Tuesday, July 12, 2011


It looks to me like the President and the Democrats in Congress have let themselves be pushed into a 2012 election trap. Pretty much any deal made with the GOP on raising the debt ceiling and/or dealing with the deficit will now have to contain provisions which will increase, rather than decrease, unemployment leading up to the election. Why?

Okay, just to review a little: The GOP wants to cut lots of spending and taxes on corporations and wealthy individuals, you know, the groups that they call the "job creators." The Dems for their part now want to cut spending by trillions of dollars and raise some taxes. That's really about all that they can't agree on. The taxes part of the equation. But as far as the President's reelection prospects are concerned either option is equally bad.

I think we have to look at the basic assumptions of each position. The basic assumptions under which the GOP is operating are that:
  1. All tax cuts increase revenues, and
  2. If we cut taxes on the "job creators," they will, well, create jobs, and
  3. Cutting government spending will stimulate, and increase, spending in the in the private sector and thus create jobs.
On the President's side the assumptions are:
  1. In order to increase revenues we must increase taxes, and
  2. The level of taxation has little, if any, effect on hiring or expansion, and
  3. Government spending stimulates the economy, thus helping the creation of more jobs.
Now it's pretty easy to see that the two sides will never really agree on anything since their respective world views are so completely different. But go back and reread the second paragraph. The Dems are willing to ignore their assumption #3 and make massive cuts to spending. This is the President's first reelection hurdle. I've said before, almost redundantly, that I think that cutting spending will cut jobs. My logic goes like this: if you take dollars out of the economy those dollars can no longer be paid as wages.

"But we're broke," screams the GOP, "40% of that dollar was borrowed. From China." "We can't afford that spending." Well okay, for the sake of argument I'll agree with the GOP here. But only for the sake of argument. The point is, they're looking at the wrong side of the equation. At the place were the dollars actually get spent their source matters not one wit. What matters is that somebody got paid with that government dollar and now, after spending cuts, they will not get paid. Of course the GOP counters that, if the program in question has merit, the private sector will step in, make investments and no one will lose their job and everything will work out fine. Back on the farm I used to have to shovel that stuff!

The GOP's reliance on the "private sector" to step in and save us all is a recurring theme. Just look at the GOP #2 above. It's a nice fairy tale. It just has no basis in fact. But it works really well as a political club. And that's where Obama's problems arise.

If the President agrees to huge spending cuts, as seems likely, something like $3 to $4 trillion will be removed from the economy over 10 years. That will, in my opinion, result in a spike in the unemployment percentage of from .5% to 1.5%. Since we are now at 9.2% it doesn't take a rocket scientist to see that this would be very bad news for Obama. But how about that tax increase/tax cut part of the equation?

If the GOP is right, and they get an agreement including tax cuts, then the jobs picture should improve, which is a net plus for the President's reelection hopes. Does anyone believe that the GOP wants that result? And really, what kind of policy is it that gives money to one segment of society and then simply hopes that they will hire more people because of all the extra money they have. Oh ya, it's called a conservative policy.

So, here's my take on all of this. If Obama and the Dems agree to spending cuts (cuts jobs) and no tax increases. The GOP will then point at the unemployment number and claim that it was the failure to cut taxes that caused the problem. Obama loses. Or, the Dems agree to the spending cuts (cuts jobs) and tax cuts. Since I see no real connection between tax cuts and more hiring the result will be the same. Increased unemployment and, Obama loses. See, I think that the GOP knows full well that the surest way to "make Obama a one term president," is massive cuts to spending which will put more Americans out of work. Too bad that that's the one thing both sides seem to be agreeing on.

And one more thing. If Obama were to bring home the troops from Iraq and Afghanistan a great many of those men and women will leave the service for private life. You know, the private life where there are no jobs. Strike Three Mr. President!

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