It’s no big secret that Republicans seem to take great pleasure out of screwing poor people in this country. They usually manage to justify it economically, arguing something along the lines of “personal responsibility” and saying that helping the poor will be an economic burden on everyone else. The Republican ideal is, supposedly, a strong economy. It’s interesting, then, to be in a situation where a market crisis threatens everyone’s financial security, and the most effective provisions in the stimulus package give some aid to lower-income people — and Republicans oppose those provisions because aiding low-income people would be contrary to GOP values:
Changes reportedly made last night in the stimulus package would reduce its effectiveness as stimulus. Although the package includes a reasonably designed tax rebate, the two most targeted and economically effective measures under consideration — a temporary extension of unemployment benefits and a temporary boost in food stamp benefits — were zeroed out, apparently at the insistence of House Republican leaders.
The two respected institutions that have rated stimulus options in recent days — the Congressional Budget Office and Moody’s Economy.com — both give their two highest ratings for effectiveness as stimulus to the two measures that were dropped.
One point of contention, it seems, is that House Republicans want to focus on business tax cuts and tax rebate checks. But tax rebate checks wouldn’t be sent out until June, and business tax cuts won’t do a whole lot of good if consumers have significantly less spending power. Food stamps and unemployment insurance, on the other hand, would inject greater consumer spending power into the economy now, and we could see improvement in a month or two. Instead, the plan is to provide $50 billion dollars in business tax cuts, while excluding unemployment insurance and food stamps.
But it’s not just a matter of different values; it’s an issue of cold, hard cash and economic gain:
Economy.com found that for each dollar spent on extended UI benefits, $1.64 in increased economic activity would be generated. For each dollar in increased food stamp benefits, $1.73 in new economic activity would be generated. No other options rated as high.
In contrast, Economy.com found that for each dollar in “accelerated depreciation” — the main business tax cut in the package — only 27 cents of increased economic activity would be generated. CBO and a Federal Reserve study in 2006 found that the business tax cuts adopted in the last recession, which closely resemble those in the current package, had only modest stimulative effects.
I’m no economist, but this all seems pretty basic to me. The article continues:
The package does contain reasonably designed tax rebates. The rebate component is vastly superior to the rebate proposal that the Administration developed last week, under which more than 25 million low- and moderate-income working families would have been shut out. Most of those families would get a substantial rebate under the new package.
(Even so, the rebates will not be fully as effective as stimulus as they could have been, since the rebates for working-poor families will apparently be smaller than those for middle- and upper-middle-income families. Since the working poor are the people who will spend — rather than save — the largest share of their rebate dollars, the optimal design would be one under which working-poor families do not receive smaller rebates than people at higher income levels do.)
In the bipartisan negotiations over the stimulus package, an appropriate trade would have been to include the sizable (but not especially effective) business tax cuts in return for a rebate that extended to the working poor, but not to drop the unemployment insurance and food stamp provisions. It is unfortunate that those two provisions — the most targeted and effective measures under consideration — were removed, and that states facing deficits will be driven deeper into deficit and thus have to cut services or raise taxes more, rather than being provided some fiscal relief.
I think it’s pretty clear at this point that the current political establishment isn’t exactly made out of economic geniuses, and that they hardly adhere to the supposed Republican value of fiscal conservatism. But one would think that if the most effective economic measures involved helping the poor, they’d do it. And it’s not as if House Republicans are being asked to support low-income people at the expense of big businesses or taxpayers;* they’re being asked to effectively stimulate the economy, end of story. I know I shouldn’t be surprised, but I am a little taken aback at their deeply-rooted ideological hatred for the poor, and how far they’re willing to take it. Barbara Ehrenreich has more about stimulating the economy with clitoral economics.
Thanks to Kyle for the link.
*Not that it’s acceptable to refuse to help lower-income people if it makes a tiny dent in business revenue, but I’m trying to think in conservative terms here.
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The last time the government sent out these rebate checks, back in 2001, I sent mine back to my then-Senator Zell Miller, telling him I didn’t want the money and asking him to forward it along to whichever agency of the government handles deficit reduction.
Having just about slipped into full Senile Douchebag Mode by then, Sen. Miller sent it back to me, saying it wasn’t his money and he therefore had no right to do anything with it. (Of course, a few days later, 9/11 happened and I sent all the money to the Red Cross, but that’s neither here nor there.)
Seven years later, we still have this idea that we can solve economic downturns by throwing money at people like a seventh-grader trying to win the race for class president by bribing all his classmates with lollipops. When is someone going to have the guts to stand up and say just how stupid this is?
This is all politics, not economics. A truly sound economic policy would never be politically viable give the current political balances of power (nor any conceivable balance of power in the near future).
Transferring money to low-income people, while perhaps desirable if one is concerned about distributional concerns, is not a very effective means of stimulating the economy. Low income people do not have a lot of spending power, so the bulk of their spending goes towards basic necessities which would have been purchased anyway. Government handouts like food stamps can just lead to inflation in food prices since the demand curve shifts and food supply is relatively inelastic in the short term.
The best way to help the economy, and poor people, in the long term is to get rid of measures which were enacted for the benefit of interest groups, like the minimum wage (which benefits unions by decreasing supply for low-wage labor), and the huge subsidies we give to domestic producers, particularly farmers. When you get rid of subsidies, inefficient local producers are removed, and the difference goes to consumers in the form of lower prices and more people being able to afford any given good.
Thank you, Jill, for writing this post. I’ve been muttering about the dropped UE and food stamps benefits ever since I first read about the close-to-finalized deal. What a wasted opportunity, and you’re totally right — it’s not about economics anymore, but about shitting on the poor, because that’s the GOP (and, sadly, increasingly, the American) way. It’s like common sense doesn’t even factor into it anymore. If you’re down on your luck, you’re the anti-Christ, and you deserve no help, even if it means the well-off cutting off their noses to spite their faces.
Awesome point, Doug.
Democracy Now! yesterday had Robert Kuttner from American Prospect magazine talking about the recession. One of his points was that even talking about a “stimulus package” which is 1% of GDP, at this stage, is ridiculous. What is needed is an Economic Recovery Package. The recovery package would address the deep, systemic problems that nearly 50 years of a “perfect storm” (to turn a smarmy mass-media phrase somewhat sarcastically) of deregulation, corporate welfare and government abetted larceny, and the massive sell-off of publicly held infrastructure has wrought. The last 6-7 years have been particularly devastating with the criminal-in-chief and his henchmen (Rice notwithstanding) accelerating not even bothering to cover-up their crimes.
The Democrats offer no alternative to this sorry situation. Take the various and sundry aspects of deregulation, perhaps the most debilitating to maintaining a sustainable economy, that was started in earnest with Nixon. It really picked up some steam under Carter (oil, trucking, broadcasting) and, of course, the attendant disasters of Savings & Loan and recession of the late 80’s after the massive Reagan deregulation hurricane.
I guess my point is that only a third party composed of regular folks like us and not the slovenly, ignorant, unethical ultra-wealthy can get us back to anything like the right track.
The Oil Wars are coming. Are you ready?
Economist –
I’m afraid your economic knowledge is insufficient. Particularly with respect to the minimum wage. The minimum wage in some instances supports increased salaries for high wage labor, and higher unemployment for low income labor – but not in all instances. The outcome is highly dependent on the facts and circumstances of the economy involved, the structure of the labor market, etc. As a graduate student in economics I spent a good deal of time studying minimum wage laws and their impact on various economies. Sometimes real world research is more valuable than the safe models we create.
Further, this makes no sense. Lower income people spend a larger percentage of their income (because they have to in order to purchase the same basket of necessities that the rest of us purchase). How does this imply that they do not as a group have purchasing power? Additionally, how do you infer that they would have purchased those necessities anyway? Without income they are unable to buy those items. Finally, government “handouts” as you put it are a key component to the growth of an industrialized economy. They increase the mobility of labor, increase the education levels of the population, and provide a type of micro finance insurance.
I know it goes against everything you’ve ever been taught by your neoclassical professors, but look sometime at the work of the industrial economists down the street. They have some well considered opinions that may interest you.
I am really disappointed in Pelosi and the Dems, yet again. Last I heard, they had a majority in Congress and can pass anything they damn well please. So why exactly did the food stamps and Unemployment measures get removed again? Sure, if it got past the Senate, Bush would have vetoed it, but they could then at least have said they did their job (and could point to Bush and the Repubs for not signing/hating the regular folk).
I agree that we need a third party of regular, working people to shake things up a bit, but I don’t think anything meaningful will actually change unless we get up off our collective asses and so something about it. And that means more than just voting for whoever is the least evil of a bunch of really evil politicians who are all beholden to corporate interests and profits. At the least it’s going to take massive organizing and demonstrations to remind those bastards they are supposed to work for us, and at this point, I’m not convinced that anything less than full out revolution will do that.
Actually, they can’t. You need 60 votes to overcome a filibuster, and the Democrats have 49. The way the game is currently played in the Senate is that the Democrats propose a bill, the Republicans inform the Majority Leader that they object to it and would filibuster, and the matter is dropped.
Because, of course, everything has to stay all nice and clean and polite in the Senate, and it would never do to make the Republicans actually stand up and voice their objections to children’s health care or mortgage reform. No, better to let them torpedo things behind the scenes than to cause a stir.
This story is only one example, but all you have to do is Google “Republican block bill” to get a dozen more.
That was exactly my point, Mnem. They don’t do filibusters in the House, only in the Senate. And it isn’t like I expected anything even remotely progressive to actually get past the Senate, but the House is the place where noise is supposed to be made. And that’s why I’m disappointed, yet again, by Pelosi and Co. They’re just too damn chickenshit to make some noise and let it be known exactly what the Republican minority is up to.
Thank you to Kristen for taking the so-called ‘Economist’ to task: he/she/it can take their neocon bullshit and troll it elsewhere…the ‘economics’ taught by the professors, as you so aptly pointed out, is nothing more than a system for funneling money to the rich at the expense of the poor. It is a sham.
Mnemosyne thanks for clearing up the confusion about the Democratic ‘majority.’ While the party is certainly in a better position now than it was, it is a far cry from an unchallengable majority, especially taking over for a Republican house actually found to be the most uncooperative ever blocking more legislation than any congress in history (if you call me on it folks i’ll track the source down for you all). The other problem is that while the Democratic party is better than the Republican party (by far), both parties ultimately represent upper class economic interests, and neither is interested in disrupting the status quo to promote true economic justice in this country.
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