Wednesday, January 06, 2010

'Tis the season for GOP elves in their talking-point workshops 

This devastating look at the economic wreckage of the past decade came out in the Wapo a few days ago. I wasn't happy with my commentary on it, so I didn't post it, but I've made some edits and even though it's not as polished as I'd like, I will post it now:

The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.

It was, according to a wide range of data, a lost decade for American workers.
...
There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.

And the net worth of American households -- the value of their houses, retirement funds and other assets minus debts -- has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.



Makes me want to say "This is Republican Governance", and just leave it at that.


But that's a little childish. Here's the interesting question: In light of the Bush tax cuts, how will Republicans explain this dismal decade?

Cumulatively, the Bush tax cuts were not small. As you can see in this Table #1 compiled by The Tax Foundation, if you combine the Bush Tax Cuts of '01, '02, and '03 together, they are fairly comparable in size to the sacred Kennedy and Reagan tax cuts. This is important because nearly all Republican officeholders credit tax cuts as the unfailing policy that leads to economic growth. So the Bush tax cuts are going to be something of an historical problem for Republicans. Rest assured they will overcome it, but I'm interested in the tack they'll take, because the same old stories just won't fly. Their simplistic supply-side fairy tales will have to be adjusted to explain the previous decade (especially since 2002-2005 represented the apex of Republican power in modern political history). The Bush tax cuts were aided by low interest rates, a wartime economy, and a housing mania. Yet the recession that began in 2007 wiped away all of the meager job and wealth "gains" that supply-siders like to credit to the Bush tax cuts. On a daily basis for years on end, some conservative pundits referred to the middle portion of the decade as the "Bush Boom" years. They credited the Bush tax cuts for the economic recovery after the mild recession of 2001. Despite the conservative cheerleading by the likes of Larry Kudlow and Art Laffer, the so-called Bush Boom was never much of a "boom" to begin with-- few Americans participated in it, the stock market couldn't hold gains, and the subsequent "bust" eliminated all the meager wealth and net job gains. (On the other hand, if you subtract 01 recession job losses from Clinton's total, you get about 20 million net jobs gained. If you subtract the 07-09 recession job losses from Bush's pathetic total, it zeroes out. Zip, zilch, nada y nada amen. But Clinton raised taxes, and Bush cut them. Hence the problem for supply-side monists who believe tax cuts or the lack thereof explain everything.)

Thus, a new Republican historical story will have to be created, because their simplistic talking points always give tax cuts the economic credit but never the economic blame. I can imagine several possible options, though none of them seem compelling: perhaps the Bush tax cuts will be portrayed as not big "enough" (which the previous table disproves), or perhaps too "much" spending will be blamed (though the Reagan years were spendthrift as well), or perhaps it was the wrong "kind" of spending (too much Bush "compassion" ruined the tax cuts), or history will have to be rewritten to show that it was all Clinton's or Obama's or Pelosi's fault (that's gonna be a tough sell to the open-minded), or that the economic stagnation was inevitable and that the Great Recession would've been worse without the Bush tax cuts (that's a fairly negative storyline that won't impress independents). Of course, none of these possible narratives will persuade sentient beings who actually lived during these years and who don't have a vested interest in partisan blame games. So I'm thinking that movement conservatives in the GOP will have to get creative, and find a more effective storyline. Simply relying on coordinated, brute force repetition of one of the above storylines isn't going to work this time. I can promise you that I'll isolate the new lines as soon as they're floated, and predict you won't have to wait very long before they are introduced-- probably this year, certainly by 2011.

Republicans have momentum now, and you can rest assured that little supply-side "elves" are busy trying to twist together a remotely credible political story to disassociate the Bush tax cuts from having any responsibility for this dreary economic decade. Facts are not a concern. Eternally paramount is the conviction that tax cuts or conservatism is never at fault. Supply-side conservatives literally can't fathom such possibilities. In fact, any other part of reality that conflicts with their central tenants can be grotesquely distorted in order to show that tax cuts and conservatism are always the heroes, every time. It's been this way for many years now among movement conservatives, and a whole generation has grown up schooled in this simplistic pap. Again: tax cuts can never be blamed for anything bad, only credited for anything (or everything) good. Similarly, when a Republican makes an error that can't somehow be blamed on nefarious liberals, then the Republican (it turns out) wasn't sufficiently conservative. Problem solved. And "insufficiently conservative" is another way of saying "liberal" to these people. Thus, there is no middle ground for the Republican mythmakers. Like Bush, they don't do nuance. Therefore, the distinct possibility exists that Bush himself will be categorized as a "liberal" (like Nixon) in the GOP, and effectively disappeared from their pantheon. (More about that "pantheon" in a coming post, which you're guaranteed to love.)

You can bet that right now, little GOP elves are busy trying to account for a most inconvenient political cleavage: Bush cut taxes substantially, yet the worst economic decade since the 30's followed. Since the GOP worldview cannot accomodate the possibility that a liberal can cut taxes, or that a "true" conservative can raise them (e.g. Reagan didn't raise taxes after '81, he only "closed loopholes"), it won't be easy to paint Bush as a liberal. So it will be interesting to see how the Goop elves create a persuasive story about the Bush Tax Cuts that fits into their simplistic Kennedy/Reagan tax cuts talking point which they trotted out about a year ago. (Goops mostly invoke JFK to praise him because he cut taxes.) Now that the economic wreckage of the Bush years is obvious and incontravertible, and all of the phantom "benefits" from the "Bush Boom" that followed the tax cuts have been eliminated... the GOP must create a plausible political story that aligns with their (immutable and simplistic) economic platitudes. (For years prior to the Great Recession, we heard Bush administration officials saying the economy was "strong and getting stronger". They were painfully and arrogantly wrong.)

Dubya can be thrown under the bus as a liberal, but not his tax cuts. The Great Recession has thrown a wrench in the current talking points, which cite the Kennedy/Reagan/Bush tax cuts as the source for the subsequent economic "booms". These current talking points are no longer a viable option. You're not going to see any more of these clownish explanations like Jindal tried to pull off last February on national TV:

MR. GREGORY: [D]emocrats would... argue, with regard to a call for greater tax cuts, that over the course of the Bush presidency you only had a--three million new jobs through aggressive tax cutting, that the change in median income did not appreciably go up at all. And yet there is this emphasis on tax cuts as the best way to cure what ails the economy.

GOV. JINDAL: Well, I think there's just a--I think this is--shows the fundamental disagreement...

MR. GREGORY: Is that wrong? Is that--are those facts wrong?

GOV. JINDAL: Well, I-- a couple of things about those facts. You look in our country's history, when President Kennedy, when President Reagan and, yes, when President Bush cut taxes, you know what, they created jobs for our country. It caused some of the best economic times and prosperity for our country.


The Bush tax cuts created "some of the best economic times and prosperity for our country"? Are you freakin' kidding me?!? That doesn't even pass the laugh test, so you're not going to hear that Kennedy/Reagan/Bush formulation in the future. That dog won't hunt, and a new explanation will have to be formulated. But, again, this will require some creativity and a significant rewrite of the familiar GOP playbook. Vitty-cent joined Jindal in floating that howler back in February and... well, it didn't work. They ran it up the flagpole and nobody saluted.

Naturally, the Dems could seize this opportunity to create a reality-based story about the emptiness of supply-side logic, grounded in the searing experience of the Great Recession, and they could work on inculcating this narrative into the national body politic. (You just know if the situation were reversed, that's what the Goops would do.) But where's the fun in that? Why not instead take an opportunity to miss a great political opportunity? Predictably, the Dems will cower in the corner and wait for the other side to craft a startlingly absurd economic explanation for the miserable Bush decade, and watch in admiration as they repeat it in coordinated fashion with straight faces. Dems love playing prevent defense on such things, with some idiotic forlorn hope that the press will call out the GOP for being crazed, unhistorical phonies.

There are risks for the GOP, as they create a new "tax cut" story that will fit the Bush years. They might shift their focus entirely to Obama, and how his policies have made the sky fall... and then the economy might noticeably improve. Extolling the salad days after the Bush tax cuts (as Jindal and Vitter were doing last February) while the country emerges from Bush's Great Recession is a good way to instantly lose credibility, and invite scathing mockery. Republicans don't want to do that. Even the hapless Dems couldn't screw up that opportunity.

This isn't merely an exercise in partisan gamesmanship, either. These political fights turn into competing narratives. And eventually history gets informed by these biased narratives, and written (and rewritten), and studied in schools. Regarding the last point, we note The Washington Monthly's story about Don McElroy:

[Don] McLeroy is no ordinary citizen. The jovial creationist sits on the Texas State Board of Education, where he is one of the leaders of an activist bloc that holds enormous sway over the body’s decisions. As the state goes through the once-in-a-decade process of rewriting the standards for its textbooks, the faction is using its clout to infuse them with ultraconservative ideals. Among other things, they aim to rehabilitate Joseph McCarthy, bring global-warming denial into science class, and downplay the contributions of the civil rights movement.
What about science?

“I don’t care what the educational political lobby and their allies on the left say,” [McElroy] declared... “Evolution is hooey.”
And history?

“The secular humanists may argue that we are a secular nation,” McLeroy said, jabbing his finger in the air for emphasis. “But we are a Christian nation founded on Christian principles. The way I evaluate history textbooks is first I see how they cover Christianity and Israel. Then I see how they treat Ronald Reagan—- he needs to get credit for... the good economy over the last twenty years because he lowered taxes.
Wow. Reagan gets credit for the good economy over the last twenty years... "because he lowered taxes". Nuff said. I wonder what partisan fantasies will be considered for schoolbooks twenty years from now, by McElroy's successors? I promise you, they are being crafted as we speak and we will probably see the debut of the new talking points in coming months. There won't be any simple Reagan/Kennedy formulas, though. "Bush cut taxes and a boom followed"... simply won't fly, so the GOP elves have their work cut out for them.

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15 Comments:

This is sort've simple math for me...

Bush & the Neocons spent just as much-if not more-than Democrats before or after (you yourself have already conceded that point) him.

If you cut taxes, & then you spend more money, what do you think will happen?

Also, the mortgage run-up was created by CRA & the teeth that Bill Clinton put into it. We've gone over that a time or two, but I can re-expound if you prefer (I'm sure you want me to, & then again, you don't).

My company I got my start with-a sub-prime outfit-was founded in 1998.

It was built out of the ashes of ENRON before ENRON was cool...Baton Rouge's own United Companies Lending. UC Lending & UC Funding took advantage of the changes Clinton made to FNMA & Freddie Mac...

A lot of current problems I watched unravel before my very eyes in the early months of 2007 in the mortgage industry were directly related to Clinton & those changes with Fannie, Freddie, & forcing local lenders & those who wanted to expand their business (IE-Stay afloat) to accept more "non- & sub-prime" loans.

It's not the only thing that caused our mess, but its a huge part of how the bubble was created.

But, it's weird that you can trace CRA all the way back to Jimmy Carter, after HMDA showed what Democratic (did you see where I spelled it correctly?) Politicians in Washington were incorrect about their assumptions & implications of racism in the housing industry.

At any rate, the rest of its pretty simple. You can't cut taxes and then maintain spending levels. Not going to end pretty.

I think this has more to do with the "Neo-Con" movement in the Republican Party. Neo-Conservatives are far from fiscally conservative, as per their track record. That's pretty evident, as well.

By Blogger GO, at 3:35 PM  

oyster,

I still think you're beating up a strawman in these posts. Sure, whenever there are tax cuts, people who support tax cuts will point to any economic growth as evidence of their success. It's called the "post hoc" fallacy, and it's a popular one.

The truth is that tax rates do have an impact on the economy, and an even greater impact on individuals. However, the impact of tax rates on the economy is neither immediate, nor is it even close to an exclusive factor controlling economic growth. Saying that economic growth at any given time was attributable to tax cuts is little more that guessing.

This much, however, makes since. If the government takes more money for itself, that money can't be used to invest or to buy goods and services. The government can use that money for productive purposes, but government tends to spend money less efficiently than individuals. Thus, higher taxes wind up being a net loss to the economy.

Of course, there are other factors involved. Running a high national deficit can cause inflation, shaking confidence in the economy and offsetting the benefit from any tax cuts, so it's still important to control spending. That's where Bush went wrong, and that's why he lost a great deal of popularity among conservatives (indeed, the whole Republican establishment is at a low ebb of popularity these days with conservative activists).

To some degree you're right, though -- I think the GOP needs to start focusing on spending issues and become the fiscally responsible party. Taxes are relatively low, and until we start controlling entitlements, we can't really consider more cuts.

By Anonymous Owen Courreges, at 5:29 PM  

Your points are well taken, but please remember this is a post about politics and political narratives (simple stories that "sell" candidates and policies). By definition, the truth value of such things will be limited. However, there are degrees.

The economic idea that Republican candidates run on, quite simply, is tax cuts spur economic growth. Period. They will point to the Kennedy and Reagan tax cuts as cause/effect "proof" of this policy. Until recently, GOP pols were throwing Bush into the mix. What this long-winded post was trying to point out was that the "Bush" inclusion is no longer feasible, and that the familiar simplistic (but ubiquitous) supply-side storyline may have to be adjusted. It simply can't support the counterexamples of Clinton AND Dubya.

I realize that the "reality" is much more complicated, but reality is difficult to condense in the short sound bites that politicians use to communicate themselves. So they have to condense reality in as few words as possible, or ignore it.

Make no mistake, though, these lines are crafted little gems which candidates and pols repeat a thousand times. They are powerful, and it's significant when reality forces a particular long-standing political storyline to be retooled.

By Blogger oyster, at 8:00 PM  

I wrote a post in Feb 09 that addressed some of these political issues while also taking into account the more complex "reality" of the situation.

Link!

I was about to say pay special attention to the link citing historian James Livingston's extremely interesting argument that the Bush tax cuts exacerbated if not caused the crash/Great Recession, but it is down. He makes a more condensed argument on that point here. It's very interesting. And, no, that doesn't mean I don't like tax cuts or think they always will cause or exacerbate recessions... etc. But it's one of the more interesting theories I've read over the past year and a half. I came across another equally interesting theory (by a conservative on a different topic) just a few days ago, which I'll trot out in a future post.

By Blogger oyster, at 8:24 PM  

oyster,

You're right about the rhetoric and the perception. It's isn't really the fault of politicians, though -- the public responds to simplistic narratives, and politicians respond to what motivates the public. So giving an extended lecture about how the economy may rise and fall regardless of whether taxes are high or low, but that lower taxes are still, on balance, better for the economy, isn't going to be something you hear from conservative politicians.

On the other hand, I think the GOP can always fall back on the fact that people prefer low taxes for their own sake, regardless whether it actually helps the economy.

As for Livingston, I think he's full of it. The excess capital in the markets was mostly caused by the dot com bust (which started under Clinton's watch but admittedly wasn't his fault). Without a gaggle of unprofitable yet sexy internet startups to invest in, that money defaulted to real estate. Even the venerable Paul Krugman predicted it at the time.

Livingston's argument, on the other hand, seems to boil down to the notion that all the private capital from the tax cuts went straight into subprime mortgages, or something like that. However, while tax cuts do put more money into the market, that's not exclusively the case. Furthermore, I fail to see how it would have affected the balance of investments in the market, as opposed to simply amount of money invested. The underlying causes of the housing crash are thus distinct from the amount of capital in the market.

By Blogger Owen, at 11:31 PM  

Very busy this week, Oyster, but managed to find time to read this. Thanks for posting.

By Blogger Michael, at 9:34 AM  

Apparently I duplicated the YRHT link, instead of the Livingston one-- his point about the tax cuts is part of a larger argument about tax cuts and job growth, which is the larger interesting argument to which I was referring.

livingston link!

By Blogger oyster, at 9:37 AM  

Outstanding examination of narrative, Oyster, and the battle to control American mythology.

GO already expounded on the current "explanation" better than I can, but the way I heard it is:

"Barney Frank, FNMA and Freddie Mac destroyed the economy. Republicans who controlled everything were powerless to stop it because this stuff started under the Clinton and Carter administrations. AIG, Bear Stearns, Lehman Brothers etc were all forced into bad decisions because of what Fannie Mae and Freddie Mac were doing."

Now, I have to admit that Frank, FNMA and Freddie Mac had a hand in creating dangerous economic conditions, but there is no way they wrecked the whole economy for a decade all on their own.

I lived in coastal Georgia, I lived in Athens and I watched the suburbs of Atlanta explode. The bubble was not created because Congress wanted to encourage banks to help low income minorities own homes.

The overspeculation I witnessed, in the form of house flippers inside cities, subdivisions in the suburbs and condos on the coast, to the tune of billions in development, was geared towards upper middle and upper class folks, as developers and banks made bets on real estate prices always going up.

It is no surprise that 29 banks have failed in Georgia because of their overspeculation in real estate. And the folks responsible for that mess weren't exactly liberal Democrats who were sympathetic to low income minorities, is what I'm sayin'.

By Blogger Cousin Pat from Georgia, at 10:17 AM  

oyster,

Livington has an interesting theory, but not one I've seen voiced by any mainstream economists (in fact, I've never heard it from an economist at all).

Even granting that surplus capital was the problem, we obviously had plenty of surplus capital in the Clinton years, with people investing in internet startups left and right that were making no money. When that went bust, the only thing that stopped a recession from occurring like what we're seeing now was the creation of a housing bubble to replace the dot com bubble. To the extent money from the Bush tax cuts was put into the market, this exacerbated the surplus capital problem, but it definitely didn't create that.

This, of course, assumes that I accept Livington's theory that in a free market economy there are hard limits to productive uses of capital, and that once that level is exceeded, we're better off having the government confiscate the remainder (and this assumes that the government can actually identify that optimal level). I find this highly dubious.

For starters, investment doesn't have to occur domestically. Instead of investing in bubbles here, individual investors and businesses could have invested more in developing countries. It's not as if every country in the world had nothing productive to invest in (and if that's Livington's theory, I find it ridiculous). Businesses could also search out innovators and entrepreneurs who have decent ideas and invest in their theories -- we don't have shortages of such people. The reason the bubble occurred is because it was the easy route, and many individuals were complicit in channeling investments into areas they knew were bogus, which is sadly typical.

The truth is, or at least may be, that market bubbles are inevitable and we'll do more harm than good if we try and set out, as a government goal, taxing away "excess capital" that could otherwise be used to form a market bubble. I've just never heard an economist saying that we need higher taxes to limit investment capital and grow the economy.

By Anonymous Owen Courrèges, at 10:55 AM  

Cousin Pat, that's what EVERYONE fails to realize. You couldn't just spur "minorities" with bad credit to increase levels of home ownership.

That would be racist.

No, they had to encourage folks with bad CREDIT into doing it. They lowered underwriting standards-not just for black folk, but for EVERYONE-which invited in all the speculative lending.

The bubble was created by laxing standards for everyone, in the name of making home ownership easier.

I never said a thing about Barney Frank, though he had a hand in it, & I've repeatedly said that its not the only-or all-the reason for this mess.

But, to act like it wasn't motivated by the inkling of Democratic politicians that "redlining" still existed, and then HMDA's passing, & then them realizing they were completely wrong about HMDA, well it's silly.

HMDA showed them that the housing finance industry wasn't discriminating, it was underwriting standards & the requirements to own a home based on having good credit (which has nothing to do with skin color) that was keeping a lot of minorities out of homes. They were able to apply in just as consistent a number as other ethnic groups.

So, the solution was to lower the bar-for EVERYONE.

That's how a bubble got created. When folks see how easy it is, then its easier for EVERYONE, not just minorities. Which was the Catch 22 for the PC Crowd.

How could they accomplish it any other way? They had to allow red, yellow, black or white to go by the same rules as anyone else, but when that happened, you saw EVERYONE go for the green.

Republicans weren't powerless to stop it, but they were not behind the changes to Freddie & Fannie, nor were they behind the move to create HMDA, nor CRA, nor the teeth that Clinton put into CRA.

You can cry all you want, but there's no spinning that.

By Blogger GO, at 9:23 AM  

Several things:

First of all, the idea that good credit has nothing to do with skin color ignores historical reality. In a perfect world, you'd be absolutely right, but this ain't a Walgreen's commercial.

Second, overspeculation of housing and development has been around a long time before HDMA was conducted. This was not some jack in the box surprise that caught all the banks and investors with their pants down.

Furthermore, this most recent housing bubble didn't really take off into super-high-risk alert levels until the 00's.

Third, even if the bar was lowered to get people into homes, who said that the banks had to start doling out loans to the tune of hundreds of thousands, nay, millions of dollars in some cases? Who forced investors to start buying that debt and selling it as mark up? They played fast and loose with behavior they knew to be risky.

That behavior closed 29 banks in Georgia over the last two years.

All the surviving banks are the ones who were "too big to fail" or the ones who looked at the same economic conditions, that same "lowered" bar and made more sound decisions of what to do with their money.

By Blogger Cousin Pat from Georgia, at 10:55 AM  

Third, even if the bar was lowered to get people into homes, who said that the banks had to start doling out loans to the tune of hundreds of thousands, nay, millions of dollars in some cases? Who forced investors to start buying that debt and selling it as mark up? They played fast and loose with behavior they knew to be risky.

With the competition from FCU's & their laxed rules governing them creating a need for banks to keep expanding & increasing their presence in communities both rural & urban, Clinton put rules into CRA that FORCED banks-if they wanted to expand-to show that they were working with minority "groups" & "community leaders" in order to increase home ownership opportunities for that demographic.

If you couldn't prove you were doing it, they simply stifled your ability to grow (read: put your @ss out of business).

Which meant you most certainly were forced to try to lend to minorities & folks with poor credit in order to try to keep your footprint in the market, & survive. Very much so, in fact.

As far as your chronology, Clinton made the changes to CRA in the late 90's, which is completely congruent with what I'm talking about here.

I worked for UC Lending, & then went into the mortgage industry-where I still am-for several companies that formed out of its ashes.

We worked with these laws & saw these guidelines being laxed & the reasons behind it every day. We heard from FCU branch managers, & local bank managers...all of them given quotas, forced to have home ownership 'seminars' so that they could attract the right demographic of borrowers. All because their superiors & board members knew they'd get passed by & put out of business in the marketplace if they didn't.

You can't out-spin this...I lived & worked in it...

By Blogger GO, at 11:16 AM  

I ain't the one spinnin webs, I'm just sayin' that I saw the house of cards get built. I've already said this probably had a hand in things, but the true effect is vastly overstated.

A bunch of risky loans to get low income folks into $50K - $75K starter homes on the wrong side of the tracks did not cause the economy to collapse.

But since you've worked and lived it, I'm sure you know a lot more about it than me.

I'll just ignore watching developers take properties worth $30K, slap $100K homes on them and attempt to sell for $1.2Million a pop. Which the banks then magically listed as a $1.2M asset allowing the developer to take out even more money to do the same thing over and over.

And I'll pretend that this stuff only started happening after 1996 because the government forced people to make bad loans or else. And I'll turn a blind eye to the absolute explosion of the housing bubble from about 03-06 when the government continued to tell banks to make bad loans or else.

And I'll forget that, somewhere along the line, some financial guru came up with the idea of selling the bad loans to investors as part of their portfolios, against which they could borrow even more money.

By Blogger Cousin Pat from Georgia, at 12:39 PM  

nice post. thanks.

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