Six years ago, things looked fairly bleak. Obama had just been re-elected, which was a hopeful sign, but the People had returned a divided Congress, which preserved the gridlock that had obtained throughout much of his first term.
The economy had only just begun to recover from the Great Recession, with unemployment still naggingly high and inflation near zero, and yet the Republicans in Congress were still demanding "fiscal restraint," claiming that it would naturally stimulate the economy, while refusing to enact any legislation that might stimulate employment. Of course, the history simply does not show that fiscal restraint works as they say it does. In fact, the opposite is true, and we are reaping the benefits of Mr. Obama's policies today...even as the Administration once again loots the treasury to steal back the wealth they had to give up in the Great Recession. Sort of.
So 2017 was not the first time that the GOP had made this bogus argument...as Jerry reminds us — presciently — in this essay:
Echoes of Eccles
Jerrold Smith
October 2013
Having produced the sorry economic mess we’re in, the Republicans never tire of talking about austerity as the solution. Not enough jobs? Cut taxes and federal spending and those elusive job creators will finally get around to creating some jobs! CEOs driving companies to ruin and walking off with gargantuan bonuses? Cut taxes and federal spending and corporations can rebuild to be relooted! Hangover got you down? Cut taxes and spending and pharmaceutical companies will come up with a cure for hangnails!
Their simple-minded belief in the power of incantation explains why, last September, Republicans were out in force chanting “Cut it or shut it! Cut it or shut it!” Those five words actually represented a kind of progress since their slogans are usually only three words long.
Fortunately, many people are not Republicans and can therefore learn something from time to time. So here’s a history lesson from a Mormon millionaire. Not Willard Mitford Romney, but Marriner Stoddard Eccles. Testifying before the Senate in 1933, he talked about the self-reinforcing cycle of job losses that reduced consumer demand that forced more job losses and so on and so on:
Mr. ECCLES: As a result of this pressure we hear demands for increased economies in every field, both public and private, which can only make for further distress and unemployment and less buying power. The debt structure, in spite of the great amount of liquidation during the past three years, is rapidly becoming unsupportable, with the result that foreclosures, receiverships and bankruptcies are increasing in every field; delinquent taxes are mounting and forcing the closing of schools, thus breaking down our educational system, and moratoriums of all kinds are being resorted to…
Reading his testimony, I often have to remind myself that he was speaking eighty years ago and not eighty minutes ago. Noting the power of the federal government “to make and change the rules of the game,” he continued:
Mr. ECCLES: The Government controls…the power to issue money and credit, thus largely regulating the price structure. Through its power of taxation it can control the accumulation and distribution of wealth production. It can mobilize the resources of the Nation for the benefit of its people.
Imagine that. Of course, Eccles was only talking about real, living people. He didn’t know that corporations would become people one day. To illustrate his point, he described war spending. Not World War II, but World War I.
Mr. ECCLES: As an example of Government control and operation of the economic system look to the period of the war, at which time, under Government direction, we were able to produce enough and support not only our entire civilian population on a standard of living far higher than at present, but an immense army of our most productive workers engaged in the business of war parasites on the economic system, consuming and destroying vast quantities produced by our civilian population; we also provided the allies with an endless stream of war materials and consumption goods of all kinds. It seemed as though we were enriched by the waste and destruction of war. Certainly we were not impoverished, because we did not consume and waste except that which we produced. As a matter of fact we consumed and wasted less than we produced as evidenced by the additions to our plant and facilities during the war
and the goods which we furnished to our allies. The debt incurred by the Government during the war represents the profit which accrued to certain portions of our population through the operation of our economic system. No Government debt would have been necessary and no great price inflation would have resulted if we had drawn back into the Federal Treasury through taxation all of the profits and savings accumulated during the war.
Some argue that federal spending under President Roosevelt did not raise the nation out of the depression, that spending on World War II did the trick. Two points must be made. Republicans undermined Roosevelt’s programs at every turn AND war spending is nevertheless federal spending.
Modern day Republicans have resisted jobs and infrastructure programs because they know federal spending is needed to end the current crisis — and they don’t want to end the crisis.
The recent government shutdown is estimated to have cost the nation $24 billion in lost productivity and reduced consumer spending. Job growth, which had been averaging 180,000 per month, dipped by almost 40,000. Travel and vacation activities were hit by closure of federal parks. Hotel occupancy rates in Washington, D.C. dropped by 9%. Tour companies around the country that bus visitors to national sites lost revenues. Mortgage applications fell. Federal contractors took a major hit, and their employees won’t get back pay.
The Republicans deliberately inflicted a costly wound on the nation, and they are planning to do it again in a few months.
Mr. ECCLES: Why was it that during the war (WWI) when there was no depression we did not insist upon balancing the Budget by sufficient taxation of our surplus income instead of using Government credit to the extent of $27 billion?1 Why was it that we heard nothing of the necessity of balancing the Federal Budget…when we had a deficit of $9 billion in 1918 and $13 billion in 1919? Why was it that there was no unemployment at that time and an insufficient amount of money as a medium of exchange?
All good questions. For a moment there, I thought he was talking about alleged President Junior. Why was there no concern for balancing the budget when the Republicans were cutting taxes, subsidizing the pharmaceutical companies and military contractors, and launching America’s most expensive war?
Mr. ECCLES: …How was it that during the period of prosperity after the war we were able in spite of what is termed our extravagance — which was not extravagance at all; we saved too much and consumed too little — how was it we were able to balance a $4 billion annual Budget, to pay off $10 billion of the Government debt, to make four major reductions in our income tax rates (otherwise all of the Government debt would have been paid), to extend $10 billion in credit to foreign countries represented by our surplus production which we shipped abroad, and add approximately $100 billion by capital accumulation to our national wealth, represented by plants, equipment, buildings, and construction of all kinds? In the light of this record, is it consistent for our political and financial leadership to demand at this time a balanced Budget by the inauguration of a general sales tax, further reducing the buying power of our people? Is it necessary to conserve Government credit to the point of providing a starvation existence for millions of our people in a land of superabundance?
What the public and the businessmen of this country are interested in is a revival of employment and purchasing power.
It’s hard to believe that a mere thirteen years ago, the U.S. had a budget surplus and Federal Reserve chairman Alan Greenspan was worried that we might pay off the national debt too soon! Well, Junior certainly put an end to that threat.
The Republicans call the Democrats the tax-and-spend party, as if all taxes were theft and all spending irresponsible. But the Republicans are the spend-more-and-don’t-tax-at-all party! Then they’re shocked, shocked I tell you, to discover we’re in debt!
Mr. ECCLES: We must correct the causes of the depression rather than deal with the effects of it, if we expect recovery with its attendant confidence and budget balancing. This can only be accomplished by government action tending to raise the price level of raw products and increasing employment, thus bringing about an increased demand for consumers' goods.
Eccles (a Mormon millionaire, remember) noted that efforts made by the Hoover administration and the Federal Reserve had not eased the crisis, “demonstrating that extension of credit alone is not the solution. Credit is the secondary offensive when there is a basis of credit through the raising of the price level and an increase in the demand for goods...”
Eight decades later, bank bailouts averted a catastrophe, but they did not boost consumer demand because they did not put money in the hands of people who would spend it.
To this day, Republicans refuse to put money in the hands of people who would spend it. They oppose jobs programs; they oppose unemployment compensation; they oppose raising the minimum wage; they oppose food stamps. They oppose anything and everything that would actually help.
Mr. ECCLES: Nor is the correction of our present difficulties to be found in a general scaling down of debts in an effort to bring them in relation to the present price levels…
The time element required would indefinitely prolong the depression; such a policy would necessitate the further liquidation of banks, insurance companies, and all credit institutions, for if the obligations of public bodies, corporations, and individuals were appreciably reduced the assets of such institutions would diminish correspondingly, forcing their liquidation on a large scale. Nothing would so hinder any possibility of recovery…The present volume of money would diminish with increased hoarding and decreased credit and velocity, making for further deflation and requiring increased Government support without beneficial results…
Over and over again, Eccles told the Senate that the single surest way to get the economy moving was to put money in the hands of consumers by creating jobs, by refinancing mortgages, by programs to aid the poor and the elderly, by grants to the states for public projects, by tax reform, and by business regulations. And he wasn’t only concerned with domestic consumers. He proposed cancelling foreign debts so that our allies could spend their money on products rather than debt service.
Mr. ECCLES: Point No. 1. Unemployment relief. Without going into any detail or figures, it is recognized by everyone that our most urgent and acute problem today is to immediately provide adequate relief to the millions of our people who are destitute and unemployed in every corner of our Nation. It is a national disgrace that such suffering should be permitted in this, the wealthiest
country in the world. The present condition is not the fault of the unemployed, but that of our business, financial, and political leadership. It is incomprehensible that the people of this country should very much longer stupidly continue to suffer the wastes, the bread lines, the suicides, and the despair, and be forced to die, steal, or accept a miserable pittance in the form of charity which they resent, and properly resent. We shall either adopt a plan which will meet this situation under capitalism, or a plan will be adopted for us which will operate without capitalism…
I advocate that the Government make available, as the most urgent of all emergency measures, at least $500 million to be distributed to the States as required, as a gift and not as a loan, on a per capita basis in such amounts as will enable the relief organizations of each State to take care of the needs of the unemployed in a more adequate manner than has heretofore been possible…
Senator THOMAS GORE of Oklahoma: Where does the Federal Government get this money to give to the States?
Mr. ECCLES: Where did it get $27 billion during the war to waste?
Mr. ECCLES: …There are times to borrow and there are times to pay. The Government borrowed during the war $27 billion. They did not collect the profits that were made during the war to pay for the war. They could have done it, but they did not. They borrowed $27 billion and we got prosperity even though all they borrowed was wasted, every dollar of it. There could be no waste in post offices or in roads or in schools. You would have something to show for it. With war all you have left is the expense of taking care of maimed and crippled and sick veterans. That is what is left from war. And it is all wastage.
Junior’s excellent adventure in Iraq will ultimately cost us $3 trillion — 111 times more than the cost of World War I. And we didn’t even get the benefits of increased employment and prosperity that came with World Wars I and II. Junior and crew managed to waste all that money and lose jobs at home!
Eccles was speaking to Senators; and then, as now, some Senators had a very hard time following simple reasoning. Senator David Walsh of Massachusetts maintained that those States that could not provide for the poor should practice — wait for it — austerity!
Senator WALSH: Why, they ought to close schools rather than let people suffer. They ought to shut down the schools and save that money and turn it in to feed starving people…They ought to close up even the health department…they ought to abandon their police force rather than let people be hungry.
If you close public facilities to feed the poor, you increase the number of poor people! Who do you fire next to feed the public workers who are no longer employed? Senator Walsh’s solution was just plain stupid. But you can hear the same argument in the halls of Congress today.
Mr. ECCLES: We now see, after nearly four years of depression, that private capital will not go into public works or self-liquidating projects except through government and that if we leave our “rugged individual” to follow his own interest under these conditions he does precisely the wrong thing. Each corporation for its own protection discharges men, reduces pay rolls, curtails its orders for raw materials, postpones construction of new plants and pays off bank loans, adding to the surplus of unusable funds. Every single thing it does to reduce the flow of money makes the situation worse for business as a whole…
Thanks to the arrogance, greed, and willful stupidity of a tiny portion of society, our nation faces a needlessly prolonged and difficult road to recovery. Make no mistake, this disaster was not an accident. It was not the work of the gods or of natural economic laws. It was the work of those who place personal gain above all else. We can take their advice at our peril, or we can listen to better and wiser men.
Post Script from 2022: Over the past two years, the Biden administration has taken bold steps to reverse the Minority Party's decades-long assault on the working public in this country. Biden has made the bet that investing in the "bottom" of the economy will produce actual prosperity in a way that investing in the "top" never has.
The thing is, it's working!
Unemployment has fallen to historic lows; job creation is through the roof; and until Putin's war began to seriously reshape the global economy, the US economy was growing like gangbusters. Even now as we apparently dance upon the edges of a recession — one that will be global, not merely confined to the US, mind you — our economy continues to produce vast numbers of jobs, already far outpacing job production in the entire 4 years of the Previous Occupant's term. People are, right now, living better overall than they have in generations, despite the high inflation dragging the economy down.
And it is worth noting that that inflation itself is an entirely predictable result of the global pandemic, as the international economy begins to right and reorganize itself. Putin's war has, of course exacerbated it, and he's counting on that crushing Ukraine in ways he cannot do on the battlefield.
Of course, that does not make it any easier for working people to bear. But the point is that we would be facing this problem no matter who is in charge in Washington. And as Mr. Eccles in Jerry's post points out, the "solutions" favored by the Minority Party stand little chance of doing more than driving us ever further into debt...to the detriment of all but the super-rich. That's what the history teaches us.
And yet, these facts are largely unknown — or at least, under-appreciated — by most Americans. The mainstream media's obsession with the Trump Clown Car is stifling discussion of the real state of the economy. We shall see whether people are really listening, despite that.
