Economy

Failed Economic Theory Basis For Budget Cuts

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The blame for the unnecessary federal budget cuts that start to go into effect today in Oklahoma and elsewhere in the country is not an issue of political partisanship so much as the embrace of an ill-advised economic theory.

That theory, which has prevailed and failed in much of Europe during the Great Recession, is that austerity measures—primarily cuts in government programs because of deficits—will boost economies by creating more business investment because of, as New York Times columnist Paul Krugman sarcastically puts it, the myth of the “confidence fairy.”

But austerity, demanded in Europe by somewhat methodical German political and economic leaders, has been an abject failure in countries such as Ireland and Greece. What those countries have needed, in fact, is stimulus money to get people back to work. Creating misery for a generation of people only deepens the crisis and, in the end, is an immoral and unethical response to human suffering. The triumph of neoliberalism doesn’t mean it’s right, only that it has become normalized.

Here in the U.S., it’s not just the Republicans who have been obsessed with the deficit. President Barack Obama has repeatedly mentioned the deficit as a major problem when it just isn’t the case. Consequently, our national political leaders agreed in 2011 to major, across-the-board budget cuts to go into effect later. The idea was that the threat of the looming cuts would spur action on fiscal compromise and, of course, more careful and surgical budget cuts.

But that compromise hasn't happened, and now the cuts are here. Again, the entire idea of the cuts is based on the fallacious argument that the federal budget deficit is holding back the economy in some manner or that deficits or loans are themselves intrinsically bad. Not one iota of real evidence has been presented to support this view, yet it has become, even among many Democrats, prevailing wisdom. Interest rates remain low. Foreign investment remains strong. What the U.S. economy actually needs is even more government stimulus to reduce unemployment. When people ready and able to work can’t find a job, government needs to create employment, not fire people and create more suffering.

Obama wants tax hikes to help tackle the deficit, which makes sense in terms of the country’s tax code and growing income inequality, but entrenched Republicans are adamantly against it, so we argue about this classic dichotomy—tax or cut—when the real issue is both sides are embracing a false idea. Unemployment is hurting the economy, not the deficit.

In Oklahoma this year, the budget cuts will mean the loss of $4.9 million in federal funding for schools and the loss of 70 teacher and teacher aide jobs. Another 90 teachers and support personnel who serve disabled students will lose their jobs. Approximately 800 children will lose access to Head Start, an educational program that serves low-income families.

Army bases in Oklahoma will lose $48 million in funding; Air Force bases will lose $20 million. It’s estimated that 24,000 Department of Defense employees here will be furloughed. That’s a lot of people, and the furloughs are almost sure to hurt the state’s economy.

That’s just a partial list. The impact on the national level, such as the furloughs of air traffic controllers, could create major travel delays.

It would be one thing if these cuts were driven by real expediency, but the fact we’re cutting education and laying off people for a failed economic theory and a conservative ideology embraced by Republicans and even many Democrats make them simply intolerable.

Firing people for no good reason should be called out for what it is: An immoral act that will increase needless suffering.

Federal Programs Underpin State Success

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The official mantra from many Oklahoma Republican and corporate leaders over the last two years or so is that the state is a national “success story” for the way in which it has weathered the 2008 economic downturn.

Another trope that has surfaced these past two or three years is based on the idea that Oklahoma has much to teach Washington, D.C. and President Barack Obama about the way to operate a government.

This, for example, is what Mary Fallin had to say about that issue in her last State of the State speech:

People all across the country are noticing: Oklahoma stands as a testament to the fact that low taxes, limited government, and fiscal discipline are a recipe for job creation.

Our success stands in stark contrast to the record of dysfunction, failed policies, and outrageous spending that occurs in Washington, D.C.

In Oklahoma, we could teach Washington a lesson or two about fiscal policy and the size and proper role of government.

But while it’s true that the state’s unemployment rate remains low—even despite a small rise in July—Oklahoma is hardly an economic miracle or a textbook example of what to do or not to when times get tough. There also remain major problems and the state has hardly recovered from the 2008 downturn.

Let’s outline some of those problems, and see how the federal government in some cases has helped Oklahoma through the largest economic downturn since the Great Depression.

  • Unemployment. There is no argument that Oklahoma has one of the lowest unemployment rates in the country, but, still, the rate rose from 4.7 percent in June to 4.9 percent. Compared to the national rate, which has hovered above 8 percent, this is still pretty good in a relative sense. However, the increase in July does mean 2,860 more people are without jobs, according to Business Week. And let’s not forget the federal government has offered benefit extensions throughout the crisis, helping states cope with the long-term unemployed.

  • Tax Revenues. Oklahoma’s July tax revenues only rose by 1.6 percent over last year, and overall they “have yet to fully recover from the collapse that accompanied the last economic downturn,” according to David Blatt, director of the Oklahoma Policy Institute. Blatt points out that July revenues were 15 percent below what they were four years ago. That 15 percent is a huge number, and the overall decrease in tax revenues has meant devastating cuts in state government and education. Teachers have lost their jobs and educational positions have been eliminated in school districts throughout the state. It could have been worse, though. Fortunately, the federal government’s American Recovery and Reinvestment Act helped Oklahoma prevent even more cuts to its budget.

  • Supplemental Nutrition Assistance Program or SNAP. SNAP benefits, formerly known as food stamps, have increased dramatically in Oklahoma during the economic crisis. SNAP is funded completely by the federal government. The numbers are staggering. Last year, the Tulsa World reported that 622,991 people were receiving assistance. At that time, and this is truly a telling number, 30 percent of the state’s children were getting at least some food through SNAP. Fortunately, this federal program probably helped to save lives and develop healthier children in Oklahoma.

  • Doctor Shortage. KOSU, part of the National Public Radio network in Stillwater, ran an insightful piece by Ben Allen recently that showed the state faces a major doctor shortage. Allen reported the state needs two thousand more primary care physicians just to reach the national average. If the Affordable Care Act remains intact, “hundreds of thousands in the state could gain insurance coverage,” according to Allen. The solution remains unclear. What is clear is that state Republican leaders are dragging their feet on what could become a serious issue as they wait for the results of the 2012 presidential election. Oklahoma stands to gain in a big way with the ACA in terms of medical access and outcomes, yet another federal initiative.

  • Wildfires, Drought. More than 600 homes were destroyed in the recent devastating wildfires in Oklahoma, and the extended drought continues to take its toll on the state’s agricultural production. The federal government will pay 75 percent of the firefighting costs for the recent fires, and Fallin has requested additional federal disaster assistance. Fortunately for Oklahoma, President Obama recently announced the federal government was going to provide $30 million more in drought assistance throughout the country.

This is just a partial list of why Oklahoma might not be the type of ‘success story” that Fallin wants it to be, and it also shows the federal government’s involvement in whatever success we do have here is readily apparent to anyone who can get beyond the conservative sloganeering and political tropes.

As I pointed out in my last post, Oklahoma continues to receive more money back from the federal government than it pays in federal taxes, according to 2010 statistics. That means people who live in “donor states,” such as Massachusetts, continue to bankroll whatever success that we do have here. There’s nothing necessarily wrong with that on some level, although some donor-state residents no doubt see it much differently. But this much is clear: Oklahoma is highly dependent on the federal government.

Wealth Disparity and Drug Tests For The Poor

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What’s one focus of GOP state legislators throughout the county, including here in Oklahoma, as a new U.S. Congressional Budget Office report released last week outlined massive wealth disparity between the nation’s richest residents and everyone else?

That GOP focus is to drug test welfare recipients and deny them benefits.

Now that’s the essence of “class warfare,” a term Republicans like to use in an attempt to demonize anyone who thinks the wealthy should pay more in taxes or the government should do more to create job and educational opportunities.

The CBO reported last week that the top 1 percent of the wealthiest Americans doubled their incomes over the last three decades. According to an article in the New York Times:

In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

Note the “275 percent” number. That type of massive shift in wealth is simply not sustainable. What if the trend holds for another three decades? How could democracy even exist in such an environment?

Of course, the wealth disparity issue is not a revelation. Economists have been pointing out the shift in wealth and how lower taxes on the wealthy have contributed to budget deficits for years, but the CBO is a neutral organization and the report carries more weight than a report issued by a think tank.

The report validates one of the main arguments of the Occupy Wall Street demonstrations, which is that 99 percent of Americans are facing varying forms of economic injustice.

Meanwhile, a federal judge has blocked a Florida law that requires anyone applying for welfare benefits to be drug tested on the basis that it violates the unreasonable search and seizure clause in the U.S. Constitution. Under the law, if those people applying for assistance test positive for drugs, they are denied benefits. The law was championed by Republican Gov. Rick Scott. A similar Michigan law was also blocked a few years ago.

It’s doubtful lawmakers from states like Oklahoma, Kentucky, Alabama and Louisiana will drop their plans to pass similar laws given the Florida decision. An earlier Time Magazine article pointed out:

Mandatory drug testing for welfare applicants is becoming a popular idea across the U.S. Many states — including Alabama, Kentucky, Oklahoma and Louisiana — are considering adopting laws like Florida’s. At the federal level, Senator David Vitter, a Louisiana Republican, has introduced the Drug Free Families Act of 2011, which would require all 50 states to drug-test welfare applicants.

The idea of drug testing welfare recipients is just the perpetuation of the “welfare queen” myth once used by former President Ronald Reagan in a presidential campaign. Studies and statistics just don’t bear out that welfare recipients commonly use government money to purchase illegal drugs. There isn’t a problem, and the Florida law, before it was blocked, didn’t save the state much money.

In Oklahoma, two state representatives have said they plan to push for a drug-testing law here next legislative session.

The discrepancy between GOP silence and inaction on growing wealthy disparity, which is steadily damaging and failing our country, and its push to deny even meager assistance to the country’s poorest citizens, is the type of real class warfare being waged in this country right now by those who do the bidding of oligarchs.

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