I wrote the following letter to Senator Claire McCaskill on February 24 after receiving a mass email from her asking her constituents to prioritize various government spending cuts. For the record, I am in general a strong supporter of Senator McCaskill. I spent many hours working in her election campaign in 2006. When she transferred her paid staff away from Hannibal, I was one of three local unpaid volunteers who received keys to the campaign office and kept the operation going.
In her email the Senator wrote: " President Obama's new budget reflects our new economic reality -- it includes some cuts, and avoids others. However, I'm not sure it goes far enough. " She also wrote: "Now, as we get ready for the budget fight, I'd like to hear from you: We've got big cuts coming -- and lots of programs will take at least a small hit."
The Senator was in Hannibal this past Saturday, March 5, to give the keynote speech at the fortieth annual "Democrat Days" banquet. After her speech, I managed to push through the crowd and shake hands with her. Her attention was clearly on the next task on her agenda. I said, "I'm the guy who wrote to you to say that in the current economic situation we need more government spending and higher taxes." I hoped that teaser would get her attention but apparently it didn't. She murmured, "You're absolutely correct," and moved away. When I got home I found a stock email from her office outlining all the government spending cuts she has worked for. So I am taking her response to me at Democrat Days with more than a grain of salt. Here is my letter.
Honorable Senator McCaskill:
Your communication about cutting government spending is extremely troubling to me. I am forced reluctantly to conclude that you, many conservative Democrats, and even President Obama have been captured by Reaganomics and related conservative economic strategies.
Years ago George H. W. Bush correctly identified Reaganomics as "voodoo economics." We are now still suffering the horrendous consequences of attempting to guide our economy according to these misguided principles.
Today we need to heal a badly wounded economy. We need to create more jobs, and to do this we need to create more economic demand. The looming policies of severe tax cuts will do exactly the opposite: they will cost hundreds of thousands of jobs of government employees, and they will have a ripple effect costing many hundreds of thousands of jobs in the private economy. If we cut government spending at this critical point in our economic recovery, we will quickly plunge into a second Great Depression. As I write this, I am watching a report on a cable news show that Jonathan Karl of ABC news has reported that Goldman Sachs has just distributed a confidential report to clients. This report estimates that the $61 billion cuts passed last week will reduce the GDP by 1.5 to 2 percentage points.
In a nutshell, John Maynard Keynes was and is correct, and Milton Friedman was and is incorrect.
When I go downtown in Hannibal and shop in the small mom and pop stores there, I usually have an opportunity to chat with the store owners. Every one of them has agreed that, while tax cuts are nice to get, they will not have an impact on their hiring. All of them agree that they will hire new employees when they see such an increase in demand that any new employees will more than pay for themselves on the bottom line. That's it. Demand.
When sub-prime mortgages increased homeowner monthly payments, homeowners had less money to spend on other things. This reduced demand. When these persons spent less, the shrinking demand had a negative ripple effect. Other businesses saw sales reduced, and had to lay off workers or even close. In this situation it is an accepted precept of economics that government can execute spending programs that counteract such shrinkage. In a recession, government has a legitimate role as the spender of last resort.
Of course we must try to reduce our government deficit. When I was a kid, we had a graduated income tax schedule in which the highest marginal tax rates were higher than 90 percent. Those were the good old days of the fifties and Dwight David Eisenhower. We need to recognize that government facilitates an orderly economy and by its very existence promotes economic opportunity. It is not punishment, it is completely appropriate recognition that government provided for economic success, to ask our most wealthy citizens and corporation to pay marginally higher taxes.
So as long as our economy is struggling, as long as we have unacceptably high unemployment, government should continue to spend money to hire people and to buy products and services deliberately as a stimulus. And we should close the deficit by raising taxes on those most able to afford to pay.
It is a cruel hoax, and provably incorrect, to insist that the infamous Bush tax bribes and payoffs to the top two percent help to create jobs. These taxes breaks did not exist when Bill Clinton was President and the economy grew 22 million jobs. These tax breaks did exist while George W. Bush occupied the White House for eight years, and the economy grew by only one million jobs. Furthermore, your own CBO (Congressional Budget Office) was asked to analyze different federal spending strategies to promote economic growth and job growth. That study, released over a year ago, concluded that tax cuts to the wealthiest citizens was the least effective of the eleven strategies studied. The most effective was to extend unemployment benefits.
Please follow the CBO and further extend unemployment benefits. And don't forget the "99'ers" whose benefits are now totally exhausted. These are not handouts -- these persons when employed paid to receive these benefits if needed later. Also, we could hire more food inspectors and keep our food safe. This would save thousands of lives. We could hire more Medicare claim reviewers to catch and prevent Medicare fraud. This would save millions of dollars. We should fully fund the health care reform act, which the CBO estimated to save many billions of dollars.
Please, do the right thing! We desperately need more government spending and higher graduated taxes.