As the United States enters its fourth year of economic struggle, the political right continues to insist that cutting government spending, taxes, and regulation will return us to prosperity. While that promise seems rosy to many desperate people, this prescription is all wrong for what ails the economy. The right-wing economic agenda continues to fly in the face of historical and economic evidence from the past century, and could well send the nation back into a deep recession.
The most pernicious claim is that cutting government spending will somehow benefit our limping economic recovery. Nothing could be further from the truth. With consumer and business spending both at anemic levels, a reduction in government spending will take more money out of an economy that has already lost trillions of dollars in wealth because of the collapse in inflated housing prices. To the contrary, another federal stimulus package is exactly what is needed, despite the naysayers continuing obstruction—we should spend more money not less on crucial needs in education, public safety, and rebuilding our infrastructure.
The promise of tax cuts is also alluring in times of economic malaise, but those tax cuts will work only if they go to the people who really need them and will spend the money as quickly as possible to stimulate the economy. Skewing tax breaks toward the wealthy and corporations, as has done for the past thirty years, leads to more speculation and less job growth. Today, corporations are sitting on literally tens of billions of dollars; giving them another tax break will do little to promote hiring when there is flagging demand for goods and services.
As for the hue and cry to cut government regulation—well, we did that twenty years ago when Bill Clinton deregulated the banking industry and look where that took us, right into the worst economic crisis since the Great Depression. Today, there is absolutely no evidence that Main Street merchants are holding back because of uncertainty over taxes and regulation; businesses are not investing or expanding because there is slumping demand for what they are selling.
With all this economic and historical evidence stacked up against the mantra of cutting spending, taxes, and regulation, why does the right continue to insist on such a discredited set of policies? Some proponents are enamored of ideology over reality—they remain convinced that a world of free markets unfettered by taxation or regulation will cure all problems, and no amount of data will convince them to abandon their blind faith.
Other advocates of the cuts only approach are distracted by the slew of crack-brained analogies that pass today for economic analysis in some political circles. If you accept the bizarre notion that the government of a nation of more than 300 million people should run its budget the same way as a family of four or the local hardware store, then of course it makes perfect sense for Uncle Sam to tighten his belt in hard times. Of course, lots of other folks are already doing the same thing, and a drastic cut in government spending now could tighten us all from a recession into a depression. This is what happened in the early 1930s, and it took the New Deal and its public spending programs and economic reforms to rescue more than a quarter of the nation from total destitution.
The most plausible explanation for the right’s infatuation with wrong-headed economics is that their slogans continue to produce electoral gains in the world of bare knuckle politics. It does not matter to some politicians if their ideas are flat-out wrong; if they can convince enough people to vote for a dream of small government and low taxes (just don’t ask what will actually be cut) then they can talk their way back into political power. Meanwhile, if they can continue to promote economic stagnation through political gridlock, and fan the flames of popular discontent, then ongoing human misery also plays into their plans for hanging blame on their opponents.
The saddest part of this whole farce is that a clear and sensible way out of the economic ditch is right in front of our noses, if only we had political leaders with an ounce of courage and the nation’s best interests truly at heart. We have high unemployment, crumbling infrastructure, and record low interest rates (no one is running away from buying our debt and treasury notes).
Today, we should jettison the bogeyman of deficits, borrow more money at these rock bottom rates, and spend it to hire several million unemployed men and women to create the foundation of an innovative economy that can create a future of genuine prosperity for more Americans than just investment bankers.
Dr. David A. Zonderman is a Professor of History at North Carolina State University.