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Welcome to 1936... Republican budget cutting, the Obama administration's Wall Street waffling, and the demand for a working class alternative

George N. Schmidt - April 08, 2011

[Editor's Note: As the federal government moves to a shut down because of the right-wing Republican attack on deficit spending and the Obama's administration's ongoing capitulation to the right-wing of its own Democratic Party, we're back in 1936. That's right, the choice was to continue to move the USA out of the second Great Depression since 1930, or to once again (as in 1936) give way, among Democrats, to the delusional economic theories of the Republicans. While there is not enough time here this morning to outline what happened in 1936 (when the Roosevelt administration gave in to the same policies — "deficit reduction" — that we're looking at today and plunged the nation into the second phase of the Great Depression), the dramatic ignorance that prevails right now is going to hurt us all, and soon. The question isn't whether the Obama administration was wrong to cave in to finance capital, but how wrong it was. The cave in was going on since the appointment of Arne Duncan as U.S.Secretary of Education (announced in December 2008, a month before the inauguration) and the confirmation of Obama's support for a continuation of the economic policies that got the USA into the mess we are still in. With the reaffirmation by Obama that Wall Street Knows Best (through the appointments of Timothy Geithner and Ben Bernanke to the nation's top economic posts), it was clear by mid-2009 that Barack Obama was, as Black Agenda has put it, just another "Wall Street Lawyer." The rest has been tragic history, made all the more tragic by Obama's betrayal of his anti-war promises (the ones that blindsided Hillary Clinton during key primaries in early and mid-2008). Below are two brief economic analyses of what is going to happen now. Welcome to 1936. It's deja vu all over again, only this time without the Democratic Party in the thrall of the racist Dixiecrats from the old "Solid South"].

Both articles below were brought to Substance via Portside.

The Budget Showdown - What's Really at Stake

1. Paul Ryan's Plan, the Coming Shutdown, and What's Really at Stake (Robert Reich)

2. Ryan plan to slash Medicaid will cost the economy nearly two million private sector jobs (Ethan Pollack - Economic Policy Institute (EPI))

Paul Ryan's Plan, the Coming Shutdown, and What's Really at Stake by Robert Reich, April 5, 2011 http://robertreich.org/post/4371884779

I was there in 1995 when the government closed because of a budget stalemate. I had to tell most of the Labor Department's 15,600 employees to go home and not return the next day. I also had to tell them I didn't know when they'd next get a paycheck.

There were two shutdowns, actually, rolling across the government in close succession, like thunder storms.

It's not the way to do the public's business.

Newt Gingrich got blamed largely because his ego was (and is) so big he couldn't stop blabbing that Clinton should be blamed. (Gingrich's complaint of a bad seat on Air Force One didn't help.)

But the larger loss was to the dignity and credibility of the United States government. When average Americans saw the Speaker of the House and the President of the United States behaving like nursery school children unable to get along, it only added to the prevailing cynicism.

Cynicism about government works to the Republicans' continued advantage.

Case in point. House Budget Chair Paul Ryan unveiled a plan today that should make every American cringe. It would turn Medicare into vouchers whose benefits are funneled into the

pockets of private insurers. It would make Medicaid and Food Stamps into block grants that allow states to ignore poor people altogether. It would drastically cut funding for schools, roads, and much else Americans need. And many of the plan's savings would go to wealthy Americans who'd pay even lower taxes than they do today.

Ryan's plan has no chance of passage - as long as Democrats are still in control of the Senate (even Democratic deficit hawks like Kent Conrad and Ben Nelson are appalled by it) and the White House.

But this so-called "blueprint" could be a blueprint for America's future when and if right-wing Republicans take charge.

Which is where the cynicism comes in - and the shutdowns. Republicans may get blamed now. But if the shutdowns contribute to the belief among Americans that government doesn't work, Republicans win over the long term. As with the rise of the Tea Partiers, the initiative shifts to those who essentially want to close it down for good.

That's why it's so important that the President have something more to say to the American people than "I want to cut spending, too, but the Republican cuts go too far." The "going too far" argument is no match for a worldview that says government is the central problem to begin with.

Obama must show America that the basic choice is between two fundamental views of this nation. Either we're all in this together, or we're a bunch of individuals who happen to live within these borders and are mainly on their own.

This has been the basic choice all along - when the Founding Fathers wrote the Constitution, in the Civil War, when we went through World War I and World War II and the Great Depression in between, during the Civil Rights movement and beyond.

The President needs to remind us that as members of the same society we have obligations to one another - that the wealthiest among us must pay their fair share of taxes, that any of us who loses our jobs or homes or gets terribly sick can count on the rest of us, and that we have collective obligations to our elderly, our children, and the rest of the planet.

This is why we have government. And anyone who wants to shut it down or cut it down because they say we can't afford it any longer is plain wrong. We are the richest nation in the world, richer than we've ever been. We can afford to remain a society whose members are in it together.

[Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The Work of Nations, Locked in the

Cabinet, Supercapitalism, and his most recent book, Aftershock. His "Marketplace" commentaries can be found on publicradio.com and iTunes. ]

Ryan plan to slash Medicaid will cost the economy nearly two

million private sector jobs

by Ethan Pollack

Economic Policy Institute (EPI)

April 6, 2011

http://www.epi.org/analysis_and_opinion/entry/ryan_plan_to_slash_medicaid_will_cost_the_economy_nearly_two_million_privat/

Currently, Medicaid provides comprehensive health coverage

to the elderly, disabled, children, and low-income

adults.[1] The cost of providing health care coverage is

split between the federal government and the states. House

Budget Committee Chairman Paul Ryan (R.-Wisc.) released a

budget resolution this week that would "block grant"

Medicaid, meaning that it would give states a fixed amount

of money rather than provide a fixed share of the total

costs. Because these grants would grow more slowly than the

expected inflation rate for health care costs, this proposal

would have the federal government shift an increasing amount

of the coverage costs onto states, who will be in turn

forced to cut health benefits and other services, cut public

investments such as education and transportation, or raise

taxes.

Assuming states responded by cutting Medicaid benefits, this

plan would certainly inflict enormous hardship on the most

vulnerable populations in society by depriving them of

access to basic health care.[2] But it would also have a

significant jobs impact.

Over the next five years (during which time CBO projects

that the economy will still be below potential), Chairman

Ryan's Medicaid proposal would cut the program by $207

billion, which includes both eliminating the Medicaid

expansion under the Affordable Care Act and even deeper cuts

to the Medicaid program. Using a standard macroeconomic

model that is consistent with private- and public-sector

forecasters, we find that a $207 billion cut would result in

a loss of 2.1 million jobs over the next five years, or 2.9

million full-time equivalent jobs.[3] These figures are in

job-years, which refer to a job held for a single year,

meaning that five jobs lost in a single year is the

equivalent to one job lost over five years.

Furthermore, the job loss would overwhelmingly be in the

private economy. Medicaid has very low overhead, as about

96% of the program's funds go toward benefits which are

spent in the private sector. Assuming the 96% ratio is

relatively constant across states (or at least not

systematically biased in one direction), Medicaid cuts of

this magnitude would result in the loss of just under 2

million private-sector jobs, or 2.8 million full-time

equivalent jobs.

This estimate is conservative for two reasons. First,

because Medicaid is a program that generally benefits low-

income households-who out of necessity are much more likely

to consume rather than save-a larger-than-normal share of

these cuts will undermine demand in the private sector.

This suggests that the cut to Medicaid would have an even

larger impact on the economy than we estimate here. Second,

it is likely that an even larger share of the job loss would

fall on the private sector because overhead includes not

only labor but equipment and supplies as well, which are

provided by private companies.

The economy still reels from the largest recession since the

Great Depression. Over 24 million workers are either

unemployed or underemployed-nearly double the 2007 level. In

terms of simple joblessness, we are 11.1 million jobs short

of pre-recession unemployment levels after factoring in

population growth. Getting back to those levels in three

years would require that the economy add 400,000 each month-

almost twice the amount added last month-for the next 36

months straight. Congress should act now to create jobs, not

drive the economy even further into a ditch by slashing

basic health care access to children, the elderly, and the

disabled.

Sources:

[1] In order to be consistent with Chairman Ryan's budget

resolution, this analysis considers SCHIP to be part of

Medicaid.

[2] This is not an altogether unreasonable assumption-after

all, if national Republicans have found that the politically

easiest savings are by cutting health care for the poor,

elderly, and disabled, it is quite possible that state

Republicans (who control a disproportionate amount of state

houses) might come to the same conclusion.

[3] In this analysis, we employ CBO's assumptions of a 1.5

fiscal multiplier for direct government spending and that a

1% drop in GDP corresponds to a 1.2 million job loss.

[Ethan Pollack joined the Economic Policy Institute in July

2008. Prior to joining EPI, he worked at the Office of

Management and Budget and the George Washington Institute of

Public Policy. Recently, he also worked as a Staff Economist

for President Obama's National Commission on Fiscal

Responsibility and Reform. His areas of research include

budget and tax policy, public investments such as

transportation and energy, and macroeconomics. His work has

been used in numerous publications, and he has appeared as a

guest on CNN, Fox News, BBC World News, Canada TV, Russia

Today, and WNYC.]

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