An explosion of private debt, enabled by financial deregulation and lax enforcement of rules during the Bush years created a financial bubble similar to the one that triggered the Great Depression. When the bubble burst private debt was rapidly destroyed and credit lines were slashed. The destruction of private debt was massively deflationary. The Federal Reserve tried to stimulate lending by slashing interest rates to banks to zero, but that was not enough to offset the destruction of money caused by the collapse of housing prices and the debt bubble. President Obama and the Democratic Congress of 2009-10 prevented another Great Depression by public spending which saved state jobs, primarily jobs for teachers, police, and firefighters. Saving those jobs and funding new jobs to build and repair infrastructure stopped the deflationary spiral the economy was entering. President Obama and Democrats have successfully reduced the total public and private debt of the United States by 4 trillion dollars while getting unemployment back down to 7.8% against strong conservative Republican opposition.Republicans would have brought on another Great Depression if they had been allowed to implement their plan to cut federal government spending.
Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.The sick Republican bubble economy of the Bush years was caused by massive military spending funded by debt. Three trillion dollars were sunk into the Iraq war instead of spending that money on research, education, infrastructure and saving for the retirement of the baby boom generation. In 2008 Nobel prize winning economist Joesph Stiglitz explained how Republican economics caused the Great Recession.
Second, money spent on Iraq doesn’t stimulate the economy at home. If you hire a Filipino contractor to work in Iraq, you don’t get the multiplier effect of someone building a road or a bridge in Missouri.When the bubble burst, state tax revenues plummeted. They began to slash state jobs to balance their budgets. The loss of public sector jobs devastated the private sector. About 750,000 private sector jobs were lost because of the cutbacks of state and local government jobs.
Third, this war, unlike any other war in American history, has been entirely financed by deficits. Deficits are a worry because, in the end, they crowd out investment and pile up debt that has to be paid in the future. That hurts productivity because little is left over either for public-sector investment in research, education and infrastructure or private-sector investment in machines and factories.
Until very recently, we haven’t sharply felt these three factors depressing the economy because the Federal Reserve Bank responded with the attitude that they must keep the economy going no matter how much President Bush spends on the Iraq war. Seeing a weak economy, they kept interest rates low, flooded the economy with liquidity and looked the other way when bad home-lending practices were shoveling money out the door. Regulation was lax. The spigot was wide open. More than $1.5 trillion was taken out of houses in mortgage equity withdrawals alone over the past five years! That is a huge amount of money to be spent.
At the same time, the U.S. savings rates plummeted to zero. So everything that was being spent, from rebuilding Iraq to redecorating the home, was on borrowed money. All the problems were papered over by borrowing. The bubble ultimately burst when the ratio of housing prices to income -- that is, what people whose incomes are falling could afford -- was no longer sustainable.
Now that we can see beyond the bubble, the economic weakness caused by the Iraq war will be fully exposed. And we’ll pay for it in spades -- you might say, with interest.
As a recent study by the Economic Policy Institute showed, these job cuts ripple through the economy, also harming private sector job creation. In fact, EPI estimates that public sector job cuts have likely cost the private sector 750,000 jobs:This effect can be seen in the U.S. job loss figures. (See Meteor Blades' recent post on jobs for details on unemployment figures.) The hiring and firing of Census workers was a perfect experiment on the multiplier effect of government jobs. Census hiring started a rapid jobs recovery. When the census workers were laid off, the layoffs multiplied private sector jobs losses. If public sector jobs had been created to offset the end of the census the economy would likely have stayed on the much faster curve to recovery. A stronger stimulus would have been better but conservatives blocked additional needed government spending. If Democrats had not spent federal stimulus money to save state jobs, the economy would have collapsed like the Spanish and Greek economies did. Austerity in a recession causes a depression.
The economic “multiplier” of state and local spending (not including transfer payments) is large – around 1.24. This means that for every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy. Teachers and firefighters stop going to restaurants and buying cars if they’re laid off, which reduces demand for waitstaff and autoworkers and so on. Add these two influences together (supplier jobs and jobs supported by this multiplier impact) and roughly 0.67 private sector jobs are lost for every public sector job cut. This means that the public sector being down 1.1 million jobs has likely cost the private sector 751,000 jobs.
According to a new report from the Center on Education Policy, the stimulus was successful at saving education jobs as well, preventing layoffs in at least 31 states:President Obama's stimulus prevented a second Great Depression. He saved public education from draconian cuts. He saved our children't future. He saved American jobs. The stimulus worked. Don't let anyone tell you otherwise.
– ARRA grants helped to stabilize school districts’ budgets at a time of shortfalls in state and local funding. In roughly 52% of school districts with funding decreases for 2009-10, State Fiscal Stabilization Fund grants compensated for a majority of the decrease; in another 45% of these districts, SFSF money compensated for at least a portion of the decrease.
– ARRA saved educators’ jobs and reduced funding shortfalls in K-12 education. In 2010, approximately 69% of districts reported that they used SFSF funds to save or create jobs for teachers and other school personnel. In 2011, 31 of 35 states surveyed reported that ARRA and Education Jobs funds saved teaching jobs, and 27 reported that these funds saved other district and school-level jobs. In addition, the majority of districts receiving ARRA supplemental funds for the Title I and IDEA programs reported using at least some of those funds to save or create jobs.
Of course, this hasn’t stopped the economy from bleeding education jobs anyway. Last year alone, local governments cut 130,000 teaching jobs. In the last three years, government have shed more than 300,000 teaching jobs, as this chart (above) shows:
Mitt Romney plans to repeat the same economic mistakes Bush made. He would increase military spending and is threatening to involve us in more wars like Iraq. Tax cuts to the rich and the Iraq war created huge deficits and triggered the Great Recession. We would be insane to repeat Bush's economic policies and neocon belligerence. We couldn't afford it then and we can't afford it now.
President Obama and Secretary of State Clinton are on the right track - Peace through strength and diplomacy. Under Obama and Clinton the seeds of democracy have sprouted in the middle east. Mitt Romney and his belligerent neocon advisers would trample those sprouts while draining our economy. We cannot afford another debacle like Iraq.
President Obama has increased money spent on education and brought our troops home from Iraq. This is good for our troops, good for our children, good for our economy and good for our future.
The stimulus also helped spur the rapid growth of U.S. wind power which provided thousands of good new American jobs. However, Romney and the Republicans are killing wind power jobs right now by refusing to continue production tax credits.
More jobs in American wind power were lost this week, this time in manufacturing facilities in Colorado and Iowa, in the absence of a policy signal only Congress can provide: extension of the Production Tax Credit, the policy driver behind the rapid growth in U.S. jobs and manufacturing since 2005.The stimulus worked. It created green jobs and increased America's energy security. And it created a regular revenue stream for farmers in the nations heartland. Wind power revenue helps our farmers, especially in drought years like this one. Mitt Romney would kill wind power jobs and Republican obstruction on renewal of the wind power tax credit is hurting America's farmers.
Layoffs announced so far this week include:
In Cedar Rapids, IA, Clipper Wind Power downsized its operations in reducing the company’s staff by 32%, from 550 employees to 376.
In Brighton, CO, Vestas Wind Systems cut about 30 workers on Monday, leaving about 200 still employed. These cuts follow more than 90 layoffs at the company's tower plant in Pueblo, announced last week.
Walker Component Group, a Denver-based cable supplier for Vestas Wind Systems, has also had to cut a portion of its workforce, reducing its staff by 15 workers to 24.
President Obama saved the U.S. economy and public education while building our manufacturing base and helping family farmers. GM is alive and Osama is dead. Investment in solar and wind power funded by the stimulus will build the industries we need to cut global carbon emissions and save the climate. Romney and the Republicans would ignore climate change, wreck the environment and rob our children's and grandchildren's future.
The stimulus worked. President Obama put America's economy on the right track.
Reelect President Obama.