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Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

The latest mutterings from Congress, especially the Republican leadership, indicate that they still don’t have a clue about the seriousness of the economic downturn we are facing. They are saying that they can’t have a stimulus package ready for when President Obama takes office in two weeks, and that a package probably won’t be ready until well into February.

This delay is inexcusable. Remember when the Wall Street boys needed their TARP bailout in the fall? President Bush and his crew, together with the Democratic congressional leadership, with a huge chorus of media cheerleaders, all told us that the economy would collapse without immediate action. That is almost true now in the case of stimulus.

At this point, there should not be much question about the seriousness of the need for stimulus. The $8 trillion housing bubble that our economic leaders somehow could not see is in full collapse, with house prices falling at more than a 20 percent annual rate in the most recent data. The immediate impact of the collapse was to cut the housing sector in half.

More importantly, the lost housing wealth, combined with the loss of $8 trillion in stock market wealth, is causing consumption to plunge. We are going to see the largest set of bankruptcies and store closing in the retail sector ever. More than 10 percent of the workforce is employed in the retail sector. The layoffs will almost certainly top 1 million and could hit 2 million.

And, when those stores go out of business, they are not going to be sending their rent checks to shopping mall owners. The bubble in commercial real estate, which followed on the bubble in residential real estate, is also collapsing. Look for more surprised economists as hundreds of billons of bad loans on commercial properties suddenly appear on the banks’ books in the next few months.

In addition, we have the cutbacks in state and local governments, all of whom are being squeezed by plunging tax revenues. Since these governments are generally forced to balance their budgets, they have no alternative to making cuts and/or raising taxes. This is exactly the worse course for the economy right now.

This is the area that Congress could most easily address right now. Both red states and blue states are subject to budget squeezes. There must be a package of aid to state and local governments that President Bush and the Democrats on right now. President Obama can always add to such a package after he takes office.

This stimulus package should have been approved two months ago, but for whatever reason no action has been taken. As a result, we are seeing painful layoffs and cutbacks in state and local governments that are completely unnecessary.

There is no justification for further delay. Congress should immediately approve whatever assistance President Bush will agree to now, there is no reason that the public should be forced to wait until mid-February for Congress to pass the crisis.

If there is not interest in Congress today for serious action, perhaps the loss of more than 500,000 jobs that the Labor Department will report on Friday will help to focus its attention.

International President

In a perverse way, the media painted Republicans perfectly when it selected red for their states.

Reporters would never have guessed when they did it that the red party’s candidate would engage in red-baiting. But there was John McCain repeatedly doing it in the debate Wednesday night, trying to convert Barack Obama into a terrifying “spread-the-wealth-around” commie. And earlier this month, the Republican’s brother, Joe “McCarthy” McCain, called two Democratic-leaning Virginia counties “Communist Country.”

When it comes to spreading assets around, however, the royal red Republicans, led by King “I-am-a-capitalist-really” George, take the Triple Crown. Their upside down communism works like this: the middle class pays for the tax breaks awarded the nation’s rich and for the financial recklessness of Wall Street’s ultra-wealthy.

Trickle down

In the Republican world, in the view of John McCain and George W. Bush, it never, ever works the other way. A curse, they would say, on anyone who would dare suggest that the rich should be taxed so that government could “trickle down” a portion of their extraordinary wealth to benefit the majority.

They believe in “free markets,” that is, allowing financial markets to run unrestrained and unregulated, or as some have put it recently – amok. They believe government interferes in markets and therefore should be shrunken and impotent. They believe that when an elite few accumulate wealth in that system, some of it naturally will eventually “trickle down” into the empty porridge bowls of the nation’s vast unworthy masses.

A dreadful thing happened on the way to the fiscal crash, though. That philosophy failed.

The “small government” Bush and Republican Congress increased spending, thus replacing the budget surplus bequeathed them with deficits. And not just any deficits – the largest known to man — $455 billion this year, edging out the $413 billion record debt Bush set in 2004.

The rich won’t be paying for that. No, Bush gave them a tax break, and McCain swears he’ll make that break for the wealthy permanent. The middle class, and their children and grandchildren will be making payments on that debt — which, by the way, was caused in part by the revenue loss from Bush’s tax break for the rich.

That’s spreading the wealth around – from the pockets of middle class to trust funds of the rich.

Over the past eight years, middle class Americans have watched with shock and awe as corrupt and incompetent CEOs left their failing corporations with golden parachutes – like McCain’s top financial advisor Carly Fiorina, who exited Hewlett-Packard with $45 million in 2005 when the board dismissed her as CEO following the company’s stock dropping 50 percent and her furloughing 20,000 workers.

Bail out speculators

Now those same middle class Americans are incredulous as Bush — who had McCain’s support 90 percent of the time over the past eight years — is taking $700 billion of their tax dollars to nationalize banks. Their tax dollars will be used to bail out the Wall Street financiers who wouldn’t cut the middle class a break when they were late on mortgage payments, the speculators whose uninhibited risk-taking caused financial institutions to fail, lending to freeze, stocks to swoon.

Deregulation of the financial industry allowed banks and other sorts of financial institutions to merge and become “too big to fail” and engage in risky purchases without sufficient supporting capital. McCain, who until recently bragged about being “Mr. Deregulation,” endorsed this suspension of rules. Its chief champion served as his campaign co-chairman – former Texas Senator Phil Gramm.

Gramm successfully pressed for repeal of the depression-era Glass-Steagall Act, which was designed to prevent financial institutions from becoming too big to fail, and for passage of the Commodity Futures Modernization Act of 2000 that deregulated those now infamous credit default swaps that took down insurer AIG, costing taxpayers another $85 billion.

Gramm left the senate in 2002 for an executive position with the Swiss investment bank, UBS, the stock for which, by the way, has plummeted right along with that of American banks.

McCain’s mentor

Gramm still advises McCain, though he’s no longer campaign co-chair. He had to resign that position after he called the United States a nation of whiners during an interview in which he also denied the seriousness of the financial crisis. Here’s what McCain’s financial mentor said, “You’ve heard of mental depression; this is a mental recession.”

Sure, when the coins of the middle class are flowing up into your pockets, Mr. Gramm, it doesn’t feel like a recession at all. Spreading the wealth around – from the middle class to the wealthy Gramms and multi-millionaire McCains.

Really, Joe “McCarthy” McCain was right when he called the Virginia counties of Arlington and Alexandria Communist Country. John McCain owns a condo in Arlington, and that’s where he located his campaign’s national headquarters. They’re communist all right, McCain Republican-communist, under which middle class earnings are spread to the rich.

In the debate Wednesday night, McCain accused Barack Obama of conducting class warfare because the Democrat wants to end Bush’s tax breaks for the wealthy and instead cut the taxes of the middle class – 95 percent of American families.

What Obama proposes isn’t warfare; it’s fairness.

Class warfare is what the Republicans have done to the middle class over the past eight years, and what McCain pledges to continue. It’s a war the rich now are winning.

That’s what Obama wants to change.