hyejin kang Getty Images/iStockphoto
The fearmongers are beginning to resume their predictions of gloom and doom because we are going to run multi-trillion dollar deficits. After several pandemic relief bills that cost trillions of dollars, some passing unanimously, why all of a sudden are we seeing people like Mitch McConnell acting so concerned about the deficit? No one is advocating for these massive deficits for the fun of it. Everyone understands that you can’t run multi-trillion dollar deficits year upon year, but when they are needed, the alternative to these large deficits is an economic depression.
Deficits are the medicine you need to take when the economy gets sick, and currently our economy would be facing disaster without our federal government running massive deficits. In a recession, deficits are the medicine that prevents a recession from becoming a major depression.
Learning From the Great Depression of the 1930s
As the Great Depression began, the Republicans were in power in Washington and cut back on government spending in the early 1930s thinking they were doing the smart thing. They only ended up pushing the economy into a deeper and more painful depression. What got the U.S. out of the Great Depression was not just Franklin D. Roosevelt’s New Deal spending programs—although they certainly helped. What finally ended the Great Depression was massive government deficit spending caused by World War II. The war ended the Great Depression, fueled by massive government borrowing including saving bonds marketed to average working families.
Used judiciously, deficits can prevent massive swings in the economy—fiscal policies creating deficits when the economy slows and heads into a downturn coupled with raising taxes in a fair and equitable manner when the economy heats up and signs of inflation are beginning to manifest themselves. Wise use of fiscal policy could minimize the ups and downs that are inherent in a free market economy. Deficits go up when the economy is slowing and the government borrows money to stimulate the economy. On the other side, debt is, at least theoretically, paid off when the economy is producing a surplus.
The last U.S. budget surplus was during the final years of the Clinton administration. What followed was Bush administration tax cuts, skewed to the wealthy rather than to pay down the debt.
Republican leaders often rail against deficits and debt, but they continue to add to them when they get into power. They invariably cut taxes to benefit the wealthy or their favorite special interests. This happens through either opportunistic congresspeople or a president willing to promote fear and lies about deficits in order to get elected—and then do an about-face and cut taxes to benefit their wealthy patrons. Wisconsin’s former Congressman Paul Ryan, who became Speaker of the U.S. House of Representatives, was perhaps the biggest hypocrite when it came to the deficit.
|
|
Paul Ryan the Hypocrite
Ryan is a true believer in the right-wing author Ayn Rand, whose view of very limited government involvement in the economy has been pretty much discredited. Ryan railed against deficits when Obama was president and when America needed deficit spending to get the U.S. economy out the 2008 great recession that Obama inherited. The Republicans’ plan, which they were rather public about, was to hinder Obama’s effort to adequately stimulate the US economy in hopes of limiting him to a one-term presidency.
Then, when Trump got elected, Ryan, Mr. Deficit Hawk, pushed a massive tax cut through the House of Representatives at a time when the economy was flourishing and did not need any stimulus. However, the massive tax cut was blatantly crafted to give very wealthy individuals tens of millions of dollars in tax cuts and the average working person a couple of hundred dollars. This left us with a much larger deficit and growing national debt.
How the 2017 Tax Cuts Continue to Hurt Us
When this massive $1.9 trillion Trump/Ryan/McConnell tax cut took place in 2017, the economy did not need stimulation. It was doing just fine and there was real concern among economists that a tax cut would overheat the economy, potentially causing inflation. Now when we do need the deficit spending, that earlier 2017 tax cut exacerbates the current situation because it had already created a large deficit. If Ryan were an honest man and was really concerned about the debt and deficit, he would never have engineered the cut in 2017 when the economy was still growing strongly.
Now after several Coronavirus stimulus bills, Congress is discussing the next relief package to provide help to state and local governments. State and local governments are really hurting because the unemployment rate is off the charts and therefore, people are unable to pay rent and various taxes and landlords are not collecting rents to cover property taxes. At the same time, state and local governments are putting out billions of dollars in safety net programs to help their struggling citizens and small businesses. And the Senate Majority Leader is saying No.
Congressional Republicans led by Mitch McConnell are arguing against any help for state and local governments. He actually proposed that states should be able to file for bankruptcy. With a portion of this proposed money earmarked to large cities which are heavily Democratic with larger minority populations, McConnell and his Republican majority in the Senate are conveniently becoming deficit hawks again. You would have hoped that Republican senators, including Wisconsin’s Ron Johnson, could try to be Americans first and Republicans second and do what is right to keep our society from falling apart during this horrendous pandemic.
Louis Fortis is publisher of the Shepherd Express and formerly taught economics at Smith College and the University of Massachusetts.
