescribes more of the same “fixes” that Republicans always recommend no matter the problem: mainly high-end tax cuts, deregulation, more domestic oil drilling and federal spending cuts.

The White House has offered sounder ideas, including job retraining, plans to boost educational achievement and tax increases to help cover needed spending. But its economic team is mainly focused on negotiations to raise the debt limit, presumably parrying Republican demands for deep spending cuts that could weaken the economy further while still reaching an agreement on the necessary increase.

The grim numbers tell an unavoidable truth: The economy is not growing nearly fast enough to dent unemployment. Unfortunately, no one in Washington is pushing policies to promote stronger growth now.

Even the Wall Street Journal recognizes the challenges our economy faces.  Many corporate economists see similar indications of a permanent growth problem.  This should not be happening.  We know how to correct this.  We have nearly 70 years of economy theory and empirical data that have provided a guide to every administration except the last two.

Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.

“It’s very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer,” said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters—better than the first-quarter’s 1.8% rate, but too slow to make a meaningful dent in unemployment.

A growing number of forecasters are downgrading their second-quarter growth predictions. JPMorgan Chase & Co. economists revised down their estimate to a 2.5% rate from 3%, while Bank of America Merrill Lynch economists cut theirs to 2% from 2.8%. Deutsche Bank cut its forecast to 3.2% from 3.7%.

Companies are similarly cautious. Applied Materials Inc., the largest maker of machines used in producing computer chips, said it expected growth in its semiconductor and solar markets to slow following one of its best quarters ever. Hewlett-Packard Co. cut its fiscal-year outlook amid weak computer sales and negative effects from the disaster in Japan. Clorox Co. offered a more guarded outlook for its household goods business as executives noted that higher prices may hurt sales.

As stated by the NYT, most Republicans put a plan forward that calls for “high-end tax cuts, deregulation, more domestic oil drilling and federal spending cuts”.   This is exactly the opposite of what needs to be done.  The mantra of  ‘too high’ taxes strangling business which dampens unemployment is simply not true. It’s never been true.  It’s a fallacy!   Bruce Bartlett has done an excellent job–see the nifty graph above–in using facts to put down that meme.  Not only are effective tax rates on corporations already exceedingly low, but tax revenues from wealthy individuals are so low that most of us probably have higher effective marginal tax rates.  This has been the case now for nearly 7 years and for about that same time we’ve experienced some of the worst job creation and economic growth ever.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Meanwhile, the complete disconnect between spending and cutting priorities in Congress and the White House and the American people grows.  As mentioned by BostonBoomer this morning in a reference to a Paul Rosenberg peice at Alternet, Americans want none of what is being dished up in the beltway.  It is true that the current spending path for the general budget, social security, and medicare are not sustainable at current levels.  What is not true is that we need to accept the current path and Republican policy priorities as the solution. There is no evidence that anything they’ve suggested will remotely help our jobs and growth problem which would take care of much of the deficit problems. The rest could be solved by simply returning tax policy back to the Reagan or Clinton levels.

It’s obvious from the last set of economic numbers that the current problem stems from lack of consumer demand which is rooted in a lack of income, confidence,  and wealth in the majority of US Households.  People simply do not have the wherewithal to purchase homes or sustain household budgets.  This is because we have an unacceptably high level of unemployment, we have let the pathway to home ownership completely collapse, and we’re allowing basic government services to collapse to fund unrealistically low tax rates for corporations and wealthy individuals.  Don’t even get me started on funding never-ending wars.  There is mounting evidence that these funds aren’t even staying in the country any more but are being used to fund jobs, investment, and growth in other places.   This is unacceptable policy under our current economic situation. American treasury should not be used to chase profits abroad.

The President has gotten away with extending tax cuts for the wealthiest individuals.  He appears ready to go to the table and accept draconian cuts to federal spending which will impact all levels of government provision of goods and services.  This basically means that he has signed on to a prescription for slow economic growth.  He undoubtedly does so with no worries about the upcoming election.  The Republicans offer up potential candidates that have absolutely no grasp of reality or come with a facile lack of morality to deny it.  Even George F. Will believes one of the front runners to be so incapable of holding office that the thought of giving the ability to launch nuclear weapons to some of the candidates bothers him.  Is handing over the ability to tank our economy any less problematic?

This is beyond disheartening.  It is evident that the plutocracy is doing everything it can to silence any one that could run a narrative contrary to these current fallacies.  I don’t believe for one moment that Congressman Wiener’s hacker isn’t part of tearing down any one that appears to be stepping away from the abyss of Washington group think.  Meanwhile, the media speak is about pushing the economy to the precipice by focusing on the debt ceiling.  It’s looking like we’re being prepped for that.  This will make the market demand extremely high rates of return for federal borrowing which will only increase our interest payments on the debt which are already a huge portion of the budget.  How much sense does that make?

Early proposals for whittling down spending include a plan to drop federal agriculture subsidies and to require larger employee contributions to the pension system for non-military federal workers.

“Those talks, which actually we’ve been meeting for over three weeks now, they have been all positive. Everything is on the table,” House Majority Leader Eric Cantor (R-Va.) said Sunday on CBS’s “Face the Nation.” “We’ve said, as Republicans, we’re not going to go for tax increases. I think the administration gets that. But we’ve also put everything on the table as far as cuts.”

Oh, and if you think the Republicans are all about small businesses and start-ups because they create jobs, check this nifty graph out from MoJo.  The Dubya years basically killed that phenomenon too so it wasn’t about lowering  tax rates, was it?

As this chart from the BLS shows, the number of jobs created by new businesses peaked in 2000, began declining at the start of the Bush administration, and has been plummeting ever since …

So much for that Republican meme.  Facts are stubborn things, aren’t they?

This problem is basically due to the inability to govern and make prudent decisions. They’d much rather pump out lies and continue on the same path to destruction. These people ran up tons of debt to fund wars for which they found no funds.  This is all about the irresponsible Bush tax cuts that Congress and the Obama administration returned to law in December.  The pain for these horrible decisions are about to be extracted on middle and working class Americans who have done absolutely nothing to bring on the recent economic problems and fiscal problems. There has been no bail out or special tax breaks for us.  It should be obvious by now that the policies of the last five years have done nothing but improved the situation for the very rich and the very large corporation.  Shame on all of those elected officials that go along with this.  It is as if they are purposefully setting out to destroy our economy and our way of life. I have no idea why they hold so many of us in contempt but it is obvious that that they prefer the donor class to voters.  They seem to want a repeat of the Great Depression.  At this rate, that is exactly what they will have.