Manchin’s debtophobia

Joe Manchin has built a successful political career by running as a Democrat on Republican economic policies. His tenure as West Virginia governor had as its centerpiece business tax cuts taken straight from the American Legislative Exchange Council’s playbook. Those cuts sucked money out of the state’s economy in the form of tax savings for out-of-state corporations and utterly failed to trigger growth. As a newly minted senator, Manchin supported extension of President George W. Bush’s income tax cuts, which greatly exacerbated the federal deficit and did little for the nation’s economy and less for West Virginians. At the same time he railed against extension of the payroll tax reduction, which added much less to the deficit and helped far more West Virginians.

Now he is the U. S. senate’s most passionate advocate for the Simpson-Bowles budget plan.

Manchin has recently been all over the airwaves loudly proclaiming the need to rein in federal spending and pay down the debt lest we induce economic calamity. But, Manchin is merely the high priest to the real prophets of doom — former Sen. Alan Simpson and former White House chief of staff Erskine Bowles.

Within two years, Bowles warned at a senate hearing, “the markets will absolutely devastate us.”

“Sooner!”, said Simpson.

That was almost three years ago.

Days came and went, including, in March of this year, the two-year anniversary of the prophecy, and none of the hounds of Hell of which Simpson and Bowles prophesied – skyrocketing interest rates and inflation — are anywhere on the horizon.

In fairness, it’s no sin to make bad economic predictions as long as you identify the errors in your understanding and adjust policies accordingly. But, Simpson and Bowles have not done so and neither has Manchin, who continues as chief evangelist for tax and budget policies that are grounded in error and that would not only harm the nation’s economy and cause great suffering, but which would harm West Virginia most of all.

Manchin and billionaire-funded organizations, such as Fix The Debt, warn ominously about the nation’s $17 trillion debt and the “burden” we’re creating for our grandchildren. $17 trillion! — a really big number; terrifying, right?

It shouldn’t be. Many advanced countries including the United Kingdom and Japan have functioned for decades free of catastrophe and with debt levels twice as great as ours. And, in the post-World War II years, federal deficits were even larger than they are now and we didn’t surrender to the Chicken Littles who warned of cataclysm and demanded balanced budgets. Instead, we spent, we invested, and the economy grew so much that the debt was paid down, not by cutting spending, but by the increased tax revenues generated by economic growth. And that’s the way it will happen this time too — if we let it, if we don’t listen to panderers of debt hysteria.

Already, the federal sequester is subtracting $93 billion and a million jobs a year from economic performance, according to the Congressional Budget Office. But, rather than accept this and other empirical evidence that the economy’s weakened state is caused by a dearth of demand and too little government spending to compensate for weakness in the private sector, Manchin and his fellow debtophobes attribute the nation’s economic malaise to “uncertainty about Washington.”

As explanations go, this is like saying that the flu that’s going around is caused by “evil spirits.” It replaces objectively observable and quantifiable causes for the nation’s economic weakness with quasi-mystical speculation that has blossomed into a fully formed phobia.

If we enact additional austerity measures contained in the Simpson-Bowles-Manchin plan – among them cuts to Social Security and Medicare and caps on deficits and on federal spending as a percent of GDP among others — billions of dollars will be sucked annually from the economy and the consequences will be dire. The economy will slow, jobs will be destroyed, and the federal government will have fewer resources with which to support the waves of the newly created unemployed for whom there will be no jobs.

That’s exactly what has happened in the wake of the 2008 financial collapse in nations such as Ireland and Spain that adopted the Manchin-Simpson-Bowles-Manchin strategy of trying to reduce debt by cutting spending and raising taxes in the face of the downturn. Before the crash, Ireland and the United States both had unemployment rates of 4.5 percent. Since then, the US rate has dropped to a little over 7 percent while Ireland’s continues to be more than 14 percent. Spain’s is over 25 percent.

Conditions will be worse in West Virginia than in the rest of the country. Because our chronically anemic economy depends so heavily on Social Security and other federal transfer payments, for every dollar that’s cut from social safety net benefits nationally the comparable loss to West Virginia’s economy is $1.67. Meanwhile, because West Virginia incomes are so low, for every dollar American taxpayers get back from cuts to personal and corporate income taxes, West Virginians receive only 67 cents. It’s a double-whammy that will drain billions of dollars from the state resulting not just in lost jobs, but in lost sales for West Virginia merchants, and in lost revenue for state government, which will almost certainly have to respond with further cuts in education and other vital services.

Joe Manchin may or may not someday rescue himself from his debtophobia. But, we need to rescue ourselves.

— Sean O’Leary may be contacted at seanholeary@gmail.com. This and other columns may be seen at the-state-of-my-state.com

 

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