[Marxism] 1937 redux?

Louis Proyect lnp3 at panix.com
Sat Jul 30 07:07:47 MDT 2011


How to make a bad economy even worse
New GDP numbers should be a warning bell for Obama and Congress. But 
they're not listening
By Andrew Leonard

Here's how monumentally screwed up our national priorities are. Just two 
hours after the government's Bureau of Economic Analysis released 
disastrous new figures indicating that GDP growth has essentially 
flat-lined, the president of the United States gave a brief address to 
the nation calling for both political parties to come to bipartisan 
compromise on "how to cut spending responsibly."

Obama was responding to Thursday night's monumental failure by House 
Republicans to pass their own debt ceiling bill, after a revolt by 
conservatives who deemed the measure unsatisfactory because it doesn't 
cut spending enough. With the default deadline only four days away, and 
at the end of a week when stock market indexes have already fallen by 
about 4 percent, when short-term credit markets are showing signs of 
stress and investors are pulling billions of dollars out of money market 
funds, the display of Republican incompetence was the last thing a 
nervous economy needs. A little reassurance that the White House was on 
top of the situation would have been sorely appreciated.

Because the GDP numbers are the icing on this recessionary cake. The BEA 
pegged growth in the second quarter at a paltry 1.3 percent. The first 
quarter was revised down to a moribund .4 percent. And perhaps most 
noteworthy at all, revisions to even earlier data showed that the depths 
of the recession were much worse than anyone realized at the time. In 
the fourth quarter of 2008, for example, growth fell by an incredible 
8.9 percent.

With those numbers ringing in our ears, President Obama addressed the 
nation and warned us that "on a day when we have been reminded about how 
fragile the economy is" both parties need to get together and cut a 
deal. And thus he demonstrated once again the amazing disconnect between 
the current obsessions dominating our political system and the economic 
plight of the nation.

Yes, we need a deal that avoids default. But if the GDP data proves 
anything, spending cuts shouldn't be part of it. Shrinking state and 
local budgets are already a significant drag on growth. Consumer 
spending is weak. And yet everyone seems to agree: Obama, Republicans 
and Democrats, that the first order of business should be shrinking 
government even further, subtracting even more demand from the economy, 
and likely accelerating our economic decline.

Conservatives have been fond of arguing that the weak economy proves 
that Obama's stimulus didn't work, and I'm sure they'll be citing 
today's GDP numbers as additional evidence. But if there's anything that 
should jump out of the GDP data, it's the confirmation that the Obama 
stimulus was far too small to deal with the true state of the economy. 
Based on the data that we were aware of at the time, administration 
economists such as Christy Romer, chair of the Council of Economic 
Advisers, were recommending at least $1.2 trillion in stimulus. Instead 
we ended up injecting a little under $800 billion -- and half of that 
was in the form of tax cuts.

Now we know that the economy was contracting much faster than anyone 
imagined. Is it any wonder that the badly designed, cash-poor Recovery 
Act only managed to have the mild effect of keeping unemployment from 
rising even higher than it would have without stimulus?

The political dysfunction over debt ceiling negotiations has already 
hurt an ailing economy. But neither the Reid Plan nor the Boehner plan 
offers the right medicine. Neither is even focused on treating the right 
disease. Yes, it's clear that there is no political will for any further 
efforts to boost demand in the economy. But the first commandment here 
is simple: Do no harm.

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