Eric Cantor's Nose is Growing

Yesterday, GOP House Minority Whip Eric Cantor was interviewed on NPR by Steve Inskeep. A transcript follows, minus introductory statements:

Q: Here’s something I’d like to know. In your mind, what is a reasonable amount of time to give this admin to do whatever it can to turn the economy around that it says it inherited?

A: Steve, I don’t actually think that’s the right way to approach this question. When we considered the first stimulus bill in January, representations were made, promises were made by President Obama that if we acted quickly and passed the bill, we’d be able to stave off job loss and stop the unemployment rate from exceeding 8 1/2%. So I think that the proper test is, representations and promises that were made did not come to fruition.

Q: But the reason I ask that is because, as you know, the administration has said, “Wait a minute, we never said it would work in the first few months, we have not even gotten around to spending all the money yet, give us a little bit of time.” What is a reasonable amount of time to give them?

A: Again, this is not what the administration said. The administration said that we needed to act with a sense of urgency, that is how we were going to be able save jobs and avoid folks from having to go on the unemployment lines. That should still be our goal. We shouldn’t have been expediting the review of an 11-hundred page bill without anyone in the House reading it if the course that we expected was going to be a one- or two- or three- or four-year period in which to see the money go out. That’s where we get into the situation where you waste taxpayer dollars.

Q: Although the administration is saying now it took years to get into this mess; it’ll take time to get out. What’s a reasonable amount of time? What’s the time on the clock for him as far as you’re concerned?

A: Steve, there’s not a question—we shouldn’t be arguing about how we got here because that’s pointing blame. I think the American people are tired of that. They want to know how we’re getting out of this situation. Republicans had a plan, I went and personally gave him our stimulus plan back in January. We still want to work with this president. The way we see an economic recovery coming about is through investment. We’ve got to get small businesses back into the business of putting their money to work, taking risks, so that jobs can be created.

Q: Do you think that the economy will be the heart of next year’s congressional elections?

A: Well, listen, no one has a perfect crystal ball. But clearly I think that the economic situation before us needs to be satisfied in order for the electorate to begin to have some confidence in their leadership. I think what you’re seeing in polling right now is a reflection of the fact that this president & this congress own this economy.

Q: How many Democrats do you think are vulnerable?

A: Steve, again, you look at the numbers out of the last election. There are 49 Democrats sitting in seats that John McCain won. Obviously not all of those are vulnerable, but I do think you start there. And then you also look at the seats that have individuals who are new to Congress that perhaps were in seats that were held by the Republican candidate prior. I do think there are a sufficient number of vulnerable Democrats that will allow Republicans to make significant gains, if not take over the Congress and the U.S. House in 2010.

Note Cantor's insistence on portraying Obama's recovery plan a failure while refusing to say how much time a plan should be given to take effect, all while claiming he doesn't want to assign blame--but that Obama and the Democrats "own this economy." One wonders how many more sides of his mouth Cantor has from which to speak.

Cantor claims that Obama didn't say that time would be required for the recovery plan to take effect. A turn to google shows that not to be true. Here's what President Obama had to say on the subject during his January 8, 2009, Fairfax, VA speech introducing the American Recovery and Reinvestment Plan:

It will not come easy or happen overnight, and it is altogether likely that things may get worse before they get better. But that is all the more reason for Congress to act without delay.

Of course, Obama's economic package was passed without a single GOP vote in the House of Representatives, and it got through the Senate only after four GOP "moderates" forced a compromise which included removal of federal funding to states for school construction (considered one of the more effective recession-fighting tools, as it would have created jobs) and cuts to state fiscal stabilization programs, also important during a recession. Nor did the GOP offer anything like coherent objections to Obama's plans, as noted by economist Brad DeLong.

There was a strategy behind the monolithic opposition, as noted by Greg Sargent. In fact, a GOP Representative responsible for "messaging" admitted as much in public.

Months of consistent opposition and obstruction didn't work very well for the GOP. Their poll numbers were (and still are) in the sewer. On March 26, they attempted to unveil an economic (ahem) plan of their own, but that didn't work very well.

They put out something a little more substantive on April 1 (how fitting), but as noted by Ezra Klein, among many others, the plan offered little in the way of details and was completely unrealistic.

Meanwhile, here’s what the stimulus IS doing:

Ezra Klein cites a study by the Center for Budget and Policy Priorities showing that the stimulus is closing 30-40 percent of state budget deficits. Why does that matter?

States must balance their budgets, as mandated by their respective state constitutions. How can they do that?
1. Raise taxes (Conservatives all raise your hands if you’re in favor. Ahh, I didn’t think so.); or
2. Cut spending. What happens if they do this during the worst downturn since the Great Depression?
a. States would have fewer resources at a time when they need them most to cope with the crisis.
b. State employees would lose their jobs (further deepening the recession).
c. The social safety net would collapse (imagine what happens if, as state employees lose their jobs, SCHIP funding is slashed).

It's not enough, God knows. People need jobs, and it takes a long time for an economic plan to take full effect. But surely we shouldn't be taking seriously complaints about the economic recovery plan from a party as completely cynical, dishonest and deeply unserious as the current GOP.

Are Inflation Fears Real? An Economist Says No

Scott Fullwiler, an economist writing at the blog Economic Perspectives From Kansas City, observes that fears of inflation that have been expressed in various circles lately, all having to do with the large amounts of liquidity the Federal Reserve has pumped into the economy (you know, Obama’s economy recovery package?), are misplaced. In fact, he says,

As of July 2, 2009, the Fed reported the following assets on its balance sheet:

* Term Auction Credit: $283 billion
* Commercial Paper Lending Facility: $115 billion
* Central Bank Liquidity Swaps: $115 billion
* "Other" Loans (includes the Primary Dealer Credit Facility): $119 billion

Together, these assets amount to $632 billion. And what do they all have in common? They are all LOANS. Note also that they comprise the bulk of the $726 billion in reserve balances held by banks the Fed reports on its liability side.

Moreover, all of the loans in question are short-term, and have already been repaid.

The fear among Fed critics is apparently that the Fed lacks an “exit strategy;” i.e., it has no clear plan to counter the rise in reserve balances, which they claim will lead to inflation. Yet Fullwiler explains that

Banks DO NOT use reserve balances to create loans. They create loans and deposits simultaneously out of thin air. They use reserve balances to settle payments or meet reserve requirements ONLY. If a bank is short reserve balances for either of these purposes, the Fed provides an overdraft AUTOMATICALLY at a stated penalty rate, which the bank then clears via the money markets or the cheapest alternative. Whether banks in the aggregate hold $1 or $1 trillion in reserve balances, there operational ability to create loans is the same . . . infinite! (Though the creation of even 1 loan requires a willing, credit-worthy borrow in the first place, of course.)...That is how loan creation works in a modern monetary system. The belief that banks need reserve balances in order to lend is only applicable in a gold standard-type of monetary system.

In short, there’s no danger of inflation stemming from the Fed’s activities discussed above & there’s no need for an exit strategy.

Interestingly enough, Fullwiler observes that the financial press (he cites the Wall Street Journal specifically) doesn’t understand how the Fed works.

Portrait of Political Irresponsibility

Starting in the 1970s, the GOP in Congress (with help from some Dems) removed the Depression-era oversight of the banking industry & prevented regulation of complex financial instruments such as credit-default swaps.

Congress (still under Dem control but totally craven in the face of GOP attacks) passed the Reagan tax cuts in 1981, resulting in federal deficits bigger than those of all previous presidents combined. (Reagan did a U-turn a year later, increasing taxes to refill the coffers, but that never made it into conservative mythology.)

In 1995, the Gingrich-era GOP Congress shut down the government in an effort to force President Clinton to slash social spending and cut taxes. Millions of people around the country, dependent on the federal government for social security payments, paychecks, various services, etc., were hurt by this stunt & the GOP had to back down.

The GOP-led Congress under President Katrina passed enormous tax cuts, turning the biggest budget surplus in U.S. history into the biggest deficit in a year. This in spite of our involvement in 2 wars simultaneously.

The GOP-led Congress voted in lockstep with President Katrina’s administration from 2001 through 2006, authorizing spending on the Iraq War, etc. It exercised no oversight during that time.

The GOP has argued, contra historical evidence, that tax cuts are the answer to the current economic crisis. Economists—including conservatives, agree that tax cuts would turn the current crisis into outright catastrophe.

In mid-September, 2008, Lehman Brothers collapsed and there were large withdrawals from the Reserve fund. Against that backdrop, the bank bailouts (which I certainly agree are due for criticism on a number of grounds) began. Obama’s economic plan was crafted in response to the situation he inherited—one caused by the combination of factors mentioned above (not primarily due to activities of Fannie Mae & Freddie Mac, as the GOP & its wingnut chorus would have us believe). Obama’s economic plan only passed in the Senate due to a compromise with 3 GOP “moderates” & some blue dog Dems. The so-called compromise eliminated federal funding for state unemployment programs in the midst of the worst economic crisis since the 1940s—this despite the CBO’s study showing that one of the most effective mechanisms for reviving the economy in a recession is unemployment insurance (the people who get it need to spend it; therefore it cycles through the economy, boosting economic activity via the multiplier effect). So if the recession lasts longer & gets deeper, we all know who to thank for it.

The CBO, the Commonwealth Fund and others analyzing the numbers project that without the public option, health care costs are projected to increase to 60% of the federal budget by 2030, crowding out other federal programs. The GOP in Congress is universally opposed to Obama’s health care reform plans, especially the public option.

The GOP-led Congress refused persistently to do anything in response to global warming, making our ability to do anything about it now much more difficult—and expensive.

Despite all the above, die-hard wingnuts continue to argue that Obama is a socialist, he’s throwing money around recklessly, and we need a return to GOP govenance. Try to imagine what shape we’d be in now if the party whose only principle is tax cuts (for the richest 1% of the population, at that) were in power now. God protect us from such a fate.

Some still claim, despite all the above, that there’s no real difference between the two major parties—that “everyone does it.” The record is clear that, despite definite cravenness on the part of some Dems, overwhelming responsibility for the mess we face lies with the GOP.