Spending Debate A Throwback To New Deal


Extending benefits for the unemployed is usually a no-brainer in Congress. Not this time around.

Democrats pushed for weeks to renew benefits that expired last month. But that bill died on the Senate floor Thursday night. The measure was blocked by a filibuster led by Republicans. They opposed the cost, which would have added $35 billion to the national debt over the next decade.

“What we’re not willing to do is use worthwhile programs as an excuse to burden our children and grandchildren with an even bigger national debt than we’ve already got,” said Senate Republican leader Mitch McConnell of Kentucky.

The Senate’s No. 2 Republican, Jon Kyl, agreed.

“Cutting spending is the whole point,” he said. “You’re trying to cut spending so that you’re not accumulating any more debt.”

For their part, Democrats say it’s starting to seem like 1937 all over again.

That was the year Franklin Delano Roosevelt bowed to pressures to curb deficit spending, a move many say set off the so-called “Roosevelt Recession”.

hmmm…more from the article:

Still, even Democrats are balking at more deficit spending. House Majority Leader Steny Hoyer has spoken of “spending fatigue.” And Sen. Byron Dorgan of North Dakota says he is worried.

“I think everybody understands, and if not, they better understand quickly, the dilemma of this unbelievable growth of deficits or debt for this country,” Dorgan says. “It is unsustainable.”

NPR conveniently left out an important fact about the second dip of the great depression. FDR signed into law two sets of major tax increases.

The Revenue Act of 1936 raised the highest personal income tax rate to 79%. In addition, this law raised the highest corporate tax rate to 15%, including a surtax on undistributed profits up to 27%.

The Revenue Act of 1937 included provisions that placed a 2% (1% paid by the employer) tax on all wages up to $3,000.

I wonder why the facts above were left out?..

Blaming this on the Republicans is so disingenuous. Republicans in congress have zero power to stop anything the Democrats want to do. If some Democrats are now starting to worry that the wild spending is beginning to get a bit unpopular with the populace, that is not the Republicans’ fault.

But it’s interesting to think about the Depression. It always needs to be remembered, when thinking about it, that while for some it was miserable, it was anything but miserable for many; perhaps even for the majority. Some of it had to do with one’s investments. If in the stock market at its highs, you lost. If in U.S. bonds, you gained, BIG. Some of it had to do with one’s employment. If it remained stable, you suddenly had more buying power than ever before. Some of it was just blind luck. If your neighbor’s bank went under, he was in a world of hurt. If yours didn’t, you were wealthier, relatively speaking, than before. If you were a merchant and didn’t owe a lot of money, you simply adjusted to selling fewer cars or radios or washing machines than before, because there were still people who could buy cars and radios and washing machines, and you adjusted your business to that reality. At a point, you simply gave up the notion of expanding and just held onto what was actually there.

People who hired and invested didn’t stop hiring and investing entirely; just a lot less than before, and they invested differently. In some ways, Roosevelt had it all wrong. It wasn’t “fear” that stifled spending, hiring and investment. Given the circumstances, it was more like “prudence”.

But it was a stability of a sort; just at a higher unemployment rate than before, at a lower production rate than before, and with a segment of the population in abject misery, but with a majority of the population which simply adapted. One has to wonder whether, the longer this goes on, the more likely it is to reach a “stable state” that may prove extremely difficult to change. The more people adapt to a lower level of economic activity, and a greater level of government appropriation of wealth, the more difficult it is to change their patterns of behavior.

Right now, as I have said before, small business, which hires most people, just won’t invest in capital improvements, new machinery or new workers. Talk to those people and you’ll learn that they know this government is not friendly toward them. It appears this government is determined to tax them more, make their health insurance costs go up, make their energy costs go up, their cost of compliance with regulations go up, their cost of borrowing go up. What businessman, for example, has any idea how his cost of borrowing is going to be affected by the latest 2,000 page “financial reform” bill, so opaque that its sponsors admitted they don’t know what effect it will have. Add that to the likely inflationary effect of massive government borrowing and spending, and nobody can possibly assess his likely borrowing costs a few years from now.

You can call it “fear”, and that would be close to the truth. But it might be more accurate to call it “prudence”, or even “adaptation”. If, as a business person, you have no idea where your costs are headed, but you know they’re going to increase, it is simply prudent to focus on paying down your debt and cutting what costs you can cut. That’s exactly what small business is doing. It is prudent not to take chances you would perhaps take under a less erratic government.

This government may well put us into a 10-year economic slump. It seems bound and determined to do it or, minimally, oblivious of the fact that its policies seem to be setting a pretty firm foundation for it. It will be different, of course. No economic downturn is exactly like another.

But I genuinely believe that if this government was not so determined to spend money it doesn’t have, increase taxes, make costs of every kind go up and make people wonder from week to week just what strange and at least initially incomprehensible thing it is going to do next, we would already be out of this recession. But as I said, the longer it goes on, the more likely adapatations are going to be made that will be extremely difficult to reverse. One is tempted to think this government actually wants that. It is more comforting, of course, to think of it as simply foolish.

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