cross-posted from Working America's Main Street blog where I am a featured guest blogger
Within hours of losing an initial test vote yesterday on the bill that includes an extension of eligibility for federal unemployment benefit programs, Senate Democratic leaders presented yet another version in an effort to attract the 60 votes needed to overcome a Republican-led filibuster.
According to a summary being circulated on Capitol Hill, the new version of H.R. 4213, the measure generically referred to as the 'extenders' bill, removes the extension of the Federal Additional Compensation (FAC) provision that has been adding $25 per week to jobless workers' unemployment benefits. Those unemployed workers who have been receiving the extra $25 would continue to do so, but only through the end of the second week of December. Newly jobless workers eligible for state unemployment benefits as of June 1st would no longer qualify for the additional funds.
That's $100 a month that those receiving jobless benefits would not have available to spend on the necessities of life. That's also $100 a month that would no longer flow directly into the economy in communities across the country. And, for the average jobless worker receiving unemployment, it represents a 7.5% reduction in their already meager income.
The argument being made for this change is that it would reduce spending. Clearly, that's the case. It would reduce spending by jobless workers receiving unemployment benefits.
Other changes to the bill reduce the Medicare physician payment update to 6 months from 19, and provide for some new exemptions from tax changes for certain partnership transactions as well as additional protections for some of the income of investment fund managers.
We'll see if the new version's spending cuts will be enough to satisfy the hungry deficit hawks. Sen. Ben Nelson (D-NE) has already said he's still not satisfied. That means that even with all the other Democrats and Lieberman, at least two Republican votes would be needed.
Consideration of the previous version was halted when a test vote failed 45 to 52. Eleven Senate Democrats, along with Joe Lieberman, joined all 40 voting Republicans to defeat a motion to wave the Budget Act on the measure. Senate Majority Leader Harry Reid (D-NV) withdrew a cloture motion on that measure, and later filed another one for the newly revised version. That revision is being debated now in the Senate.
The Democrats voting with the Republicans were Bayh (IN), Landrieu (LA), Nelson (NE), Nelson (FL), McCaskill (MO), Feingold (WI), Kohl (WI), Begich (AK), Pryor (AR), Webb (VA) and Menendez (NJ).
Some of those votes, certainly, were made after it was already clear the motion would not pass. But politics doesn't really account for what's been going on of late in Congress. It's something more ominous.
A significant minority of Democrats in both the House and the Senate have mindlessly been swayed by the siren song of the Republican-inspired chorus calling for immediate fiscal austerity, spending cuts and short-term deficit reduction.
Just look at what Congress has done in recent weeks. As Judy Conti and Andy Stettner of the National Employment Law Project (NELP) noted in an email today:
· They’ve let 900,000 workers run out of jobless benefits so far, and by the end of next week, that number will top 1 million.
· They’ve decided to let 145,000 unemployed workers each month lose out on subsidized health care coverage thru COBRA, thereby likely dooming them to becoming uninsured or very grossly under-insured
· They’ve decided to cut $25 per week from unemployment check, and remove $6 billion in crucial stimulus to communities throughout the country. This could result in job loss of up to 60,000 jobs before the year end, and in many Southern states in particular, where UI benefits are extremely low, it means over a 10% cut in UI checks for the unemployed.
· They’ve scaled back attempts to appropriately tax rich investment fund managers for the income they make.
· Oh yeah, they’ve also gone on a vacation and taken long weekends.
Initial state unemployment claims hit 472,000 last week, an increase of 12,000 from the previous week. Continuing state claims rose 88,000 for the week, to a total of 4,571,000. The national unemployment rate remains near 10 percent, and last month's private sector job growth was sluggish at best. 15 million American workers are unemployed -- a number that has barely budged since last summer. Nearly half of jobless workers have been out of work for six months or more.
And the economy is not generating much real growth. Home construction and building permits are sagging once again.
Home builders are sending a message: They won't be able to contribute much to the economic recovery now that government incentives have vanished.
House construction and applications for building permits sank in May, overshadowing favorable reports on manufacturing and wholesale inflation.
Fewer houses mean fewer jobs. Construction fuels a broad swath of industries across the economy. Yet double-digit unemployment is among the main reasons people have passed on buying new houses. Even with near-record-low mortgage rates, the industry is struggling.
Overall, new house and apartment construction fell 10 percent in May to a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. April's figure was revised downward to 659,000.
Applications for new building permits — a sign of future activity — sank 5.9 percent to an annual rate of 574,000, the lowest level in a year.
Despite the seriously troubling realities, many in Congress are marching obliviously down the road of short-term deficit reduction and fiscal austerity. Why? One reason is the conscious creation of an impression that this is what the vaunted conventional wisdom now demands. And seriously-mistaken economists along with self-aggrandizing media pundits are front and center in this effort.
One of the clearest examples was last week's column by David Brooks in The New York Times. It's titled 'Prune and Grow'.
My first thought was, "Oh, I see; the economy is a shrub." But it's far worse. It's pseudo-economics, albeit espoused by the self-appointed Dean of the School of Conventional Wisdom.
Voters, business leaders and political leaders do not seem to think that the stimulus was such a smashing success that we should do it again, even with today’s high unemployment.
They seem to see the fiscal floodgates wide open and that the private sector still only created a measly 41,000 jobs last month. That doesn’t inspire confidence. Furthermore, they understand something that is hard to quantify: Deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times.
In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand.
Dean Baker, a real economist, had a field day with this piece, showing that Brooks is engaged in magical thinking, divorced from the real world.
His first invention is telling us: "deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times." This is very interesting, what "debt crisis" is Brooks referring to? We can point to a debt crisis in Greece, and arguably Portugal and Spain, but it is not clear what that has to do with the argument for stimulus in the United States. There were debt crises in Latin America in the 80s, no one ever raised these in the context of the Reagan era budget deficits.
In the real world we would look to things like the ratio of debt to GDP in the United States (@60 percent) and compare it to the ratios in other countries and to the U.S. at other points in time. There are several countries with debt to GDP ratios of far more than 100 percent who are able to borrow money with no difficulty. For example, Japan has a debt to GDP ratio of more than 110 percent yet it pays less than 1.5 percent interest on its long-term debt. Right after World War II the debt to GDP ratio in the United States was also over 110 percent, yet interest rates were low and the economy had decades of solid growth.
The next thing we would do in the real world is look at the interest rates that the United States is currently paying. At present the interest rate on 10-year Treasury bonds is about 3.2 percent, near a post-World War II low. In short, the debt crisis is magic -- an invention of David Brooks -- not something that exists in the world.
But Brooks goes further, declaring:
So we are exiting a period of fiscal stimulus and entering a period of fiscal consolidation.
Done deal, game over, fait accompli. Why? Because Brooks says so, conveniently mapping short-term foreign debt problems onto the United States where, in fact, they don't exist:
Last year, the finance ministers of the G-20 were all for pumping up economic activity. This year, they called on their members to reduce debt. In this country, deficits are now the top concern.
On his blog, Paul Krugman has been engaged in on ongoing discussion of the dangers of the fiscal austerity push. One of the points he makes is that, contrary to David Brooks' assertions, with high unemployment there is no way that fiscal austerity can lead to economic growth unless you significantly reduce interest rates and drastically devalue your currency. The U.S. can do neither.
Worse, those calling for short-term spending cuts and fiscal austerity are also promoting raising interest rates. Once again, with unemployment near 10 percent, that is just insane. It's pseudo-economics.
And yet, the Congress has begun to move in that direction.
In doing so, the likelihood of a double-dip recession increases dramatically. Without significant additional aid to state and local governments and school districts, hundreds of thousands of new layoffs are all but assured. Half a million temporary Census workers will have those jobs end this summer. A new 1937-style recessionary slide would throw even more workers out of their jobs.
Meanwhile, Congress has begun to reduce or eliminate portions of the unemployment safety net. Tens of millions of Americans are already sliding from the middle-class into poverty. The phony deficit hawks are doing the Republicans' bidding. If the economy slides backward, they will blame the Democrats and attack even more jobless aid programs. I fear that, feeling their mean-spirited oats, they will soon target the added Tiers of emergency federal unemployment benefits.
Pseudo-economics is becoming sado-economics.