Category: Public Investment


Michele Bachmann (Alan.com)

As the winter clouds slowly give way to springtime sun, the United States is waking up to a nightmarish political climate. The Republicans have taken over more state legislatures than at any time since the Great Depression, and well… It looks like that is where we are heading there again. Why? Because the GOP, rebranded by the Kochs’ Tea Party after the intense failures of the Bush Administration plummeted the country to new depths, has retaken control in a November 2010 election in which liberals stayed home.

Uh... wah?!

The Tea Partiers have never been much for civil discussion – here are Tea Baggers waiting to get in at a Health Care Town Hall event in Missouri. Of course, these people were encouraged to behave abysmally by the Tea Party itself – and some were even paid to do it! (Learn how!)

Buoyed by a self-declared national mandate, the Tea Party is now beginning hard work on important new legislation across the country – all guaranteed to either send the U.S. backward to a preliterate tribal society or a post-industrial, pre-Rapture apocalyptic nightmare state. Let’s take a quick look at some of the bills making their way through some state legislatures around the country.

Montana

We have already reported on some of the interesting bills under consideration in Montana. These include important issues such as legalizing hunting with spears and guns with silencers. Tea Partiers like guns… a bit too much… so they have decided that the state government should allow guns in schools, in the state Capitol, and as if that was not enough safety, there is also a proposal to create armed militias in every town.

Tea Partiers do not like regulations very much because the Tea Party benefactors, the Koch Brothers, pollute a lot. So it should not be much of a surprise that there is an attempt to nullify federal laws, including federal environmental regulations. The state is also planning to eradicate incentives to promote the development of wind power and it would also like the government to demonstrate that it has obtained National Park land legally, lest glaciers be allowed a chance to be conserved.

South Dakota

Tea Baggers do not like women very much either. Women in South Dakota may soon be forced to listen to a Christian sermon about abortions prior to obtaining one – of course – it was not as if the decision was tragic enough in and of itself.

Another bill, an interesting and creative combination of Tea Party misogyny and love for guns would have legalized killing abortion doctors as well as defund Planned Parenthood. This law has been tabled… for now…

Texas

And then there is Texas. They do stupid in Texas BIG! Its Board of Education is a joke and it is difficult to understand how students that go through their schools will have the knowledge that they will need to thrive in competitive, technical fields such as biomedical engineering, much less pass a college entrance exam with the state’s reinforcement of creationism in the schools and rewriting of American history in the state educational standards. Oh, and despite the fact that Thomas Jefferson had written the Declaration of Independence and that as president, he doubled the size of the United States in the Louisiana purchase (including some territory in Texas itself) he is no longer recognized as a founding father because he also happened to be suspiciously liberal and agnostic.

Only weeks after the Gabriel Giffords shooting and with shootings on college campuses in the news annually, Texas has decided to allow concealed guns on college campuses within the state.

While we’re discussing guns, there are also bills that will enable guns on party boats and bills that nullify (there is that word again!) federal laws that apply to guns and ammo made in Texas. That should make it easier for the Branch Davidians to regroup in Waco without any pesky ATF interference.

But how can one be satisfied with guns and treating women like trash alone? There are plenty of other groups to discriminate against! That’s why Texas may make it illegal to be gay in the National Guard (Virginia is trying this one too). Sorry gays, no playtime with guns for you in this middle finger to that Kenyan guy. A bill by Leo Berman would make it illegal to run for president in Texas unless it was possible to see your original, legal birth certificate. But the question is would they believe it is real if the candidate has dark skin?

And there are Tea Partiers in Texas who believe that the immigration situation should be remedied. Why? Because the Arizona bill does not go far enough because it does not have the death penalty for illegal immigration.

Oklahoma

In neighboring Oklahoma, where the public passed an amendment to the state constitution banning the adoption of shariah law, because that was apparently a problem with muslims comprising 0.16% of the state.

Of course, there are new gun proposals, too. Because people may soon be able to carry guns everywhere: College classes, grocery stores (watch out! that pineapple looks OVERRIPE!), and even bars! They deserve bonus points for combining guns and booze.

Don’t worry – illegal immigration proposals were scuttled when the Chamber of Commerce intervened! And women have already been forced to listen to ultrasounds and hear a discussion of a fetus before having an abortion – even if you were a rape or incest victim.

New Hampshire

In New Hampshire, there is a new bill to make it very difficult for students to vote! A new law would allow students to vote in New Hampshire if their parents happened to have a previously established residence in the town where the student lived. Since students generally move away from home and live in the town where they go to school, that means they may be barred from voting at all if they go to school in New Hampshire. And if that were not enough, Election Day registration would also be banned for students that did not understand that their voting rights have been infringed. According to the Republican House Speaker, William O’Brien, well here is a clip from the Washington Post:

New Hampshire’s new Republican state House speaker is pretty clear about what he thinks of college kids and how they vote. They’re “foolish,” Speaker William O’Brien said in a recent speech to a tea party group.

“Voting as a liberal. That’s what kids do,” he added, his comments taped by a state Democratic Party staffer and posted on YouTube. Students lack “life experience,” and “they just vote their feelings.”

Ohio

In Ohio, Republicans have turned on police and firefighters. This is all about union busting. (They have already gone for state employees including teachers).

Tennessee

In Tennessee, Tea Partiers are all about pooh-poohing slavery. Speaking of slavery, the Tea Party there is also gunning for teachers’ collective bargaining rights.

Missouri

In Missouri, a new proposal would eliminate child labor laws for children under 14. Children looking to earn a buck could work up to 80 hours a week! Just think of all of the wonderful free-market capitalism that they could enjoy during their formative years without an education! The bill also specifically allows children under the age of 16 to work in the hotel industry, after hours. Yes, it specifically goes out of its way to mention that. Oh, and the law would bar the Missouri Division of Labor Standards from making sure that employers of children provide safe working conditions.

Missouri is also considering a compact with Arizona and Tennessee that would oppose the adoption of federal Health Care Reform, in another nullification move.

Utah

The same month in which a U.S. Congressional Representative was shot in the head just to the south, the state of Utah voted on a state firearm. They picked a Browning M1911 semiautomatic pistol. How tasteful!

And with guns comes hating women. Did you know that miscarriages are like natural abortions? That is why it is now possible that a woman who has a miscarriage will face murder charges.

Georgia

Oh, and Utah was a lightweight – women who have a miscarriage in Georgia could get the death penalty.

The Georgia Tea Party would also like to enact a few other provisions, including: The “Energy Freedom of Choice Legislation”, which would prohibit cap-and-trade limits to greenhouse emissions; an Arizona-style anti-immigration law (papieren bitte!); tax cuts everywhere, including property taxes!

Arizona

Arizona is the home of crazy. They have already sold several state buildings, including the state Capitol, to private firms so that the state can rent from them at higher cost in perpetuity!

It is possible to carry concealed weapons to bars now. But don’t think of buying beer, cigarettes of any “niceties of life” if you are welfare – you will lose your funding. Oh, and a children’s health insurance program has been repealed for 38,000 kids. This means that billions of dollars in Medicare money may be withheld by the federal government. In other words, Arizona is keeping the government out of Arizonan Medicare – we’ll see how that goes amongst the geriatric population there.

There is now also a law that requires abortion doctors to report the names of women who undergo abortions.

And there is the anti-immigration law that allows anyone caught while brown to be arrested if they are not carrying their documentation at all times.

Minnesota

In Minnesota, the new Tea Party legislature is not happy with the Democratic Governor’s plan to raise taxes on the wealthy.

Michele Bachmann and other Republican Congressional delegation members are planning to defund the EPA

In attacks on women, Republicans have decided to ban abortions after 20 weeks of pregnancy, regardless of wether the child will survive more than a few minutes anyway. The bill will be vetoed by the governor, but you can’t blame them for making a statement, can you?

Another Republican, Senator John Carlson of Bemidji, decided that he would introduce a bill that would repeal pay equity for women. Why is it that the Tea Party hates women so much? Here is what he said, from the Minnesota Independent:

“That bill’s been pulled and it won’t see the light of day,” Carlson said Saturday at an Education Minnesota event, the Bemidji Pioneer reports. “I would admit I didn’t do my homework very well.”

“So I author the bill, put it in the hopper, and the next thing I know, all hell breaks loose,” he said. “And I deserve it for being naïve. Quite honestly, I deserve that. I did it with good intentions.”

“Obviously, I’ve been married for 32 years, I have a daughter out in the workforce, and I have a granddaughter — I can’t believe anyone would think I would harm that relationship,” Carlson said.

I wonder just what those good intentions were that would have lowered wages for half of the human race for the simple fact they were not male.

Not to be outdone with misogyny, the Tea Baggers want to get the gays too! They plan to introduce an anti-gay marriage amendment.

Federal Government

With the 2012 elections coming up and the Republicans hoping that Obama will fail, they are planning a budget that is a poison pill for the current economic recovery.

Republicans also plan to send us back a century or two, by cutting scientific researh – especially climate change science and monitoring. The Corporation for Public Broadcasting and Planned Parenthood also take political hits from the government. Meanwhile, nearly a million jobs are on the line with draconian cuts aimed at breaking unions, eliminating programs for the poor. If that were not enough, the GOP plans dire cuts to education and infrastructure development.

The Republicans would also like to defund the EPA for their Koch brother masters. They have even replaced recyclable food containers in the Congressional dining room with non-recyclable styrofoam, provided by an affiliate of Koch Industries. Since they are also planning to slash funding to toxicology clinics, one blogger suggests that the GOP is simply trying to poison America. Considering their impact on the nation so far, it seems that it is safe to say “Mission Accomplished”.

George W. Bush - Mission Accomplished (Wikipedia)

Wisconsin Protests

Protests in Madison continued through the weekend. 30-50,000 people showed up Saturday to protest against Governor Walker’s attacks on working families. Mail carriers had their day on Sunday. But the Tea Party had a pro-Walker rally on Sunday as well at Alliant Energy Center. Despite having access to the Kochs’ billions, they could only muster 600 people to support Scott Walker. A new poll came out, albeit with a very small sample (603 respondents, corresponding to errors greater than +/- 4%), showing very negative reactions to Governor Walker, a strong majority against stripping unions of collective bargaining rights, and 72% of Wisconsinites want to solve the Walker-created budgetary problems by raising taxes on people earning more than $150,000 per year. HUGE protests are expected across the nation next Saturday, with more events also planned throughout the week. And the bottom may be dropping out on Governor Walker as thousands of dairy farmers plan to drive their tractors to the Capitol to show support for unions next Saturday. In Wisconsin, when dairy farmers protest Republicans, it generally means the end of the careers of those Republicans. Some are predicting that the protests in Madison are just the beginning, as the debate to cut Social Security begins in Washington.

Other Tea Party Fun

In Ohio, the Tea Party legislature is passing tougher anti-union legislation than the bill in Madison. It makes it a criminal offense for workers to go on strike. Some shenanigans were required in order to get the bill through committee, however. When a committee was deadlocked on the proposal with even some Republicans dissenting, the Republican Senate Majority Leader fired two Republican Senators from their committee assignments so that the bill could reach the floor. Still, even some Republicans are calling the bill unconstitutional and it likely violates existing labor laws. Unfortunately Ohio Dems can not prevent a quorum in the Republican-filled Ohio legislature. This week has seen the largest protests to date in Columbus.

Indiana Democratic House Members are still in Illinois, preventing a vote on anti-union legislation there. As protests in Indiana continue, Indiana’s newly elected Republican Secretary of State Charlie White is probably going to jail. He has ben indicted on three counts of felony voter fraud for registering to vote in places where he did not live. One would think that a State Secretary of State, who is in charge of elections within the state, would understand the rules here – that is unless that was the reason for his choice to run. Keep in mind that White has supported the voter ID requirement in Indiana, ostensibly to prevent people from voting illegally as he has done. There are a lot more interesting details in this article
from the Brad Blog.

The State Legislature of Arizona has passed an unconstitutional bill to nullify federal laws. Laws of this sort were the same type that precipitated the Civil War, when southern states attempted to nullify federal regulation of slavery. This comes on the heels of a vote by the Arizona Legislature to allow people to carry guns to public events, because, you know, guns at public events are a fantastic idea and it is not as if one of their own members of Congress was shot in the head by a lunatic carrying a gun or anything just two months ago. Oh, as it happens, Jared Loughner has just been hit with 49 additional criminal counts for his firing spree on a crowd at a Giffords event in January.

The Tea Party-led Montana State Legislature is still at it. Even Republicans are now claiming that the Tea Party is leading to the the Republicans to become such a national laughingstock that they are driving away young GOP voters. In addition to working to allow guns in schools, they are trying to, as MT Cowgirl puts it, “legislate the laws of nature” to deny climate change, eliminate stem cell research, to claim the earth is between 4,000 and 6,000 years old, and to criminalize homosexuality.

Florida Tea Party Governor Rick Scott may be subject to a criminal investigation over his firing of the state nursing home long-term care obmudsman. It is not generally considered a smart move to anger the nursing homes in the state with the nation’s most geriatric population.

Wikileaks

Julian Assange is appealing the expected British court ruling that he should be extradited to Sweden. His organization WikiLeaks has already uncovered a huge amount of corruption from countries accross the world. It was revelations of the excesses of the family of the Tunisian dictator that have led to pro-democracy rallies across Africa and Asia. Meanwhile, Bradley Manning, who the military claims gave WikiLeaks documents that it later published, is in detention under cruel and unusual conditions – including being kept in his cell naked, being refused sleep, etc. Does this sound familiar?

Corruption on the Supreme Court

Calls are coming out for the removal of Supreme Court Justices Clarence Thomas, Samuel Alito and Antonin Scalia for illegally participating in political fundraising, tax evasion and refusing to make public conflicts of interest.

Budget Battle (Clay Bennett, Chattanooga Times Free Press)

This article is Part II in a series of articles regarding government spending. To read the other related pieces, go to my U.S. Federal Debt: Sources and Solutions page.

Current status

Buoyed by their 2010 election success, the Republicans (who ran on jobs and the economy) have come to Washington to take it down. House Majority Leader, John Boehner (R-OH), has called for $100 billion in cuts to discretionary spending. Ron Paul has suggested not raising the U.S. federal debt limit, which would precipitate a worldwide crisis as the nation defaults on $14.3 trillion in debt. The fervor does not end there: Iowa’s Steve King (R) even suggested we should “kill the government” should Obama fail to kill health care reform – a move that would add up to $1 trillion to the federal debt after 10 years. The cuts that are proposed are standard: Education, unemployment benefits, housing and (oddly) also cuts to entitlements that are not discretionary spending. Social security and Medicare have long raised the ire of Republicans who would love to privatize the systems and transfer the wealth they contain to the private sector. The largest portion of federal discretionary spending, the military, remains largely untouched through all of this.

So where do all of these cuts leave the jobs issue? Well, the “strange” unemployment numbers from January were not strange at all. The current situation is entirely consistent with the viewpoint in which so many people have been unemployed for so long that not only are they no longer eligible for unemployment benefits, but they are also giving up their jobs searches. That is prior to pending federal budget cuts. The forecasts for the currently proposed GOP cuts will involve the layoff of around 650,000 federal employees alone and the decrease in federal spending will bring the total to nearly 1 million jobs after 2011. This clearly does not jive with the Republican platform of helping jobs, but it is entirely consistent with the Republican mantra of “small government” that has been sweeping that nation and is most evident in the events taking place in Wisconsin.

We will take a look at the history of federal spending in order to find new methods to reduce the federal budget deficits in a what that will encourage growth in the national economy.

U.S. Federal Spending

Fig. 1: US Federal Outlays and GDP since 1901 (Wikipedia)

The U.S. Federal Government spent roughly $3.6 trillion in 2010. Big Government, you protest? Figure 1 shows the history of federal spending since the beginning of the 20th Century (please note that this is a logarithmic plot). The spending on the federal budget has grown in rough proportion to the growth of the economy since the time of FDR, though GDP numbers were not taken prior to that time and the rate of growth of government spending was much lower prior to 1900 because government undertook very few social spending initiatives before then. Also note the point of inflection at 1980. Prior to that time, the rate of GDP growth was accelerating as opposed to the deceleration we have seen since Reagan’s election.

Fig. 2: U.S. Spending and Revenue in %GDP (Bureau of Economic Analysis, via Carried Away)

Figure 2 shows the full level of spending by state and federal governments in the U.S. as a fraction of GDP since the beginning of the Great Depression. It clearly demonstrates that while there is growth in spending during the expansion of the military and programs such as Social Security, the overall spending per GDP by states has held roughly steady since the early 1970s and in the federal government since the election of Ronald Reagan in 1980. This essentially means that the cost per person of the federal government would have remained constant since the early 1980s, provided that middle class incomes would have tracked with the growth of the economy. This has not been the case. As a result, federal programs since the time of Reagan have become more expensive for the middle class while the middle class receives fewer services.

Fig. 3a: Total U.S. Spending, 2010 (Congressional Budget Office, via Wikipedia)

Fig. 3b: U.S. Discretionary Spending, 2010 (National Priorities Project)

That last point on the middle class receiving fewer services is doubly demonstrated by the proportion of military spending relative to total discretionary spending. I will discuss that in a moment, but I will first make a side observation. While researching U.S. discretionary spending, I noticed that the spending is usually displayed either of two ways. The first is the “Federal Pie Chart” in Figures 3a and 3b that show the relative sizes of various categories of total and discretionary spending respectively. The second form of presentation can be found in Figure 4. In short, the portrayal of discretionary spending in either mode is almost always the same and it has the effect of creating a politically expedient frame within which to understand the data.

Figures 3a and 3b represent to shares of total and discretionary spending (respectively) that are spent on a number of different budget categories. This is useful if you were concerned about how much money is spent on programs such as entitlements like Medicare, Medicaid and Social Security or how much is spent on paying off interest on the debt. But the pie charts do not indicate what fraction of the “Discretionary Budget” in Figure 3a are actually spent on Homeland Security or other non-Department of Defense national security areas however. So one gets the impression that defense spending is not so large relative to the entitlement programs shown in 3a.

Figure 3b show us a little more detail, essentially expanding the blue and orange sections from Figure 3a. Here we see just how much of the discretionary budget is taken up by the military but it does not include, say transportation programs that are geared to beefing up Homeland Security. This leads one to the conclusion that military spending is somewhat lower than it really is.

Furthermore, the pie charts only represent funding from a single year. It is impossible to tell how much spending might have changed either from the previous year or from a time several decades ago. And if the accounting is done right, then as I mentioned in the previous two paragraphs, it is easy to give the impression that everything is normal and there are no imbalances in the budget.

Nor would we get that that impression if we were to look at the other way in which the data is displayed: Historically. Figure 4 shows the relative proportions of military and non-military spending, with the caveat that the data is broken down in essentially the same way that it was in Figure 3b (the Department of Homeland Security is not part of the Department of Defense). However, the earliest date for the data is very important. It occurs at a time when the U.S. was in an arms race with the Soviet Union and at a time when it was becoming actively involved in the Vietnam War. The center panel of Figure 4 gives the strong impression that defense spending is under control, but only because it ignores the times prior to 1962 (the 1950s and prior to World War II when the fraction of military discretionary spending was about 30%) when spending on defense was much lower. And keep in mind that we are not including all national security spending in the defense sector – a trend that became worse and worse during the 2000’s. In fact current national security spending comprises nearly half of the “non-defense” discretionary outlays.

The bottom panel in Figure 4 drives home another convenient point that mandatory spending is out of control as well, but this is only due to the fact that defense spending has been considered a high priority among neo-conservatives. But the story behind Figures 3a, 3b and 4 is that even among discretionary spending, the military is consuming a larger and larger share even while spending on social discretionary programs becomes more expensive for the middle class and even while the middle class is expected to carry an increasing responsibility for funding these programs.

Fig. 4: U.S. Military and Non-military Discretionary Funding since 1962 (Office of Management and Budget, via Congressional Quarterly)

Another thing to consider is that all of the social programs that make life easier and demonstrably improve the quality of life for people who live in the United States (i.e. Education, Income & Labor Security, the EPA, Transportation and the Federal R&D) make up a very small fraction of the budget overall.

The take away message here is that despite the initial outward appearances, Figure 5 (the misspelling in the Figure is due to the Economist, not me, though the numbers are sound) shows that discretionary social spending has been very squeezed as a fraction of GDP over the past 40 years, ending with a brief and temporary counterpoint that corresponds to President Obama’s stimulus package. This overall decline has been due to the tax cuts that we will discuss later on which have limited the amount of money that can be spent on social discretionary programs, out of deference to mandatory spending and defense and national security.

Fig. 5: Non-defense Discretionary Spending as a function of GDP (The Economist)

Things are no different in either the current Republican or Democratic proposals for the upcoming budget deal. Social discretionary spending, comprising a small fraction of the total budget, will take the biggest lumps in upcoming budget cuts. That means housing programs, unemployment benefits, research and development, infrastructure investments, clean energy and environmental protection are going to lose funding relative to continued spending on the U.S. Military. The Republicans are aiming for broad cuts of $100 billion to the $660 billion non-military discretionary budget but the cuts are not planned to go toward the national security components of that budget.
The Minnesota Independent has a brief summary of some of the expected cuts which correspond to a roughly 30-50% hit to social programs that are used by everyone in the country and the regulatory agencies that protect our physical and fiscal environments, while the military budget of $689 billion will remain virtually untouched even though the U.S. spends the same amount on its military as the rest of the world combined (Figure 6). Feeling safe yet?

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

–President and Five-Star General Dwight D. Eisenhower, From a speech before the American Society of Newspaper Editors, April 16, 1953

Fig. 6: World military expenditures of every nation in the world, 2009. The tall bar on the far left is the United States, which spends more than 6 times as much as its nearest rival, China. Click to access a larger version. (Global Security, via Think or Thwim)

Impacts of Federal Spending on the Economy

Despite conservative beliefs and mantras, government spending has a legitimate place in the national economy if for no other reason than the fact that, according to the U.S. Census, the U.S. federal government has 2.5 million employees in addition to the military which has 1.5 million active and 1.5 million reserve personnel. That corresponds to nearly 5.5 million total employees, not including part time civilian staff, and that corresponds to more than 3% of the U.S. workforce.

More importantly, Figure 1 shows that current federal spending is at a level of roughly 20% of GDP so it can act as a strong lever arm to encourage economic growth, industrial development, support workers wages and to develop public infrastructure, especially in concert with the government’s regulatory powers. Yet here is what House Speaker John Boehner (R) says about spending:

“This is where cutting spending will create jobs because it is going to bring greater fiscal responsibility here in Washington, DC, end some of the uncertainty, and allow jobs to be created in America.”

Even Cliffs notes will tell you that decreased government spending shrinks the demand for labor in the economy. During times of economic crisis, this can lead to a downward spiral because a smaller workforce leads less consumer purchasing that, in turn, leads to lower corporate profits and less investment and possibly more layoffs which feed back into the system. The Keynesian economic view argues that the Government can borrow money maintain spending levels despite a drop in tax revenue in order make up for the consumer demand that is lost to unemployment.

One could in principle spend money on just about anything, but the most effective approach is to make investments into public infrastructure that essentially build new efficiencies into the national economy that everyone can share in the future. This is the idea behind financial stimulus, but some forms of stimulus are better than others because some forms of spending allow the money to pass through more hands in the economy in a relatively short period of time and that encourages economic growth.

Mark Zandi, Chief Economist for Moody’s, published a study that modeled the effects of various forms of stimulus to see which would provide the greatest impact per dollar invested. You may find the results rather surprising in Figure 7.

Fig. 7: Effective rates of return on each dollar invested in various forms of stimulus (Moody's via Huffington Post)

Surprised? Perhaps it is because the best form of stimulus shown is investing in Food Stamps and Extending Unemployment Benefits! These are anathema to the laissez-faire Trickle Down Economics favored by the Republicans, who tend to be acolytes of Milton Friedman. The Bush Administration, in contrast, strongly favored Capital Gains Tax Cuts, Tax Rebates and Tax Cuts on the wealthy, in keeping with the notion of Trickle Down.

So why would food stamps be better stimulus than tax cuts on the wealthy? The reason is that poor people will spend the money as soon as they get it while wealthy individuals will typically save a windfall for a rainy day. In the latter case money is taken out of circulation so it does not typically provide a positive economic benefit. But there is another important benefit. When people become unemployed and can not feed themselves, they die. When that happens, not only does society lose their productivity, skills and knowledge that those people once had, but society also loses the investment it made to train and educate them. That was the situation in the United States during economic disasters like the Panic of 1893 and the early years of the Great Depression, before Roosevelt’s New Deal. Other forms of stimulus are not listed.

The military, for example returns roughly $0.40 on every dollar because every dollar spent on a bomb is a dollar spent on something that was designed to be wasted. Scientific research provides a quick infusion of cash with a return to the tune of approximately $1.60 on the dollar.

One is forced to wonder why the Bush Administration supported non-stimuli such as tax cuts because, despite the conservative propaganda, Friedmanian economics tends to lead to a reduction in tax revenues over the long term. (This is an indication that the middle class becomes poorer over time.) Nevertheless, the Friedmanians do (rarely) have a point. In the event of too much borrowing, there can be a set of diminishing returns. If the federal debt levels require steep payments on the debt, the government can respond by making money to pay it off. This results in depreciation, which if taken too far can drastically increase interest rates and lead to accelerated depreciation in the value of the dollar and a sticky mess for the economy: Stagflation. That was the situation during the 1970s during an economic slowdown that occurred while the U.S. was balancing the debt it racked up during the Vietnam War. War is expensive.

Another way of looking at this is that, as in Figure 8, various forms of stimulus act on the economy over differing lengths of time and some forms even have a longer lasting impact than others. These factors must be considered in preparing a viable stimulus package.

Fig. 8: Cumuluative Effects of Policy Options on Unemployment (Rachel Maddow Blog)

Obama’s stimulus package was considered by some economists such as Nobel Prize Laureate Paul Krugmanas too small to completely repair the economy, and the U.S. economy is still at risk for a double-dip recession as the stimulus has now worn off while unemployment remains quite high. Part of the reason for this is that the stimulus contained a combination of approaches including non-stimulative tax cuts due to political expediency. While enacting the stimulus package, Obama also failed to raise taxes on the wealthy, which would have given more budgetary cover for a larger stimulus package, but it is also unlikely that would have been accepted by Blue Dog Democrats who were already leery about the federal stimulus package.

Obama’s hands are now tied because of the size of the federal budget deficits due to the wars in Afghanistan and Iraq as well as the reduction in tax revenue due to the Bush tax cuts. Having missed his chance and having failed to include enough stimulus required to fix the economy, the U.S. labor force is now locked in a political game of prisoner’s dilemma. If Obama and the House Republicans can find a compromise, then everyone loses (in this version of the game, this is the best possible scenario), but everyone loses a lot if an agreement is not made soon or if Congress fails to increase the federal debt limit. In that case, the U.S. could eventually be forced to use money locked in the Social Security Trust Fund to pay off existing debt. This is considered a goal by some conservatives because it may force the privatization of Social Security.

What to expect from a short-term federal shutdown

Here we are: In a situation in which the recently elected representatives to Congress care far less about stimulus and investment into the economy than spending money on special interests – especially the anti-stimulative military – and ensuring that “Obama fails”.

So if the current budget impasse continues due to the stark divide between the emerging conservatism of the White House and the bottomless pit of nihilism of the Congressional Republicans, what are we likely to see in a short-term federal shutdown? The Minnesota Independent has summarized a 1999 Congressional Research Service report on past federal deadlocks. (Note, there is a typo in he Minnesota Independent report. The November 2005 shutdown should read November 1995.) A 5-day shutdown caused the furlough of 800,000 federal workers while a subsequent 21-day shutdown led to 284,000 furloughs and 475,000 others were forced to work in critical positions without pay. This of course means lost tax revenue for the government in addition to the extra costs that are incurred by the need to pay additional contract extensions and fees. (Cutting programs often results in similar additional costs.)

The Congressional Research Service also described the impact on the public:

“Health. New patients were not accepted into clinical research at the National Institutes of Health (NIH) Clinical Center; the Centers for Disease Control and Prevention ceased disease surveillance (information about the spread of diseases, such as AIDS and flu, were unavailable); hotline calls to NIH concerning diseases were not answered; and toxic waste clean-up work at 609 sites stopped, resulting in 2,400 “Superfund” workers being sent home.

Law Enforcement/Public Safety. Delays occurred in the processing of alcohol, tobacco, firearms, and explosives applications by the Bureau of Alcohol, Tobacco, and Firearms; work on more than 3,500 bankruptcy cases was suspended; cancellation of the recruitment and testing of federal law-enforcement officials occurred, including the hiring of 400 border patrol agents; and delinquent child-support cases were suspended.

Parks/Museums/Monuments. Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with local communities near national parks losing an estimated $14.2 million per day in tourism revenues; and closure of national museums and monuments (estimated loss of 2 million visitors) occurred.

Visas/Passports. 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines sustained millions of dollars in losses.

American Indian/other Native Americans. All 13,500 Department of Interior Bureau of Indian Affairs (BIA) employees were furloughed; general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and estimated 25,000 American Indians did not receive timely payment of oil and gas royalties.

American Veterans. Major curtailment in services, ranging from health and welfare to finance and travel was experienced.

Federal Contractors. Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse; the National Institute of Standards, was unable to issue a new standard for lights and lamps, scheduled to be effective January 1, 1996; and employees of federal contractors were furloughed without pay.”

Some federal agencies such as those related to defense would continue to operate even under a government shutdown.

Coming soon

In the next segment, we will discuss tax policy in relation to the information that we have covered in Parts I and II. Stay tuned.

References and Links

The Economist: “Outrageous Cuts”

U.S. Census: Federal Government Civilian Employment

U.S. Department of Commerce Bureau of Economic Analysis National Income and Product Accounts

Wikipedia: List of countries by level of military equipment

Wikipedia: United States Federal Budget

James Heintz discusses sources of state budget deficits around the country (Real News)

The current economic crisis has led to high levels of unemployment, reducing income and sales tax revenues to the states. Tax rates for the wealthy have also dropped during recent decades. State budgets are therefore hemorrhaging cash due to a drop in revenue. Making the problem even worse, the typical state response to the drop in revenue has been spending cuts without tax increases which leads to another decrease in wages in the states. The Real News has interviewed James Heintz of the Policital Economy Research Institute at the University of Massachusetts to investigate the problems in state budgets as well as to explore possible options available to improve both the budgetary situation and the economy.

It turns out that not all solutions have been tried. Conservatives have continually made the case that ‘we must cut spending’ while completely ignoring the revenue side of the budget. This situation is currently being played out in Wisconsin, where tax rates on billionaires have been cut repeatedly during the past 40 years though it is the workers who are now expected to make up the difference in balancing the budget, both in terms of fewer government services and lower wages.

Recall that one of the problems in the current state budget crisis is the loss of wages in the first place. Forcing state employee unions to accept harsher terms only puts downward pressure on wages across the economy. The state should rather find ways to provide positive support for wages and a simple way to do that is through tax increases on the wealthy. Simply increasing taxes to 2000 levels will restore most state budgets to solvency and it will also help to prevent continued layoffs and unemployment in the states while also providing support for investment in badly needed pubic infrastructure.

Decreases in state revenue due to the economic downturn have left many states short (Real News)

Tax increases on wealthy and support for increased wages can help (Real News)

Works Progress Administration (vis Wikipedia)

During the deepest depths of the Great Depression, President Roosevelt created the Works Progress Administration (WPA), the largest federal agency as part of the New Deal. In its beginnings in 1935, the WPA cost $1.4 billion, growing in size to $11 billion by 1943 (this is equivalent to expenditures of $25.6 billion and $136 billion per year in 2009 dollars). This mammoth undertaking employed 8 million people to construct and revitalize the national infrastructure. WPA construction projects, like CCC projects are everywhere – nearly every city in the country has at least one. The workers in the WPA built bridges, libraries, roads, dams, power plants, post offices, parks, schools, and shelters. Many of these projects are still around and in use today. A large people were also employed to distribute food to the needy, there were education programs, and there was a good deal of investment in the arts, media and community theater. By 1943, the unemployment rate had shrunk to very low levels due to the high demand for labor to build arms and munitions for World War II and the WPA closed its doors after building public infrastructure that later fueled the economic boom of the 1950s and 1960s.

Wikipedia: Works Progress Administration

Ohio state employees pack the Statehouse, Feb. 17 (AP Photo/Terry Gilliam)

Pro-labor protests

Huge rallies, vigils and protests are scheduled across the United States this week as the movement to support the middle class continues to grow. See the bottom of this post for locations and check here for details on the events. Show your support because the Republicans have a national strategy to repeal workers rights state by state. In Wisconsin, Governor Walker threatens dissenting Democratic Senators that the Republicans may pass non-spending bills in their absence. In response, the Dems say they will stay away until Walker decides to negotiate. Protests Sunday were smaller than the roughly 70,000 that showed up Saturday due to a blizzard, but protests will continue through next week. Tea Party counter-protests were outnumbered 35-1 Saturday. One anti-Walker protestor says “Thank you” for bringing back the labor movement.

Protests are scheduled to continue on Tuesday in Ohio, where nearly 4,000
people packed the Statehouse last Thursday.
Floridian teachers begin to weigh their options as their Tea Party Governor once again asks educators to pay for the deficit brought on by bankers and low taxes on the wealthy. Democratic Governor Cuomo is facing rebellion against his budget proposals in New York that could trap him between a Republican legislature and his own supporters. And New Jersey is ripe for new protests to begin as well.

Where the national discussion is not on worker cutbacks, it is on privatization. This includes concerns about the privatization of libraries across the country in which patrons find the standard privatization scenario: Fewer services for a higher price. Check Privatization Watch for more information on corporate attempts to take over public infrastructure near you.

Federal Budget

Robert Reich explains why there is not anything wrong with Social Security and why it should not be cut to help the federal budget deficit. (Cutting Social Security would actually increase the deficit.) The truth is that Republicans have been creating big budget deficits to shrink social programs for years. They want control and they want government to fund corporations, not people (and yes, they are different). Meanwhile, the Republicans are aiming to shut down the Federal Government which will give companies a while to work regulation-free. The House Republicans are looking for draconian cuts to social programs while leaving the military out of the fray while Obama wishes to “out-educate, out-innovate and out-build” the rest of the world. This brings about the prospect of a default on American debt which would usher in a Great-er Depression, according to Timothy Geithner, who also believes the Republicans are pyromaniacs playing with fire on the issue.

International News

Dissidents in China, buoyed by the demonstrations spreading through the Middle East have found it tougher going as the Chinese government begins arresting dissadents as plans begin to get underway. In Egypt, 15,000 are still striking at the nation’s largest factory for better wages as the military warns it may take action. Bahraini demonstrators retake the square in Manama after an attack by government forces kill several and wounded over 100. Libya and Yemen attempt to crack down on protestors in their countries. Museveni wins another election in Uganda, despite a rejection of the result by opposition as ethnic tensions rise and concerns over human rights resurface.

Protests and Demonstrations Monday 21 February – Saturday 26 February. (Sites listed in order by state.)

Show your support, even if you are not in Wisconsin so that the Tea Partiers do not come looking for your benefits too! We’re all in this together!

Monday
Chicago, IL
Indianapolis, IN
South Bend, IN
Helena, MT
Raliegh, NC
Carson City, NV
Las Vegas, NV
Salem, OR
San Juan, PR
Austin, TX
Olympia, WA
Charleston, WV
Madison, WI

Tuesday
Juneau, AK
Phoenix, AZ
Palmdale, CA
Sacramento, CA
San Diego, CA
Denver, CO
Des Moines, IA
Boston, MA
Springfield, MA
Annapolis, MD
Lansing, MI
Saint Paul, MN
Santa Fe, NM
Canton, OH
Cleveland, OH
Columbus, OH
Providence, RI
Salt Lake City, UT
Montepelier, VT
Madison, WI

Wednesday
Little Rock, AR
Hartford, CT
Atlanta, GA
Scranton, PA
Madison, WI

Thursday
Trenton, NJ
Pittsburgh, PA
Statewide, PA
Madison, WI

Saturday
Dallas, TX

CCC Workers Building a Road, 1933 (FDR Library and Museum)

The Civilian Conservation Corps was one of the most popular government programs ever enacted in the United States. It was the brainchild of Franklin Roosevelt. 2.5 million men from the cities and the countryside alike, unemployed due to a lack of available jobs during the Great Depression, constructed public works throughout the country between 1933 and 1942. Rather than suffer from hunger and bankruptcy, they built roads, they reforested America by planting 3 billion trees and they built most of the infrastructure that we still use today in State and National Parks. Just look for the natural stone and wooden park shelter or visitor center or the mountain trails with the CCC plaque at the entrance – they are easy to find because they are everywhere and most have lasted to this day.

The men who participated in the project were able to earn money for their parents all while saving money necessary for college. Literacy centers were also located at most CCC work camps. The investment paid off. The people who went to school after World War II created the greatest economic expansion in US history during the 1950s and 60s. They also paid taxes on the wealth that they generated during that period and that lifted the standard of living in the country. That is what a government that looks after the well-being of its citizens can do, but it is definitely not “small government”.