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Health & Fitness

GDP = C + I + G + (X-I) (or why Republicans are wrong about the economy)

No, was, is and will always be the Republican answer to government stepping up, when free market capitalism stumbles and falls.

The question to ask Republicans is where is your jobs plan? In between constructing bizarre anti-abortion policies, objecting to fair-pay legislation, and seeking to redress the non-existent issue of voter fraud by means of voter suppression, they basically have no concrete answer to this question. And that’s because they don’t have or need one. Their jobs plan is free market capitalism, preferably of the unrestrained variety. On the face of it theirs is a simple and logical response. Why concoct some non-market driven or artificial plan to boost employment and the economy when the existing system does such a good job of it?

Under normal circumstances, the Republican “approach” has its merits, but the Republican approach has always suffered when abnormal or difficult economic circumstances prevail. Such circumstances were present in the 1930s when the Great Depression was in full effect destroying wealth, businesses and lives while generating a staggering 25% unemployment rate. The Republican answer to that crisis was “liquidate," the infamously cold response uttered by then Secretary of the Treasury Andrew Mellon.

Liquidate essentially meant, do nothing. Let the chips fall where they may, let unemployment soar, let foreclosures rule the day, let wealth disintegrate unabated and allow greater economic pain to fall upon a greater number of American citizens. As always with Republicans, allegiance to ideology trumped everything - better a sound ideology than a sound and more secure society. And it’s worth noting, both then and today, that the fatter one’s bank account, the more palatable the Republican approach.

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Something very similar to the Great Depression began unfolding in America when the Great Republican Recession of 2007/2008 started gathering momentum. Unemployment had risen to 7.2% in December 2008 with 3.6 million jobs lost from the previous December, and GDP was already shrinking at an alarming and record setting pace.* Those unemployment numbers (a lagging economic indicator) were fully the result of Republican tax, deregulatory, spending and financial sector policies, and continued their downward spiral well into President Obama’s first few months in office.

The formula cited above is a familiar one. It defines Gross Domestic Product (GDP) as a measure of all the goods and services produced in the United States. It is an imperfect, but generally accepted measure of the economic well-being of the nation. The “C” in that portion of the equation represents consumer spending. People out of work have no paycheck and spend less money, so “C” was sinking fast in late 2008. And what do businesses do when consumer spending is down? They stop investing in plants, equipment, and productive facilities. That is, business investment, or the “I” in the equation, was also contracting dramatically as Bush and the Republicans, who by the way controlled both Houses of Congress for a majority of his Presidency, left office. The two terms under Bush also produced record trade deficits, meaning imports out-paced exports producing a negative “X-I” in the GDP equation.** That was the economic reality that confronted Barack Obama when he assumed office in 2009 – three components of GDP were negative or collapsing leaving only “G” or government spending to stimulate economic activity and arrest the economic free-fall. Record home foreclosures made matters even worse.

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Typically, just as they had in the Great Depression, Republicans ridiculed and blocked any effort to utilize “G” to bolster the economy. They didn’t quite say liquidate – well, actually, that’s exactly what they did say when Obama intervened to rescue the Detroit auto makers – but they made it clear that they preferred the comfort of ideological purity to any governmental policies that might bring economic comfort to millions of suffering Americans made un-whole by eight years of Republican economic malfeasance. That meant saying no to the auto rescue, no to the stimulus package (like the one that hired teachers at my high school and enabled my town to create jobs and pay for a business-boosting overhaul of main street), and most incredibly, no to the President’s infrastructure jobs bill. Never mind that the American Society of Civil Engineers recommended that $2.2 trillion be spent over five years improving America’s “D” grade infrastructure.*** Never mind that passing the bill would have created thousands of jobs in the construction sector which is experiencing one the highest (14%) unemployment rates in the country. No, was, is and will always be the Republican answer to government stepping up, when free market capitalism stumbles and falls, to provide short-term remedies that produce jobs, solve problems, and most importantly lessen insecurity and pain among its citizens.

American business, after decades of denial, self-deception and creative accounting, is in the process of adjusting to a vastly changed economic landscape. The period of adjustment will be longer and deeper than has been previously experienced as is the length and depth of the current Great Recession. The question is how much pain will be expected of the American workforce during this time? How much unemployment, how many reduced wages and benefits, how much more productivity without reward will be required?

In “liquidate” you have the Republican response. In “G” you have the Democratic.

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