Dec 30th 2012

The One and Only Cause of “Fiscal Cliff” Economic Crisis- Republicans Fear Tea Party Primaries

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
 Often, economic crises are caused by real physical problems – like draught, war, demography, or technological innovation that robs one economy of a competitive advantage over another.
 
Other times, economic crises result when asset bubbles burst, or financial markets collapse. That was the case of the Great Depression – and more recently the Great Recession.
 
The economic crisis of the moment – the “fiscal cliff” – does not result from any of these factors.  In fact it is not a real “economic crisis” at all, except that it could inflict serious economic hardship on many Americans and could drive the economy back into recession.
 
The “fiscal cliff” is a politically manufactured crisis.  It was original concocted by the Republican Senate Leader, Mitch McConnell as a way to get past the last crisis manufactured by the Republicans – the 2011 standoff over increasing the Federal Debt Ceiling.
 
Theoretically, “the cliff” – composed of increased taxes and huge, indiscriminant cuts in Federal programs – would be so frightening to policy makers that no one would ever consider allowing the nation to jump.   
 
Now, America is on the brink of diving off the cliff for one and only one reason: many House Republicans are terrified of primary challenges from the Tea Party right. 
 
That’s right, if your tax bill goes up $2,200 a year – or you’re one of the millions who would stop receiving unemployment benefits, the cause of your economic pain is not some a natural disaster, or a major structural flaw in the economy.  The cause is Republican fear of being beaten in a primary by people like Sarah Palin, Sharon Angel or Richard Mourdock – funded by far Right Wing oligarchs like Sheldon Adelson and the Koch Brothers.  It’s that simple.
 
Most normal Americans will have very little patience with Republicans as they begin to realize that GOP Members of Congress are willing to risk throwing the country back into a recession because they are worried about being beaten in low turn out primaries by people who do a better job than they do appealing to the extreme right fringe of the American electorate – and to the far Right plutocrats that are all too willing to stoke right wing passion and anger.
 
Nate Silver, of the New York Time’s 538.com, argues in a recent column that one of the reasons for this phenomenon is the increasing polarization of the American electorate.  That polarization translates in to fewer truly “swing” Congressional seats and an increasing number where Members are more concerned with primary challenges than they are with losing in a general election. He concludes that at this moment the number of solidly Republican seats is larger the number of solidly Democratic seats.
 
This, he argues is partially a result of redistricting by Republican legislatures that packed Democrats into a limited number of districts in many states.    But he also contends it results from increasing polarization of the electorate in general.  And it is due to the fact that solidly Democratic urban areas have very high concentrations of Democrats, where Republican performing areas tend to have relatively lower concentrations of Republicans. These reasons help explain why, even though Democrats got more votes in House races this cycle than Republicans, Republicans still have more seats in the House.
 
Increased political polarization in the United States is not a result of some accident or act of God.  In 2006, political scientists Nolan McCarty, Kevin T. Poole and Howard Rosenthal published a study of political polarization called Polarized America: The Dance of Ideology and Unequal Riches.  Their study found that there is a direct relationship between economic inequality and polarization in American politics.
 
They measured political polarization in congressional votes over the last century, and found a direct correlation with the percentage of income received by the top 1% of the electorate.  It is no accident that the years following the second World War, a period of low political polarization, was also a period that economist Paul Krugman refers to as the “great compression” -- with robust economic growth for most Americans and reducing levels of economic inequality.  In other words, it turns out that if you want less political polarization, the best medicine is reducing income inequality.
 
Of course, one of the other major factors feeding the GOP fear of primaries is that, because of the Citizens United decision, far right plutocrats can now inject virtually unlimited amounts of money into primary races. Unlimited independent expenditures have so far been much more successful in unseating incumbent Republican Members of Congress than it has been winning General Elections.
 
In the end, of course the relatively more diluted presence of Republicans in Republican districts – and the country’s changing demographics -- may allow Democrats to win many currently Republican seats.  What’s more, Republican near term concern about primary challenges – and the stridency it breeds -- may alienate increasing numbers of moderate Republican leading independents.   We’ve already seen this effect in the Presidential and Senate races and it would not be surprising that by 2014 many of the primary obsessed Republican incumbents are hoisted on their own petard in the General Election.  Just ask Tea Party Members of Congress who were defeated in 2012, like Alan West and Joe Walsh. But in the near term, at least, there is also no question that many occupants of Republican seats appear far more concerned with primary challenges than they are with general elections. 
 
If House Speaker Boehner is to be successful passing any form of compromise to avoid the “fiscal cliff” – either before the end of the year or after – he will need to convince Republican Members of the House that he is doing them a favor by bringing a bill the floor that can pass even with many Republicans voting no.  That, of course requires that the deal is good enough to allow many Democrats to vote yes.
 
Boehner will get political cover for that kind of maneuver if a bill passes out of the Senate with bi-partisan support.  But even then, he will certainly weigh whether he risks his otherwise certain re-election as Speaker on January 3rd if he acts before the country goes over the cliff at midnight, December 31.
 
Of course the many Republicans that will never support any form of tax compromise don’t justify their position by explaining they are more concerned with primaries than they are of general elections.  In fact they generally fall back on one of three myths that are themselves utter nonsense.
 
Myth #1 – You shouldn’t tax the wealthy because they are “job creators”.   The plain fact is that no one invests money in any business if they do not think there are customers with money in their pockets to buy the products or services they produce.
 
Customers with money in their pockets are “job creators” – and the root of our current economic problems can be traced directly to the fact that everyday consumers are receiving a smaller and smaller percentage of the national economic pie and as a result have less ability to to buy the increasing number of products and services our economy can create.   In fact, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government started keeping records in 1947.  And corporate profits have climbed to their highest levels since the 1960’s.
 
Over the last two decades, per capita Gross Domestic Product has gone up; productivity per hour of work has gone up; but the median income of ordinary Americans has remained stagnant.  That is only possible because all of the growth in our economy has been siphoned off by the top 2% of the population. 
 
And it has meant that everyday people haven’t had the money in their pockets to buy the increased numbers of goods and services that are the consequence of that increased productivity. Stagnation and slow economic growth has been the result.
 
Henry Ford had this right.  For the economy to grow over time, workers need to be paid enough to buy the products they produce.
 
If you want the economy to grow, the fruits of economic growth must be spread equally throughout the economy – if not consumers won’t have the money to buy and, as a consequence, investors won’t invest.
 
Higher taxes on the wealthy – including higher estate taxes on fortunes left to the sons and daughters of multi-millionaires – are not “bad” for the economy – just the opposite.  They help address the economic inequality that is the core problem in our economy.
 
Myth #2 – Our biggest problem is the federal deficit. This is just flat wrong.  It is the economic equivalent of the medieval view that you should “bleed” patients when they are sick.
 
We have learned from centuries of economic history, that when an economy is recovering from a recession, the right medicine for sluggish economic demand is more fiscal stimulus – and in the short run that does not mean lower deficits.
 
More economic stimulus, of the type that the President proposed in the American Jobs Act over a year ago, puts money in people’s pockets who can then spend it on more products and stimulate more investment.  Austerity and reducing national debt will yield the same outcome we have recently seen in Europe – another recession.   And that is exactly what the deficit hawks are likely to get if America slides of the fiscal cliff and stays there.
 
Right Wing deficit hawks are fond of warning that if we don’t cut the deficit, the country could turn into Greece – or some other European country that can’t pay it’s bills.  They ignore the fact that right now U.S. Treasury Bonds are considered the safest investments in the world, and interest rates are at a record low.  They also ignore the fact that, unlike the Europeans, the American Federal Reserve can monetize the federal debt and assure that U.S. bond holders are always paid –- unless, of course, the Republicans refuse to pay the debts that we owe, which would be like committing economic Hara-Kiri.
 
In fact, the quickest way for America to become like Europe is a precipitous reduction of the federal spending.  Ask the Brits how that worked out.
 
Finally, of course, let’s remember that the way to reduce the deficit is not an inscrutable mystery.  When Democrat Bill Clinton was President he did it, just a few short years ago.  The recipe for success involved two factors: increasing revenue, especially from the wealthy, and growing the economy.
 
Today we would have to add, the need to control the spiraling increase in health care costs. While ObamaCare will make big steps in that direction, much more will be needed. Shifting costs to seniors and other consumers by cutting Medicare or Medicaid benefits is not controlling health care costs – it is simply shifting them from government to individuals.  And what is needed is not more de-regulation of for-profit health care companies.  In fact we ultimately need to follow the model of the Canadians – and most of the other industrial nations in the world – and provide a universal Medicare coverage to all Americans.  Our system of private health insurance is simply too expensive.  Americans, after all, pay 40% more than any other country per capita for health care and have outcomes that rank only 37th in the world.
 
Myth #3 – Government is always bad and– as Grover Norquist argues – must be shrunk so it can be drowned in a bathtub.
 
Let’s ignore for a moment the fact that while Republicans talk about small government, they inevitably expand it when they control the White House – mostly in the form of larger military budgets. 
 
Government, as Congressman Barney Frank says, is the name we give to the things we choose to do together—and that includes many of the most important things we do in our economy.   From fire and police protection to providing free public education and health care for all, to building public infrastructure, to creating the Internet – government does a better, more efficient, more equitable job in many economic arenas than the private sector.
 
To hear the Republicans talk you wouldn’t know it, but right now taxes are at their lowest levels since 1958. 
 
Right now in America we need more government – more education, more roads and bridges, more mass transportation, more cancer research, more health care, more nutrition programs, more drug education and treatment – not less.  More government shouldn’t mean more regulation of our freedom – it should mean that when we co-operate together we have the ability to achieve more than if everyone is left to sink or swim.  Government action is necessary to provide the foundation from which each person can individually excel.
 
The question of the type of society we want in America was squarely on the ballot in the election last November, and voters overwhelming voted for a society where we have each other’s back – where we’re all in this together, not all in this alone.
 
Progressives need to make all of these arguments to win the battle for the future.  But let’s remember that the unwillingness of most Republicans to compromise to avoid the “fiscal cliff” – or anything else – has less to do with their commitment to their ultra right principles than to the protection of their own political hides. 
 
That being the case, there are only two ways to convince Republicans to compromise.  One is to demonstrate that their obsession with primary challenges from the right will ultimately lead them to defeat in General Elections.  The second is to defeat them so badly in the next General Election that they no longer have the power to impose the will of an extremist minority on the people of the United States.
 

 

Browse articles by author

More Current Affairs

Nov 30th 2021
EXTRACT: "So it could well be that, despite the faster spread of the infection, its ultimate health, social and economic impact proves negligible. We simply do not know at this point. But detecting more uncertainty than before, financial markets have reacted with panic. For example, the S&P500 tumbled 2.3% on Friday November 26 only to rise 1.1% on Monday November 29. Most markets gave up between 2% and 4%, which is a pretty substantial one-day fall."
Nov 28th 2021
EXTRACT: "Momentous changes are casting a long shadow on China. The country’s political system will soon undergo a profound reform, pending final approval (a quasi-formality) at next year’s congress of the Communist Party of China (CPC). President Xi Jinping, the Party chairman and the “navigator” of the country, has decided on a new course, abandoning the principle of collective leadership. Xi is leading China away from the path taken by Deng Xiaoping after the terror of the Cultural Revolution, and back toward a system of absolute rule by one person without term limits, as under Mao Zedong."
Nov 25th 2021
EXTRACTS: "”The biggest disappointment in Glasgow was the last-minute watering down of the proposed (and widely supported) agreement to “phase out” the use of coal in energy production. With India providing political cover for China in vetoing this language, the final conference proposal was to “phase down” coal”. ---- “China accounts for more than half of the world’s coal consumption, and has the largest amount of coal-fired generating capacity under construction. Pressed about why his country would not do more in Glasgow to help save the planet, China’s chief negotiator pointed to the commitments in the Communist Party of China’s current Five-Year Plan. So, our future now depends on the CPC’s program. The tragedy for the world is that the Party cannot be phased down, much less phased out, despite the fact that it is a huge threat to the future of all of us.” ------ “To save the planet, robust democratic leadership must be phased up – not phased down, let alone phased out. Rather than merely keeping our fingers crossed and hoping for the best, we should start by calling out the appalling behavior of dictatorships such as China and Russia.”
Nov 22nd 2021
EXTRACT: "The transitory inflation debate in the United States is over. The upsurge in US inflation has turned into something far worse than the Federal Reserve expected. Perpetually optimistic financial markets are taking this largely in stride. The Fed is widely presumed to have both the wisdom and the firepower to keep underlying inflation in check. That remains to be seen."
Nov 14th 2021
EXTRACT: "S&P projects that companies are planning to install 44 gigawatts of new solar in 2022. The year 2020, despite the onset of the pandemic, saw a record-breaking 19 gigawatts of new solar capacity installed in the U.S. So given the bids out there already, it appears that in 2022 solar installers will more than double their best year ever so far. The U.S. currently has 100 gigawatts of solar electricity-generating capacity, so in just one year we are poised to add nearly 50% of our current total. A gigawatt of power can provide electricity to about 750,000 homes. So the 44 new gigawatts we’ll put in next year have a nameplate capacity that would under ideal conditions allow them to power 33 million homes." ----- "Not only is there a lot of good news on the green energy front but there is good news in the bad news for fossil fuels. S&P finds that coal plants are being retired way before the utilities had expected. Some 29 gigawatts of coal retirements are expected from 2020 through 2025. "
Nov 3rd 2021
EXTRACT: "Zemmour’s way of thinking stems from a tradition going back to the French Revolution of 1789. Catholic conservatives and right-wing intellectuals, who hated the secular republic that emerged from the revolution, have long fulminated against liberals, cosmopolitans, immigrants, and other enemies of their idea of a society based on ethnic purity, obedience to the church, and family values. They were almost invariably anti-Semitic. When Jewish army Captain Alfred Dreyfus was falsely accused of betraying his country in the notorious scandal of the 1890s, they were on the side of Dreyfus’s accusers. ---- Germany’s invasion of France in 1940 gave reactionaries of this kind the chance to form a French puppet-government in Vichy. Zemmour has had kind things to say about the Vichy regime. He also has expressed some doubt about the innocence of Dreyfus. ---- None of these views would be surprising if they came from a far-right agitator like Jean-Marie Le Pen. But Zemmour is the son of Sephardic Jewish immigrants from Algeria who lived among the Muslim Berbers."
Oct 27th 2021
EXTRACT: "performed strongly in last month’s parliamentary and regional elections. Officially, Communist Party candidates took 18.9% of the popular vote for the State Duma (parliament), compared to nearly 49.8% for the Kremlin’s United Russia party. But the Communists refused to recognize the results, insisting that the vote was rigged. And, indeed, some experts estimate that they should have gotten around 30% of the vote, with United Russia taking about 35%."
Oct 22nd 2021
EXTRACT: "Powell was charismatic in the true sense of the term. Nowadays, this description is too often used to indicate an ability to attract supporters or generate celebrity interest. Internet lists of those who are regarded as charismatic include characters as varied as Adolf Hitler, Bono, Donald Trump, George Clooney, and Rihanna. But the ancient Greeks and Saint Paul used “charisma” to describe values-based leadership infused with a charm capable of inspiring devotion. The Greeks believed that this quality was a gift of grace, while Christian theology regarded it as a power given by the Holy Spirit."
Oct 17th 2021
EXTRACTS: "But property-sector woes are not the only economic danger China faces in 2021-22. The Chinese government’s mounting crackdown on the country’s burgeoning tech sector may pose an even greater threat." ---- "According to a recent study by McKinsey & Company, the share of Chinese urban employment supported by private enterprises more than quadrupled between 1995 and 2018, from just 18% to 87%. The share of exports generated by the private sector more than doubled over the same period, from 34% to 88%. And private-sector fixed-asset investment jumped from 42% to 65% of the total. The message in the data is clear: clamping down on the private sector and threatening innovators is not the way to ensure sustained rapid growth. Chinese entrepreneurs can read the writing on the wall. They understand that their political and regulatory room to maneuver is shrinking, and that the balance has shifted in favor of state-owned firms and public officials. And they understand that this uneasy atmosphere is likely to persist."
Oct 16th 2021
EXTRACT: "We designed a programme that incorporated data from over 300 million buildings and analysed 130 million km² of land – almost the entire land surface area of the planet. This estimated how much energy could be produced from the 0.2 million km² of rooftops present on that land, an area roughly the same size as the UK."
Oct 6th 2021
EXTRACT: "Britain in the 1950s was wedded to the US, acting as a partner rather than leading the charge. Now, while the UK continues to support the US, the influence it has seems negligible. While it may bring comfort to the UK to feel it is a partner to a superpower, being its stooge or subordinate is an unpleasant place to be, no matter how much you tell yourself it values your opinion."
Oct 6th 2021
EXTRACT: "That was then. Now, the Chinese government has doubled down, with President Xi Jinping throwing the full force of his power into a “common prosperity” campaign aimed at addressing inequalities of income and wealth. Moreover, the regulatory net has been broadened, not just to ban cryptocurrencies, but also to become an instrument of social engineering, with the government adding e-cigarettes, business drinking, and celebrity fan culture to its ever-lengthening list of bad social habits. All this only compounds the concerns I raised two months ago. The new dual thrust of Chinese policy – redistribution plus re-regulation – strikes at the heart of the market-based “reform and opening up” that have underpinned China’s growth miracle since the days of Deng Xiaoping in the 1980s. It will subdue the entrepreneurial activity that has been so important in powering China’s dynamic private sector, with lasting consequences for the next, innovations-driven, phase of Chinese economic development. Without animal spirits, the case for indigenous innovation is in tatters."
Oct 5th 2021
EXTRACT: "Wartime nostalgia plays an important part in Britain’s instinctive fondness for the special relationship. Like former Prime Minister Tony Blair in the run-up to the invasion of Iraq in 2003, some British politicians might believe that the United Kingdom is the only European country with serious armed forces and the political will to use them. Prime Minister Boris Johnson, like Blair before him, seems to fancy himself a modern-day Churchill. Unfortunately (or not), Britain’s military power is insignificant compared to what Churchill could command in 1944. Wartime nostalgia has drawn Britain into several foolish American wars, which other European countries were wise to avoid."
Sep 24th 2021
EXTRACTS: "We have found that 47 million American adults – nearly 1 in 5 – agree with the statement that “the 2020 election was stolen from Donald Trump and Joe Biden is an illegitimate president.” Of those, 21 million also agree that “use of force is justified to restore Donald J. Trump to the presidency.” Our survey found that many of these 21 million people with insurrectionist sentiments have the capacity for violent mobilization. At least 7 million of them already own a gun, and at least 3 million have served in the U.S. military and so have lethal skills. Of those 21 million, 6 million said they supported right-wing militias and extremist groups, and 1 million said they are themselves or personally know a member of such a group, including the Oath Keepers and Proud Boys." ----- "..... the Jan. 6 insurrection represents a far more mainstream movement than earlier instances of right-wing extremism across the country. Those events, mostly limited to white supremacist and militia groups, saw more than 100 individuals arrested from 2015 to 2020. But just 14% of those arrested for their actions on Jan. 6 are members of those groups. More than half are business owners or middle-aged white-collar professionals, and only 7% are unemployed."
Sep 11th 2021
EXTRACT: "That long path, though, has from the start had within it one fundamental flaw. If we are to make sense of wider global trends in insecurity, we have to recognise that in all the analysis around the 9/11 anniversary there lies the belief that the main security concern must be with an extreme version of Islam. It may seem a reasonable mistake, given the impact of the wars, but it still misses the point. The war on terror is better seen as one part of a global trend which goes well beyond a single religious tradition – a slow but steady move towards revolts from the margins."
Sep 11th 2021
EXTRACTS: "Is it not extraordinary that in a country that claims to be as enlightened and advanced as ours, the combined wealth of three individuals – Amazon founder Jeff Bezos, Microsoft founder Bill Gates, and investor Warren Buffett – exceeds the total wealth of the bottom half of Americans? One has to return to the days of the pharaohs of Egypt to find a parallel to the extreme wealth inequality that we see in in America today." ...... "The top tax rate remained above 90 percent through the 1950s and did not dip below 70 percent until 1981. At no point during the decades that saw America’s greatest economic growth did the tax on the wealthy drop below 70 percent. Today it is somewhere around 37 percent. President Biden’s American Families Plan would increase the top tax rate to 39.6 percent – a fairly modest alteration, albeit in the right direction. It is true that there was a time when the top marginal tax was even lower than it is today: in the years leading up to the Great Depression it hovered around 25 percent."
Sep 7th 2021
EXTRACT: "But Biden can’t be blamed for the rise of the Taliban, or the fragile state of a country that has seen far too many wars and invasions. The US should not have been there in the first place, but that is a lesson that great powers never seem to learn."
Sep 4th 2021
EXTRACT: "The world is only starting to grapple with how profound the artificial-intelligence revolution will be. AI technologies will create waves of progress in critical infrastructure, commerce, transportation, health, education, financial markets, food production, and environmental sustainability. Successful adoption of AI will drive economies, reshape societies, and determine which countries set the rules for the coming century." ----- "AI will reorganize the world and change the course of human history. The democratic world must lead that process."
Sep 1st 2021
EXTRACT: "Although the Fed is considering tapering its quantitative easing (QE), it will likely remain dovish and behind the curve overall. Like most central banks, it has been lured into a “debt trap” by the surge in private and public liabilities (as a share of GDP) in recent years. Even if inflation stays higher than targeted, exiting QE too soon could cause bond, credit, and stock markets to crash. That would subject the economy to a hard landing, potentially forcing the Fed to reverse itself and resume QE." ---- "After all, that is what happened between the fourth quarter of 2018 and the first quarter of 2019, following the Fed’s previous attempt to raise rates and roll back QE."
Sep 1st 2021
EXTRACT: "Today’s economic challenges are certainly solvable, and there is no reason why inflation should have to spike."