6 Republican Economic Myths Obama and Dems Must Stop Repeating
President Obama pulled off a surprisingly strong reelection victory on Nov. 6—holding Romney to a remarkably appropriate 47 percent – by standing up for fairer taxation and a set of programs to assist the vast majority of Americans.
But prior to Obama switching into campaign mode, the president and leading Democrats adopted the Republican framing of issues again and again, and thus made the task of sustaining the economic recovery and spreading its benefits much more difficult. The counter-factual Republican positions were shored up, while the Democratic base was often left disoriented and demoralized as their leaders echoed the talking points of the Republicans and the CEOs.
Let me put it more bluntly: without exaggerating, the president and Democratic spokesmen at times literally repeated key Republicans lies about the seriousness of the federal deficit, the steps necessary for a full economic recovery, taxes and jobs, and how to bring broadly shared prosperity back to an America increasingly split by Third World-level inequality.
Let’s examine some of the most important Republican lies, look at how the Democrats repeated them and explore the reality that America faces.
1. Spending Cuts Spur Growth
The Republicans have repeatedly argued that the federal government's strategy in a recession should be no different than that of a family strapped for cash: avoiding any unnecessary outlays (except for tax cuts for the richest 2 percent) and getting out of debt as rapidly as possible. The successful Keynesian strategy of public spending to stimulate the private economy-- employed by FDR to relieve the Great Depression -- is a gigantic historical truth that is denied by House Budget Chair Paul Ryan (R-Wis.) and his like-minded colleagues.
Instead, the Republicans have fallen back upon a simplistic and false formula of "spend less, owe less, grow more.” Rep. Jeb Hensarling, R-Texas outlined the prevailing GOP attitude when he claimed that, “Deficit reduction is part of job creation.” In short, cutting stimulative government spending and reducing public employment somehow contributes to economic growth despite the resultant weakening of already feeble consumer demand.
But if the Republicans’ all-season, all-purpose economic strategy of tax cuts and their denial of Keynesian historic successes remain mystifying to outsiders, equally strange has been many Democrats’ eagerness to repeat the Republican lie that cuts in government spending somehow lead to economic health. This myth has been propped up by numerous Democrats and helps to shift the current “fiscal-cliff” budget to the Republicans’ advantage.
One of the worst moments occurred during President Obama’s 2010 State of the Union address, when he promoted a ludicrously false analogy between families’ budgets and the federal government's. Obama’s statement was perilously close to a direct re-statement of the Republicans denial of reality.
“Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs,” the president declared.
With statements like these, Obama and the Democrats contributed mightily to making the task of winning adequate stimulus measures much more difficult. As New York Times columnist Nicholas Kristof observed in 2010, “For all their flaws, Congressional Republicans have been stunningly successful in framing the national debate. Instead of discussing a jobs program to deal with the worst downturn in 70 years, we’re debating spending cuts.”
2. Only Private-Sector Job Growth Matters
The Republicans have incessantly portrayed government employment as a counterproductive drain on the private economy, siphoning away tax dollars, consumer spending power and entrepreneurial vigor from the private sector and the real economy. The notion that the private sector could function entirely without public sector workers to plow the roads, maintain the highways, protect the public health, assure public safety through police and fire protection, and educate future workers lies just beneath the surface of remarks by leading Republican figures.
But much of President Obama first term was marked by his unwillingness to assert the importance of public sector jobs in the economy. He has even failed to point out that increasing public employment was properly used during recent Republican administrations as eminently sensible responses to economic downturns. As Ezra Klein of the Washington Post pointed out June 13, “Government employment grew under all those Republican presidents. Not only did we not lay off public workers, we hired more of them, a lot more. That helped prevent bad recessions from turning into horrible ones.”
However, each month during an economic recovery that still remains less than robust, President Obama hails the vigor of “private-sector sector job” growth, while scrupulously avoiding comment on how public-sector cutbacks have been slowing down the recovery. President Obama and leading Democrats have been remarkably quiet about major cuts in public-sector jobs which have undermined the strength of the recovery. America’s public sector has lost an estimated 695,000 local, state and federal jobs over the past two years.
With Obama and many leading Democrats almost entirely silent on the impact of public job losses, it was left to Mark Zandi, former economic adviser to John McCain’s campaign and chief analyst of Moody Analytics, to note, “The job losses at state and local governments is the most serious weight on the job market.”
Moreover, the president has failed to honestly discuss the alarming decline in the quality of jobs in the private sector. Since the official end of the Great Recession, almost 60 percent of jobs created since the end of the recession pay less than $13.83 an hour. This trend toward low-wage jobs intensifies economic inequality in America: in 2010, fully 93 percent of all income gains were siphoned up by only the richest 1 percent of Americans.
3. Public Employees Are a Problem
The Republicans’ hostility to public employees has become literally world famous, highlighted by Wisconsin Gov. Scott Walker’s attempt to extinguish long-standing rights to union representation for almost all public employees (legislation was passed through devious means, but much of it is now tied up in court) and Ohio Gov. John Kasich’s even more sweeping bill (overturned by 61 percent of the state’s voters in November 2011).
Walker cast public employees as privileged haves exploiting the have-nots of the general public, diverting public attention away from a tax structure that allows 62 percent of Wisconsin corporations with $100 million or more in revenues to pay no state income taxes.
Instead, Walker sought to rivet resentment over rising inequality on the backs of teachers, nurses and other public workers by blaming them for a modest budget shortfall caused in large part by new corporate tax breaks granted by Walker.
President Obama, despite having promised to walk the picket lines when labor rights were attacked, refused even to challenge the assumptions behind Walker’s strategy to justify the extermination of public sector unions.
In fact, Obama spokesman Jay Carney argued that any alleged fiscal crisis justifies stringent budget measures by state officials. Such purported crises also signaled the need for sacrifices by public employees: “Obviously a lot of states in the union are dealing with fiscal issues, big problems in their state budgets… they need to act responsibly, tighten their belts, live within their means just as we in Washington, the executive branch, congress, need to do with our federal situation.”
But this White House position obscured the reality in Wisconsin, to Walker’s advantage. In fact, the major unions had agreed to the financial concessions demanded by Walker in exchange for workers retaining their right to union representation—an offer Walker flatly refused.
4. Education and Training Restore Family-Supporting Wages to Dislocated Workers
Corporate decisions have resulted in minimal job creation in the US over the last decade or so, especially when compared with their expansion overseas. From 1999 to 2009, US firms increased employment by less than 1 percent, in stunning contrast to increases between 20 and 38 percent for every other decade since 1940. Further, between 2000 and 2010, major US corporations increased their overseas workforce by 2.4 million jobs, even as they vaporized 2.9 million jobs in America, as the Wall Street Journal reported.
In this context, leading Republicans are eager to champion worker retraining as the most important government response to the “inevitable” dislocations caused by the relocation of work to low-wage nations. This approach steers the public discourse clear of questioning their corporate sponsors’ decisions to abandon US workers and communities in favor of low-wage workers toiling in societies where labor rights are crushed.
Instead, the retraining “solution” focuses the spotlight on helping US workers to adjust to the consequences of corporate choices that remain unchallenged.
This view also plays on the faith that the American economy is constantly engaged in a re-invigorating process of “creative destruction.” Some outdated jobs may be wiped out, but they will inevitably be replaced by a plentiful supply of work in innovative new industries
So Mitt Romney, for example, argued that federal money must, “go to the workers so they can create their own pathways to get in the training they need for jobs that will really help them.”
But the message from Obama and other key Democratic leaders about retraining and adjustment was little different from Romney’s, whose own firm Bain Capital was called a “pioneer” in offshoring jobs to China. Federal assistance with retraining has emerged as a bipartisan consolation prize for the US workers victimized by offshoring, but it is a largely empty gift.
When displaced workers successfully complete retraining programs, they are generally unable to find jobs comparable in pay and benefits to the ones they lost. "Out of a hundred laid-off workers," says New York Times economics writer Louis Uchitelle in his book The Disposable American: Layoffs and Their Consequences, "27 are making their old salary again, or more, and 73 are making less, or not working at all."
Despite the overwhelming evidence from Uchitelle and others that job creation is essential before retraining can become useful, “Retraining has emerged as a mantra for the Obama White House,” noted ProPublica’s Amy Goldstein.
Urbanologist Prof. Marc Levine of the University of Wisconsin–Milwaukee’s Center for Economic Development scoffs at this single-minded focus on training. “It’s not a skills shortage, it’s a shortage of private-sector job creation,” he said.
But the retraining-as-solution narrative, which shields CEOs from criticism over that “shortage of private-sector job creation,” is one that Obama has unceasingly promoted.
5. The “Skills Gap”
Corporate executives across the US have faced criticism for their lack of hiring while sitting atop a record $5.13 trillion in savings, according to IRS figures unearthed by Reuters’ David Cay Johnston. But in recent months they have reframed the debate by conducting a national publicity campaign alleging a major “skills shortage” that is blocking their ability to create more jobs in the US. They insist that a lack of skills in America’s workforce impairs their ability to fill existing job openings.
Kurt Bauer, a Wisconsin Manufacturers and Commerce leader, complained, "We have high unemployment, yet companies can't find the skilled help they need."
But President Obama has also actively echoed the alarm about the supposed “skills shortage.”
“Throughout the campaign, President Obama lamented the so-called ‘skills gap’ and referenced a study claiming that nearly 80 percent of manufacturers have jobs they can’t fill,” reported the New York Times’ Adam Davidson. “Mitt Romney made similar claims. The National Association of Manufacturers estimates that there are roughly 600,000 jobs available for whoever has the right set of advanced skills.”
According to this view, the primary problem with the economy is not that US corporations are failing to create enough jobs or are moving them overseas, but that American workers are unable to take advantage of rapidly expanding opportunities. In his 2012 State of the Union speech, Obama called attention to this problem, saying, “I also hear from many business leaders who want to hire in the United States but can't find workers with the right skills.”
But even when the right skills are present, big corporations will opt for plentiful cheap labor offered under brutal conditions in Mexico and China. For example, Milwaukee, once known as the “machine tool capital of the world” for its highly skilled workforce, has lost fully 80 percent of its industrial jobs since 1977, according to Marc Levine.
Today’s generation of workers also discover that opportunities to acquire skills have dried up and that skilled manufacturing jobs are paying far less than in the recent past. According to professor emeritus Frank Emspak of the University of Wisconsin's School for Workers, “Training programs have been eliminated by major corporations. Trade schools and apprenticeships are being abolished."
Calling this situation a “skills shortage” badly mischaracterizes the situation, according to a conclusion reached in a study by the Boston Consulting Group: “’Trying to hire high-skilled workers at rock-bottom rates is not a skills gap.”
6. American Corporate Taxes Are Among the Highest in the World
This is a familiar complaint of CEOs and Republican politicians, but it happens to be utterly false.
So why has President Obama repeated this falsehood so often?
Obama claimed at a Milwaukee event that when "companies that are doing the right thing and choosing to stay here, they get hit with one of the highest tax rates in the world. That doesn’t make sense."
But Obama’s claim of high corporate taxes also fails to make sense. On paper, the official US corporate tax rate is 35 percent, but very few corporations pay anywhere near that rate. In practice, effective corporate tax rates for U.S. firms are actually among the lowest in the 30 advanced nations belonging to the Organization of Economic Cooperation and Development (OECD). The Bush Treasury Department found that between 2000 and 2005 U.S. corporations paid only 13.4 percent of their profits in corporate income taxes, well below the OECD average of 16.1 percent.
Another indicator of the real situation: “Corporations paid on average 47.4 percent of their profits in federal taxes in 1961; in 2011 the percentage fell to 11.1 percent,” Robert W. McChesney reported recently in Monthly Review.
Obama’s habit of repeating this lie is not only perplexing, but dangerous. To have a Democratic president reiterate a crucial corporate/Republican talking point only adds credibility to two ongoing campaigns to radically cut corporate taxes even further.
First, a group of corporations calling itself Win America—including such heavyweights as Apple, Cisco, Google, Microsoft, Oracle, and Pfizer-- has been lobbying for another “tax amnesty” like the one offered in 2004, when corporations were allowed to “repatriate” profits from their foreign subsidiaries, bringing them back to the US at a discounted tax rate of just 5 percent. The tax holiday failed to deliver the promised explosion of investment in America, as corporations mainly chose to buy back their own stock and drive up stock values.
Second, giant US corporations have also been lobbying for the exemption of their foreign subsidiaries from American corporate taxes under what is called a” territorial tax” system. Currently, the Fix the Debt coalition of 95 major firms is using the “fiscal cliff” negotiations as an opportunity to press for a territorial tax system. This huge new exemption would save them $134 billion in taxes, according to a new Institute for Policy Studies analysis.
This pervasive pattern of reiterating the Right’s thoroughly false but politically potent talking points ultimately raises the question of why Obama and the Democrats have failed to effectively develop and promote an alternative economic philosophy and strategy.