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The GOP's Absurd Plan for the Economy: Lowering YOUR Wages

The GOP is embracing some very dangerous voodoo economics.
 
 
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Earlier this month, House Republicans laid out a perverse plan to lower working Americans' wages, supposedly in a bid to get employers to hire more of them ( PDF). One would be hard-pressed to find a better example of the “race to the bottom.”

Republican staffers on the Joint Economic Committee released the study in response to widespread criticism that the deep public sector cuts they've advocated threaten to derail an already anemic “recovery” -- economist Mark Zandi estimated last month that if enacted, the spending cuts would cost the U.S. economy 700,000 jobs through 2012.

So, as Tim Fernholz and Jim Tankersley wrote in the National Journal , the GOP report “makes the party’s ... case that fiscal consolidation (read: spending cuts) can spur immediate economic growth and reduce unemployment.”

The paper calls for cuts that are “large, credible, and politically difficult to reverse once made,” and offers a typical conservative fantasy about shuttering entire federal agencies. But topping the list of what should be on the Republicans' chopping block is “decreasing the number and compensation of government workers,” which the staffers say will spur job creation because “a smaller government workforce increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.”

“Labor costs,” of course mean “wages” – Americans' paychecks. So, a central plank in the GOP's economic recovery plan is to flood the market with yet more unemployed people in order to drive wages (which have stagnated for an extended period) further down.

That's part and parcel with a larger assault on the middle class. Cutting public employees also means laying off workers in a sector with a 38 percent unionization rate, and forcing them to compete against those toiling in corporate America with its 7 percent union density -- last year, more working people belonged to a union in the public sector (7.9 million) than in the private (7.4 million), despite the fact that corporate America employs five times the number of wage-earners.

With state and local budgets hit hard by the economic crash, and the right painting public sector workers as the 21st century-version of Ronald Reagan's mythic welfare queens, this process is already underway. Last year, Fed Reserve Chairmen Ben Bernanke estimated that the public sector had laid off a quarter million workers since 2007. According to a Labor Department report, state and local governments beat every other sector in terms of the number of workers laid off last summer. 30,000 were laid off last month alone, and, as the conservative noted, “the troubles at the state and local levels promise to be a fixture for some time to come.”

The GOP's paper is based on some remarkable voodoo economics. As Fernholz and Tankersley note, their response to critics “is that 'non-Keynesian' effects — increased business and consumer confidence that their taxes won’t rise as a result of government retrenchment—will provide immediate positive results across the economy.” This is based the popular and wholly false conservative meme that “uncertainty” about future taxes and regulations is keeping employers from hiring.

Numerous surveys have found that it is a lack of customers, and not “uncertainty” about future taxes that is leading employers not to hire. It's entirely consistent with a huge drop in demand in our consumer-driven economy following the housing market crash. As economist Dean Baker wrote last month, the recession “reduced consumption through what is known as the “housing wealth effect.”

The housing wealth effect is estimated at five to seven cents on the dollar, meaning that homeowners will on average increase their annual consumption by between five and seven cents for every additional dollar of housing they own. This means that the $8 trillion of housing-bubble wealth implied an increase in annual consumption of between $400 and $560 billion. Now that most of the bubble wealth is lost, so is this consumption.

 
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