There is a possibility that the great Bush recession could head into a double dip. Secretary of the Treasury Tim Geithner has said that unemployment could increase, and manufacturing orders and the consumer confidence index are in decline. The pending home sales index and unsold homes are at an all-time high. It is still possible that the system will be jarred by developments at Fannie Mae and Freddie Mac.
If Republicans get control of financial and economic policy after November, the odds of a double dip recession and even financial system damage are greatly increased.
Should a miracle occur in November and the Democrats lose no seats, they still would not be in a position to head off a second dip. Most of them know that the Obama stimulus, while heading off a depression, was too small to deal with the crisis. But the Republicans have won the public debate over economic policy, and the best the Democrats could do would be to keep the stimulus in place and retain 99 weeks of unemployment.
There seems to be a strong possibility that the Tea Party movement will be strong enough to restore control of the House to the Republicans. Even if this does not happen, Republicans, with the help of conservative Democrats, will have more than enough votes in both chambers to set economic policy. In either case, we can expect more unemployment and slow or no growth.
The highest item on the Republican agenda is extending the tax cut for the rich. Over ten years, it cost the Treasury $2.3 trillion. Government will have to borrow to cover this amount or move over the next ten years. Here the Cheney dictum still applies "deficits don’t matter" if they are intended to benefit the rich President Barack Obama may be able to use his veto power to trim it some, but the GOP will hold the thirteen budget resolutions hostage until he gives them what they want.
The House Republican leadership has talked about freezing the remaining $230,000,000 billion in the Obama stimulus package. If they succeed, they will have enlarged the hole in the economy created b y Bush policies. Their argument is that government borrowing soaks up money that private interests could borrow for job creation. However, big banks at this time are hoarding money to cover bad assets they acquired in speculative sprees.
The GOP repeatedly tried to block extension of unemployment benefits to 99 weeks, but it is unclear that they will continue to block them if the public perceives that they are now in charge.
John Boehner of Cincinnati, Ohio, the shadow Republican speaker, has said that he intends to repeal the financial reform legislation. Most observers thought that the legislation did not go far enough, did little to curb gambling by banks and regulate derivatives. David Felix had warned that , due to deregulation, "the increasing frequency of financial crises could terminate in an uncontrollable one." A Bank of England official has said that a "doom loop" exists if not enough restrictions are in place. It is doubtful if the new legislation did enough to reregulate, but it is clear that trimming the restrictions further will open the door to another financial collapse. They all we would have to protect us is the belief that bankers ill see their self –interest in not taking excessive risks. But even Alan Greenspan no longer believes that.
It is odd that the Tea Bag wing of the Republican Party that first expressed outrage over Wall Street abuses eventually ended up following the party line and opposing financial reform.
Kevin McCarthy, House Republican Campaign Chairman, says they want to privatize Social Security, and Paul J. Ryan, the only Republican offering anything like an economic plan, provides for it. Privatized Social Security would make retirees dependent upon the stock market and would gradually destroy the system itself by eroding the trust fund. The temptation to attack Social Security and other entitlements will be great if the economy does not begin to grow because revenues to fund entitlements will decrease. Ryan’s "Roadmap for America’s Future" calls for sharp cuts in entitlements, and not one Republican has denied that these cuts are on the GOP agenda.
Perhaps the Republicans see the big picture. Either tax benefits for the rich and military appropriations are cut, or entitlements must be slashed. This is the bottom line, but clearly few voters see it.
This is one reason why conservatives have had so much to say in Congress and in the print media about reducing public pension benefits at the federal and state levels. The conservative press has carried many articles saying public employees are paid more than private employees and that their retirement benefits are better. The truth is that they are paid considerably less , but often get better retirement benefits. Mr. Boehner has had much to say about this because there is already an effort in Ohio to trim pensions, even those of people already retired.
Some progressives foolishly think that if the economy hits bottom again that most people will begin to question the conventional economic wisdom that landed the nation in this sad fix. But they forget two things. Even Democrats drank some of that neo-con kool aid and as late as a few months ago refused to repeal all of the legislation that rewards firms from exporting jobs. Secondly, the conventional economic wisdom is so deeply entrenched and so well sold that it is likely that many voters would blame extended hard times not on an economic system but on liberals, welfare queens, minorities, immigrants, and entitlements.
No one should blame Republicans next year if they say that the 2010 victory was an endorsement of entitlements cuts and privatization of Social Security. They are clearly on record for these things, and voters should have been paying close attention.