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Republicans and Economics: Reputation for Expertise, Track Record for Cluelessness

October 23rd, 2011

A few weeks ago, I posted a stump speech I felt Obama should be making. In it, I pointed out that while Obama is trying to push a modest jobs plan, Republicans are blocking it. I also claimed that Republicans have no jobs plan of their own. They would deny this, of course; they have pitched a plan that they call a “jobs” plan. The plan: erase even more regulations so corporations can pollute. The idea is, if we stop holding back industries from making our air unbreathable, our water undrinkable, and our soil packed with toxic wastes, they will be free to create more jobs. That is logic along the lines of letting criminals serving time for assault & battery out of prison so that we can hire more doctors and nurses.

Paul Krugman (hat tip to Ken) meets this proposal with scorn from the economic side, debunking the idea that it will create loads of new jobs. Pay close attention to the last sentence in the excerpt:

Mr. Perry has put out a specific number — 1.2 million jobs — that appears to be based on a study released by the American Petroleum Institute, a trade association, claiming favorable employment effects from removing restrictions on oil and gas extraction. The same study lies behind the claims of Senate Republicans.

But does this oil-industry-backed study actually make a serious case for weaker environmental protection as a job-creation strategy? No.

Part of the problem is that the study relies heavily on an assumed “multiplier” effect, in which every new job in energy leads indirectly to the creation of 2.5 jobs elsewhere. Republicans, you may recall, were scornful of claims that government aid that helps avoid layoffs of schoolteachers also indirectly helps save jobs in the private sector. But I guess the laws of economics change when it’s an oil company rather than a school district doing the hiring.

This is really what is at the heart of Republican thinking, especially when it comes to economics: “facts” are things we make up to benefit ourselves.

When people listen to conservatives speaking about economics, they tend to give them credence, in part because they sound so confident giving all of these “facts,” but also because conservatives have a long-standing reputation for fiscal responsibility and know-how.

The truth, however, is that they play fast and look with the facts, and when they want to argue their own points or lambaste the opposition, they tend to do so in reckless disregard for even the most fundamental economic principles.

For example, one claim they have been making for a few decades now is that during the Reagan years, taxes were cut and revenues doubled. I heard this just last week, coming from a conservative on Bill Maher’s show. This claim is not just wrong, it is actually fraught with distortion. It tries to proves the claim that cutting taxes increases revenues, but ignores that fact that while some taxes were cut during that period, other taxes were raised, arguably for a net tax increase.

However, the big lie in the assertion is that Reagan doubled revenue, based on the fact that government revenues went from $517 billion in 1980 to $1,031 billion in 1990. First, this calculation includes Carter’s last year in office as well as Bush 41’s first two years. To be accurate, we must actually run from Reagan’s first year in office–1981, by the end of which Reagan’s economic policies were just beginning to kick in (his first tax cut did not take effect until 1982)–as a baseline, and then take the last year in office as a reading of actual increases. That gives us a rise from $599 billion to $909 billion, an increase just a shade over 50%. So, right there, we see the claim half-shattered.

But that’s not even the main point–remember, I am positing the idea that conservatives abandon the most obvious economic facts and principles to distort reality. What was the fundamental economic idea they ignored here?

Inflation. In order for any judgment to be made on revenue, inflation absolutely must be factored out–otherwise Jimmy Carter would come across looking like a magician. So, when you look at the numbers honestly and factor out inflation–using 1987 constant dollars–how did Reagan fare? Well, he went from $767 billion in 1981 to $877 billion in 1989. A net increase of 14%. Add to that the fact that the U.S. population grew by 7% during that time, and we see the net increase which could be attributed to tax policy brought down to a mere 7%.

So, instead of Reagan cutting taxes and doubling revenue, we have him raising taxes overall and increasing revenue by 7%.

Conservatives, however, would prefer to credit Reagan for things that happened when he was not president, and conveniently forget fundamental economic factors such as inflation and population growth.

Nor is the conservative habit of playing fast and loose with economics limited to Reagan. A more current example is their claim that Obama is responsible for the unemployment rate hitting 10%. Sure enough, unemployment hit 10.1% in October 2009, fully 9 months after Obama took office. So, hard to refute that one, right? Pretty sound fact conservatives have to nail Obama with, right?

Of course, no. First of all, when Bush took office in 2001, the unemployment rate was 4.2%; this rate rose to 6.3% by June of 2003, a fact which, one can be sure, conservatives would quickly attribute to the recession they claim Clinton saddled Bush with. It was another two and a half years–five years after Bush took office–before the rate fell below 5% again.

Jump forward to early 2008, a full year before Obama took office. The unemployment rate was at 4.8%, near to where it had been hovering for the previous three years. Then, in mid-year, the effects of the sub-prime crisis, the beginning of Bush’s Great Recession, started to show; the unemployment rate rose until, in February 2009, when Obama was in office, it hit 8.2%. (Unless you want to credit Obama with numbers that represent a month 2/3rds presided over by Bush, in which case it was 7.8%.)

So, right off the bat, we have Bush overseeing a rise in the rate from 4.8% to 8.2%–a 3.4% jump, or a 70% increase. Conservatives conveniently pretend this never happened–that the rate rose under Bush at all, or that the trend began with him. While they would eagerly attribute two years of rises in the Bush unemployment rate to Clinton, they would not dream of crediting Bush with any of the rate’s rise in Obama’s first nine months.

But still, the rate rose from 8.2% to 10.1% under Obama, right? That’s a 1.9% rise, or about 23%–so, still we can criticize Obama, right? OK, let’s blame Bush for the rate’s rise once he started office. See? I can be reasonable when it helps my argument. Can’t we then blame Obama for the 1.9% spike up to 10.1%?

Here, again, is where conservatives conveniently forget Economics 101. The unemployment rate, you see, is what you can call a “lagging” indicator–in other words, it does not immediately reflect changes in the economy. It takes 2-3 quarters to do so. For example, consistent job losses did not begin until January of 2008–but it took until May or June for these figures to have an effect on the unemployment rate.

Which means that at least the first six months of the unemployment rate under Obama is actually a direct reading on the last six months of the Bush administration. That would mean Bush was directly responsible for taking the unemployment rate not just up to 8.2%, but up to at least 9.5%–a total rise of 4.7%, roughly double the rate. Obama, then, is only responsible for the rate going from 9.5% to 10.1%–a mere 6% next to Bush’s staggering 98%.

And that is only if you blame Obama for the unemployment rate increases that started the moment he sat down at his desk, which is unrealistic, as he had to slow the plummet before he could turn it around. It is completely fair to claim–I would even say it is a solid fact–that Bush was completely responsible for the rise in the unemployment rate. Considering also that job losses did not begin to slow until just after Obama’s stimulus and therefore can easily be attributed directly to that act, it would be just as fair and factual to attribute the subsequent lowering of the rate to 9.1% to Obama.

So, instead of Obama causing the unemployment rate to shoot up to 10%, Bush is fully responsible, while Obama stopped the increase and actually brought it down a bit. Conservatives deny this simply by ignoring Bush’s existence and then conveniently forgetting the fundamental economic fact that the unemployment rate is a lagging indicator.

Not that any of this is a surprise. Whatever financial & economic clout, aptitude, or reputation conservatives might have had, it has now been thoroughly trashed. Yes, there are undoubtedly conservatives with good economic smarts around–but they seem to be in hiding.

In fact, the Republican party seems to be going completely around the bend; instead of just claiming that tax cuts for the rich will create jobs, now they are clamoring for significant tax hikes on the poor and the middle class in addition to tax cuts for the rich–and are arguing that in order to create jobs, all we have to do is open the flood gates on pollution. And, oh yeah, they want to dismantle health care.

If the American people–the 99%–vote Republicans into office next year, they will get exactly what they deserve: a trashed economy, higher taxes for them, even more tax cuts for the rich, and air, water and soil so polluted they’ll start getting sicker faster–just as Republicans shatter the last remnants of public health care.

In other words, they will not only be idiots–they will be suicidal idiots.

Seriously, could the Republican Party be more openly hostile to the American people? They’re like a mugger who just stole your money and knifed you in the gut, then told the you that it was all the fault of the cop who tried to stop him but failed–so vote for the mugger!

  1. kensensei
    October 24th, 2011 at 02:09 | #1

    Nice analysis, Luis.

    I heard someone call a conservative talk show yesterday bashing illegal aliens in California. Something like “Mexico has poor education and a lousy economy, etc. Why would anyone want to bring that into the US…?”

    The caller struck me dumb because he was missing a blatant fact; that is exactly where the GOP is taking us. If you love Mexican style economics and education, an economy where the wealthy own everything (including the politicians), then you’ll LOVE the new America under GOP leadership.

    There is so much talk on the Right about the huge tax burdens and environmental regulations on the “job creators” (aka “job exporters”). The wealthy already pay too much while others pay no taxes at all, blah, blah…
    These are simply excuses to continue reaping even more of the HUGE profits they already make and to decimate the middle class.


    Who cares if oil execs, making $663 billion in profits this year, only keeps $b00 million instead of $663 billion? They’re still up 60% over 2010 while the rest of us are unemployed or scraping by on under $50K a year…Hello! This is the America the GOP is propagating, folks!

    In short, the GOP is betting on the now completely defunct theory of “trickle down” economics. But what they’re really selling is a complete decimation of the barely existent middle-class. Without that, the US economy will be on par with Mexico and other third world economies.

    It may be bad now, but you ain’t seen nuthin’ yet.


  2. kensensei
    October 24th, 2011 at 02:11 | #2

    typo in paragraph 6 above:

    $b00 million => $600 billion


  3. Tim Kane
    October 24th, 2011 at 04:37 | #3

    The U.S. and Mexico are already at parity. Recently I saw Gini index rating for Mexico at 48.

    The U.S. gini index was around 40 in 2000. It was at 45 in 2007. You can’t find an accurate GINI index for anything after 2007. Suffice it to say it is worse than 45. Most likely, much worse.

    The bad boy of the Gini index was Brazil. Usually in the 50s.

    It’s almost impossible to sustain being in the first world with a Gini index above 39.

    The per capita GNP is around $47k in the U.S. The median wage, however, is only around $25K.

    I’ve also read articles that suggest net immigration is at a trickle. Mexico’s unemployment rate is lower. The Mexican government has implemented additional programs to help the poor. The per capita income is up. The per capita GNP is $13k. The earnings here for illegal immigrants is hardly much better. Given the discomfort that comes with being an illegal here, the lack of rights, the constant hostility, the different language and culture, the separation from family, friends, culture, and language, the second class status, the only new illegals we have here would be coming from Central and South America, and many of those might prefer Mexico over the U.S. as well.

    I went to school in Arizona. I’ve used to go to Mexico. The country, despite being productive and rich in resources, is crap. The infrastructure was crap. They struggled to build decent roads. The only now are proximating our interstate system, and all those roads are toll.

    Our great income is the result of the investment in infrastructure and education. The Republican ascendancy over the last 30 years has decimate both. I used to say, a country where the working class can eak out a middle class existence can do just about anything – a country where the working class lives in squalor can’t do either.

    At the tail end of the Democratic/liberal ascendancy we landed a man on the moon. We haven’t done squat since. In fact, you could say technology evolution has largely halted, with the halt of the growth of the median wage, since 1972.

    Consider the life span of Churchill. He was born in the horse and buggy era. Before he died, his last trip to the United States across the Atlantic looked remarkably like the trip you would take today: an intercontental jet airplane traveling at 500+ miles per hour enscounced in plastic furnishings. The 747 first took off around 1969 – it still in prominent use today, and most of the other planes are derivative.

    The real growth in technology is limited to information systems and consumer electronics, most of that progress was a product of the space program of the 1960s.

    Meanwhile, our infrastructure is crumbling. The working class and increasingly the middle class cannot afford education.

    In 2004, I recall Bush ending his campaign ads on TV with the words: “I know exactly where I want to lead this country.” – But he didn’t share the where. But it seemed evident to me: Mexico.

    In less than 8 years he took America from the heights of history and drove it into the ditch and nearly took the global economy and global civilization with it.

    What propels the Republicans today is not their ideology, but their ownership of resources, most especially media and the ability to buy the government. It’s never important for them to be correct in their argument, merely to win the argument.

    At some point we can expect the agencies of Democracy to redress the imbalance. But they have to overcome a wall of conservative resistence and propaganda. This is a struggle that’s going to take decades to over come, and decades more to fix the damage caused.

  4. Troy
    October 24th, 2011 at 09:34 | #4

    Some notes on the economy.

    First, you need to get yourself to http://research.stlouisfed.org/fred2

    This is an invaluable resource for finding facts, which I’ve used TONS for the past year or so. I’ve found so many answers and trends.

    Second, just looking at GDP and government is missing the bigger story on debt.

    “they have been making for a few decades now is that during the Reagan years, taxes were cut and revenues doubled”

    And yet the national debt tripled under Reagan:


    In terms of GDP, government debt nearly doubled, from the low 30%s to the mid 50%s:


    Adding the fed funds rate (red line):


    and you can see how the Fed easing interest rates 1982-1987 helped create the Reagan boom times.

    Extending this graph out to now:


    and you can see how government debt-to-GDP fell during the 1990s and has exploded since 2008.

    But the true story of 1995-now requires looking more at just government debt.

    Let’s look at total debt, 1970 to now:


    This shows how leverage was contained in the 1970s — inflation and debt were in balance basically (the Fed fought over-expansion with very high interest rates), but debt to GDP rose massively in the 1980s after the Fed threw in the towel in 1982.

    The 1990s saw debt leverage level off, but then things started getting overheated again in the late 1990s.

    (broken up to avoid spam filter)

  5. Troy
    October 24th, 2011 at 09:42 | #5


    Leverage went to the moon, peaking right when Obama took over.


    So a large part of the story of 2000-now has been debt expansion fueling a fake economy, and the hangover of that starting right when Bush left office.

    And this “hangover” is an IMMENSE drag.

    Putting things in dollar terms, American households were cashing out billions and billions of dollars a year from the real estate bubble:


    Shows the annual mortgage debt take-on: over $1T/yr during the bubble!

    In per-capita terms:


    we took out $5000 of new mortgage debt per adult during the bubble year.

    But note how that went negative right during the recession. This is no accident — losing the “housing ATM” broke the engine that was powering the Bush economy.

    This graph:


    shows mortgage debt take-on peaking in early 2006 (blue) and total jobs falling after the peak.

    Changing the red line to net change of jobs:


    shows the relationship much more clearly. Once the housing bubble broke, all the bubble jobs went away.

    And the bubble jobs were not just real estate-related, since american consumers were using their phantom home equity to power their general consumerism.

    Japan benefited from this, Americans going into deep deep debt gave them something of an economy recovery 2004-2006.

  6. Troy
    October 24th, 2011 at 09:49 | #6

    “could the Republican Party be more openly hostile to the American people?”

    At this point we’re talking Stockholm / battered-wife syndrome.

    Maybe 1% of the country is at all familiar with all those graphs I posted.

    Maybe 10% is even capable of looking at them and understanding them without my explanation.

    Nation of idiots we is.

    I don’t know what Japan’s excuse is. You’d think they’d be like the successful Eurosocialists (ie. Germany, Sweden, Norway) but their systems are even more corrupted than ours.

    Living in Japan 1992-2000 was excellent training for living in the US 2000-now at least.

    I’ve seen this movie before.

  7. Troy
    October 24th, 2011 at 09:50 | #7

    (check you spam trap please I used a bad word — 社会主義)

  8. Luis
    October 24th, 2011 at 10:25 | #8


    Yeah, the word “socialist” gets stopped, for reasons I can’t fathom. Maybe someone filter-bombed the term or something. It’s not on my end of things, so short of stopping the filter altogether, there’s not much I can do. Thanks for the heads-up, message restored.

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