Will There Be Austerity or More Stimulus for US Economy After 2010 Election?

 

As the final week of the 2010 Midterm election unfolds, jobs and the economy continue to be the top issue for political candidates to talk about with potential supporters or voters. What to do to ensure economic stability and continue economic growth and recovery after the election will likely be a cause for increased polarization after the election over whether to pass a second stimulus or not.

 

Democratic Representative Barney Frank, who is hoping to defeat Republican candidate Sean Bielat in the election for the 4th Congressional District of Massachusetts, supports a second economic stimulus. Frank was a key player in the passage of financial reform legislation earlier in 2010 (the legislation was known as the Dodd-Frank Act).

 

Rep. Frank appears in a recently released documentary on the economic crisis in 2008 called “Inside Job,” which makes the case that the financial industry knew it was putting the US economy at risk and did it because they knew they could get away with taking the risks. The US government would bail them out and they would make huge profits. So, it's no surprise that he has little faith in businesses correcting the economy without government intervention.

 

Democratic Representative Lynn Woolsey, co-chair of the House of Representative’s Progressive Caucus who is hoping to defeat Republican candidate Jim Judd in the election for the 6th Congressional District of California, supports a second stimulus to put people back to work. She, like Rep. Frank, thinks the economic stimulus didn’t go far enough.

But, both Frank and Woolsey have challengers who oppose more stimulus, who doubt whether the first stimulus did anything significant to save the economy. Bielat thinks “instantaneous reductions in income tax withholding” and “regulatory certainty” is the answer. Judd suggests government should have stepped aside and let businesses create jobs instead of interfering with stimulus.

 

“Regulatory certainty” means assuring businesses there will be no further regulation of their activity by government so they can loosen up and operate freely. Such terminology from candidates would be laughable if it weren’t for the reality that the Financial Services Roundtable and the US Chamber of Commerce have been tremendously successful in staving off financial reform legislation that would seriously restructure their operations.

No Republican candidates are advocating for austerity. That wouldn’t make sense and likely would ensure defeat. Instead, Republicans have hammered away at the idea that the economic stimulus helped create jobs and somehow saved the economy, a, for the most part, ideological argument born out of a devotion to free markets.

Conservatives have tried to argue that the stimulus cost more than the Iraq War, an assertion that if true would likely gain bipartisan support. PolitiFact, however, did research and found this notion to be “Barely True.” Such conclusion compares stimulus costs projected to the end of 2019 to war costs projected to the end of this year, and, since the 50,000 troops are still in Iraq and the war costs are not over, this argument is pretty crooked.

Austerity would likely come by default. In fact, an article in The New Republic on how the age of austerity will remake American politics notes that austerity measures have already been taken. For example, “when Congress approved an economic stimulus bill in August, it coupled spending on health care and teachers’ salaries with deep cuts in food stamps. It reduced benefits for a family of three by $47 per month, according to one estimate.”

The Democrats currently appear to have no marketing plan for a second stimulus, even if it appears support for the measure exists among economists like Nobel Prize-winning economist Joseph Stiglitz and leaders like Federal Deposit Insurance Corporation Chair Sheila Bair. The Democratic Party has opted to not make a second stimulus a key pledge to voters who support them over GOP candidates in the election.

 

A 2010 Midterm Election Poll reported on by The Hill revealed that forty-four percent of “likely voters” in “battleground districts” were more likely to see Democrats as dominated by extremists. Thirty-seven percent of “likely voters” thought Republicans were more dominated by extremists. While only a seven percent difference, this has emboldened the Democratic Leadership, which favors centrism or pragmatism over progressive politics. It has pushed leaders to cautiously stay away from advocating for strong social or political measures that could restructure the country and have an effect on the status quo.

 

A Deficit Commission appointed by President Obama is slated to make recommendations in December on how to cut the growing deficit and deal with the "unsustainable combination" of programs like Social Security and Medicare and inadequate tax revenues. The Commission under the leadership of co-chair Alan Simpson, who compared Social Security to "a milk cow with 310 million [teats]" earlier this year, will likely suggest cuts to entitlement programs that many Americans depend on to survive.

 

Neither party has candidates calling for austerity (although Republican candidates do oppose extending unemployment aid and rescinding the Bush tax cuts). But, the absence of candidates favoring a second stimulus or talking about future economic threats to government programs and government-supported organizations crucial to minorities, labor and the poor means austerity measures will come---and likely be branded by political leaders with another name that doesn’t lead Americans to fear what has been happening in Europe will unfold in America.

 

 

Congressman Barney Frank, who serves on the Financial Services Committee, at the World Economic Forum in Davos, Switzerland in January 2010. Photo by World Economic Forum