Editore"s Note
Tilting at Windmills

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March 27, 2011

HIGHER UNEMPLOYMENT AND LOWER WAGES -- ON PURPOSE.... About a month ago, I described the Republican economic plan as "higher unemployment, lower wages, and slower growth." It's worth appreciating the fact that (a) I meant that literally; and (b) occasionally, GOP officials will acknowledge their intentions.

Tim Fernholz and Jim Tankersley reported this week on a little-noticed report distributed by House Speaker John Boehner's (R-Ohio) office last week, summarizing the findings of the Republican staff of the Joint Economic Committee.

[T]he paper predicts that cutting the number of public employees would send highly skilled workers job hunting in the private sector, which in turn would lead to lower labor costs and increased employment. But "lowering labor costs" is economist-speak for lowering wages -- does the GOP want to be in the position of advocating for lower wages for voters who work in the private sector?

The report also touts the value of cutting "transfer payments," or subsidies, to private firms, suggesting cuts to Amtrak and ethanol support. But many Republicans back both of those objectives, and the GOP has long been a staunch defender of corporate subsidies through both spending and the tax code, including direct payments to agricultural firms.

Remember, independent economists, including some who have no sympathies for Democrats, have said the Republican spending cuts, if approved, would lead to roughly 700,000 job losses. (Told about making unemployment worse, John Boehner replied, "So be it.")

But the GOP plan isn't just to increase layoffs, at least in the short term, it's also to intended to make sure Americans are earning less money.

Paul Krugman summarized the economic thinking embraced by congressional Republicans.

The idea is this: we'll lay off government workers; this will raise unemployment, putting downward pressure on wages; and lower wages will lead to higher employment.

So, for this to work you first have to have a downward-sloping demand for labor as a function of the nominal wage rate. There's no reason to believe that's the case: in a liquidity trap, falling wages probably reduce the demand for labor, because they worsen the burden of debt.

And even if you somehow bypass this objection, the argument is still nonsense: it says that by reducing demand, you cut the price, which increases demand, which means that you end up selling more than before. Um, no -- that's the kind of answer that, in Econ 101, has you suggesting that the student get special tutoring.... As Wolfgang Pauli used to say, what we have here is an argument that isn't even wrong.

If pressed, I suspect GOP leaders would say their radical experiment would only cause temporary pain throughout the economy. Sure, unemployment would go up and workers' wages would go down, but that would only continue during a transition period.

And how long would America suffer while this transition continued? Republicans haven't quite answered that one yet.

We really are in a through-the-looking-glass debate at this point. Republicans benefited greatly from a weak economy in 2010, riding a wave of public frustration to massive electoral gains. Voters, looking for a change from the status quo, expected the GOP to focus heavily on job creation and economic growth.

Just a few months later, Republicans have responded with a plan that would make unemployment worse, on purpose, while lowering Americans' wages, on purpose.

And if Democrats resist, Republicans -- who don't believe in compromise -- will shut down the government, block an extension of the debt limit, and push the economy back towards a recession.

One wonders if this is what midterm voters had in mind six months ago.

Down the rabbit hole we go.

Steve Benen 11:35 AM Permalink | Trackbacks | Comments (42)

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Comments

This lower wages lead to increased demand argument reminds me of trickle down economics, lower taxes lead to more revenue. Republicans like to invoke their ideological preferences, then make up an irrational, but reassuring to the uncritical citizen,result.

Posted by: Mudge on March 27, 2011 at 12:00 PM | PERMALINK

You are surprised? I certainly am not. The Repukeliscum are attempting to get the US onto the wage scale of Mexico. If we had the same economy and wage scale of Mexico, we could return manufacturing to this country, and many employment problems would go away. It would be a good thing.

The trick is doing it while reducing prices, and that is probably impossible.

Posted by: POed Lib on March 27, 2011 at 12:02 PM | PERMALINK

What this Repiglicans/Corporations are creating in our country is our on form of fascism. And this is and will lead to a neo-feudalism where the common person is nothing more than an indentured servant to the fascist state. Soon they will make a major push to undermine the minimum wage laws, and the child labor laws. Now and into the future it will force common people to fight among themselves for the 'scrapes' of food and jobs that are 'offered' by this fascist state. Unions will be totally gone because of forcing people to compete for the measly jobs that are left in this country. And, all the while, they will be able to 'fool' through their lies and deceptions the typically stupid American who does not have the critical thinking skills to understand what is happening until it is way to late. And, of course, all of this will be aided and abetted by the Corporate Media and the corrupted Souls who are their employees doing their bidding.

Posted by: stormskies on March 27, 2011 at 12:03 PM | PERMALINK

The poor must be punished for their poverty, for if they were not deserving of it, why would they be poor?

And the middle class lives, shall we say, in the near occasion of poverty, one paycheck away, so can be fairly be punished for their poverty preemptively. That's just prudence.

Posted by: Davis X. Machina on March 27, 2011 at 12:04 PM | PERMALINK

High unemployement and ever lowering wages and benefits = pissed-off voters.

Lower wages and worse benefits = pissed-off voters.

Pissed-off voters = benefit to the Republican Party, as this causes more strife amongst the don't have's.

The transition period?
Easy!
2012, 2014, 2016. They figure a bad economy can be blamed on Obama and the Democrats for at least the next 3, maybe 4, elections.
And the MSM will go along for the well paid ride.

After that, if they're right, we have a 'Banana Republic(an)' and voting will be merely an affirmation of the status quo - like in every other 3rd, or 4th, world nation.

Unless we can right this ship in the next 2 or 3 elections, you can kiss this country goodby.

It's already almost unreconginzable from the one I grew up in in the '60's and '70's.

Just watch us in the future as we'll make Central American and African governments look like models of restraint and efficiency.

Posted by: c u n d gulag on March 27, 2011 at 12:11 PM | PERMALINK

Lemme see - Cut wages to the level of those in Mexico - Cut off any social services to the poor, ala Mexico - Voila, it would solve the exodus northward of citizens of Central America and Mexico. Just stay home and have the same "benefits". Why have to beg on Rodeo Drive, when you could do the same in the Zona Rosa?

Posted by: berttheclock on March 27, 2011 at 12:20 PM | PERMALINK

With this great new global economy, the American Consumer is no longer an important part of the American economy, because American corporations are no longer American, they are international and not dependent upon it as a profit center. Why should they pay Americans more than they pay Vietnamese?

We are in a life and death fight here, kids, and working class is on the very short end of the stick.

Posted by: karen marie on March 27, 2011 at 12:40 PM | PERMALINK

That's a very attractive solution, and should be applied universally.

Even the private sector should be encouraged to fire its employees en-masses so that ultimately the employment will increase. For after all, if everyone is unemployed, even one additional job leads to an infinite improvement in employment.

Republicans should be applauded rather than deplored for their economic genius.

Posted by: samsa on March 27, 2011 at 12:41 PM | PERMALINK

One wonders if this is what midterm voters had in mind six months ago.

You're giving way too much credit to the voters, who are the products of the mis-education of the past 40+ years, people who are semi-literate as the result of "reading reforms" in schools, and complete political illiterates as the result of the "reforms" of the social studies curriculum.

One begins to wonder if all the "education reformers" of the past 50 years haven't really been Republican operatives, since the result of all their "reform" is a dumbed-down electorate and a dumbed-down political system - exactly what Republicans need to put their radical right wing revolution into operation.

As they are doing in front of our faces.

Posted by: TCinLA on March 27, 2011 at 12:42 PM | PERMALINK

It cannot be stated too often that our conservative friends view wages as an impediment to business rather than an integral part of it. Jobs are bad. They're bad because workers have to be paid. And that comes out of the corporate coffers. Nothing should ever come out of the corporate coffers.

Unless it's going to a PAC...

Posted by: Roddy McCorley on March 27, 2011 at 12:43 PM | PERMALINK

Complicit in this is the MSM, who refuse to air any sort of discussion to the public. We are offered the Video of the Day- Charlie Sheen, exploding Libyan tanks, kitten in a tree- whatever will distract us from channel surfing long enough to sell us the latest prescription drug or Caribbean cruise.

There is a reason why our education system, healthcare, and infrastructure is sinking line a stone, when compared to the rest of the developed world.

As berttheclock says, we are becoming Mexico. Can we halt our downward spiral to oblivion?

Posted by: DAY on March 27, 2011 at 12:45 PM | PERMALINK

http://onegoodmove.org/1gm/1gmarchive/2003/08/cheaplabor_cons.html

The simple notion of "cheap labor conservatives" explains nearly everything that the Right is pushing for.

They want workers to be hungry, desperate, and grateful to receive only crumbs. Analyze almost any conservative/right-wing policy and you'll see it increases the number of people willing to work for low wages.

Simple, really. And despicable.

Posted by: Robert Moskowitz on March 27, 2011 at 1:00 PM | PERMALINK

But the important part is that corporate profits will increase with lower worker wages. So the corporate executives, lawyers, lobbyists and wealthy stockholders and stockbrokers will continue to get richer as the middle and lower classes become relatively poorer, as they have for the past thirty years. So this R economic prescription is, well, perfect.

By the way....."week"????

Posted by: emjayay on March 27, 2011 at 1:10 PM | PERMALINK

Republicans read The Grapes of Wrath as a guide to labor management. Think of all the money those farmers saved with that influx of starving people from Oklahoma!

Posted by: jonas on March 27, 2011 at 1:11 PM | PERMALINK

IQ is dependent on genes except in the case of poverty where genes almost don't matter,

http://www.huffingtonpost.com/scott-barry-kaufman/nature-vs-nurture_b_837915.html

ergo, poverty causes brain damage.

Republicans work to increase poverty.

What more is there to say?

Posted by: cld on March 27, 2011 at 1:28 PM | PERMALINK

"Republicans should be applauded rather than deplored for their economic genius."

Well, you have to give the GOP credit for finding a way to produce the typical results of another round of Milton Friedman's idiotic economic theories without controlling the White House and both branches of Congress. As usual, the GOP needs enough low information voters, religious crackpots, gun nuts, and other single issue fools to vote against their own economic interests. Given the usual free ride they receive from their own corporate media, I put their chances at 50-50.

Posted by: max on March 27, 2011 at 1:54 PM | PERMALINK

Is American Exceptionalism when the average citizen is below third world living standards? Is this the Republican Dream?

Posted by: Dean on March 27, 2011 at 2:08 PM | PERMALINK

Mod alert! Fake (also illiterate and feces-festooned) Canuck @2:12PM.

On topic:
But the important part is that corporate profits will increase with lower worker wages. -- Posted by: emjayay on March 27, 2011 at 1:10 PM

Only up to a point. When people can't afford what you're peddling, your source of revenue dries up. People who can only afford the basics will wear the same clothes longer and patch them up instead of replacing them. They will not replace their TV sets, 'puters or other unnecessary gadgets. We'd get a replay of old time mechanics who can fix a car so it keeps going for 50 years (see Cuba), but that doesn't help the big corporations at all.

If US were to turn away from the rampant consumer model to a super-saver one, the big corporations would be up the spout. It would take a while for the population to change its habits but, if the downward push continued to be as relentless as it is now, sooner or later they would. Some have already discovered -- if not voluntarily -- that they can live without a single credit card, never mind 5 different ones. And they're not going to borrow to remodel their house, if their prospects for paying are uncertain. So there go the banks' profits. Etc.

Posted by: exlibra on March 27, 2011 at 2:32 PM | PERMALINK

There is a lot wrong with that argument, but one thing that surprised me was their argument that government employees are highly skilled. Doesn't the standard Republican argument say that government workers are lazy and over paid? Now they are conveniently saying that such workers are now highly skilled. Which is it? Obviously this whole line of thinking is silly with unemployment at 9%. There are plenty of unemployed and highly skilled workers. What there isn't plenty of is jobs for them. So get on that, rich people. You claim you need tax cuts because you create the jobs. We gave you your tax cuts, now go create some fucking jobs.

Posted by: fostert on March 27, 2011 at 2:41 PM | PERMALINK
Republicans have responded with a plan that would make unemployment worse, on purpose, while lowering Americans' wages

c u n d Gulag (above) understands the game the Republicans are running on America. The only economic interest the Republicans have is fattening their own bank accounts. The purpose of their plan is to regain control of the US government and to entrench the plutocrats into a new American Aristocracy.

Economy be damned. This is all about Republican power.

POed also gets it. The Republicans look to the South and see Latin America where in most nations there is an effective aristocracy of about 10% of the population living a very good life and everyone else ranges from living hard to living desperately hard. That's the Latin American economic model that America has been moving towards since Ronald Reagan was elected. Just look at the income distribution and how it has changed in the last half century.

Posted by: Rick B on March 27, 2011 at 2:42 PM | PERMALINK

If pressed, I suspect GOP leaders would say their radical experiment would only cause temporary pain throughout the economy.

temporary through say... the fall of 2012.

The republicans' intentional infliction of suffering on large numbers of Americans for their own political gain is criminal.

Posted by: gak on March 27, 2011 at 2:49 PM | PERMALINK

it used to be pretty fuzzy what the conservative phantasmagorical "good old days" were. At least since 2008 its become crystal clear what republican/conservatives are talking about when they speak of "the good 'ole days": The Great Depression! Impoverished workers, subsistence wages where jobs exist, no unions, no benefits, no worker's rights, child labor, a gilded age of the rich free to unaccountably suck every last ounce of life-blood from the American people, stealing the nation's wealth - the people's wealth, blind until there is nothing left.

republican/conservative's "Good Ole Days": The Great Depression

Posted by: pluege on March 27, 2011 at 2:56 PM | PERMALINK

I have read that a group called ALEC are the ones that are writing the legislation that the republicans are trying to push in all of the midwest right now, also that the Koch's are very influential in this group. Sounds like the 30's when Hitler came to power the first thing he did was bust the unions, we all know how the Koch's are fans of Mussolini and the Koch fortune was made in Stalin's Russia, it is what we are seeing now in the US. Bachman says she wants to take back her country - perhaps she is from soviet Russia.

Posted by: j on March 27, 2011 at 3:33 PM | PERMALINK

UTTERLY REPREHENSIBLE.

This excellent post needs to be publicized widely.

Posted by: jjm on March 27, 2011 at 3:59 PM | PERMALINK

voodoo economcis. but why does anyone expect anything any less from the rethugs. those dumb voers who voted for them are getting what they deserve, the real tradgedy is the rest of us who didn't vote for the rethug taliban

Posted by: sheryl on March 27, 2011 at 4:27 PM | PERMALINK
One wonders if this is what midterm voters had in mind six months ago.

Thats right Steve! The Democratic party ignored (and continues to ignore) economic issues during the worst economic calamity since the Great Depression. But its all the Midterm voters' fault!

/snark

Posted by: Jon Karak on March 27, 2011 at 4:33 PM | PERMALINK

why is this not in MSM? oh yeah corporate owned. this is truly criminal

Posted by: sheryl on March 27, 2011 at 4:35 PM | PERMALINK

"One wonders if this is what midterm voters had in mind six months ago."

Probably not the mid-term VOTERS, but plenty of midterm NON-VOTERS expected this sort of thing and welcomed it. Yeah, let the Tea-Baggers and "progressive" abstainers see how bad it can get. Let them actually have their way again, at least for a few more years. Give them all the rope they want.

If this doesn't cause Americans to smarten up, nothing will. And look! See how much smarter folks in Wisconsin are becoming?

Posted by: zandru on March 27, 2011 at 4:50 PM | PERMALINK

The only thing more reprehensible than this Republican 'plan' is the non response from Obama and the Democratic leadership. Oh, that's right, we don't have any leadership. I don't blame the Republicans for what they are trying to make happen. I blame Obama and the Democrats for letting it happen and even at times, voting with the Republicans and against the American people.

Posted by: Lynn on March 27, 2011 at 5:02 PM | PERMALINK

Why would this be a surprise? With the extinction of more traditional ways of hoarding wealth -- securitization of debt, fees on top of fees -- the only way left for the wealthy to continue to accrue wealth is to, literally, appropriate it from the middle class.

Won't the Tea Party masses be surprised when they realize that they're the first to be thrown to the wolves?

Posted by: Jimo on March 27, 2011 at 5:23 PM | PERMALINK

I know that there are those who rail against the constant criticism of Obama, but Lynn @ 5:02 has it right.

Obama's greatest gift is his command of language, and he should be speaking out against these vile people at every opportunity.

To paraphrase Steven Wright, "Republicans. Can't live with 'em, can't shoot 'em", but surely you can expose them for what they are?

Posted by: Squeaky McCrinkle on March 27, 2011 at 5:24 PM | PERMALINK

Hey - how hard is this to figure out?

Republicans always want lower wages, but seldom campaign explicitly on it. (Duh!) But as long as Obama is in the White House and the Democrats hold the Senate, the GOP has every incentive to wreck the economy - because they're not the ones who will get blamed!

And why should they, when the White House and Congressional Democrats keep talking about reaching out and trying to find common ground? Instead of giving the Republicans cover, they should be calling them out on it.

But that would be uncivil.

Posted by: xaxnar on March 27, 2011 at 6:00 PM | PERMALINK

And don't forget the military as a new career. I just heard Armchair Field Marshall Lieberman call for a Lybian-style action against Syria! Bomb them back to the Stone Age - after all, it's not a long journey for those sharia-loving bastards!

Uncle Sam Needs You!

Posted by: Squeaky McCrinkle on March 27, 2011 at 6:09 PM | PERMALINK

Is it just me? Or do I detect a general trend towards p r i v a t i z a t i o n?

I know it is immature for me to space out the word, but I am pissed.

Pissed at the willful destruction of our economy.

How dumb do you have to be to not see what the financiers have done to us in the last 3 years?

It's as if, somehow, the rich realized how to screw us all, and take theirs before things tank.

Trust me. That is the truth.

Posted by: Tom Nicholson on March 27, 2011 at 6:31 PM | PERMALINK

"Lowering labor costs" is a phrase that originates in the point of view of a business; "lowering wages" originates in the point of view of a worker. Note how naturally the Republicans assume that the the only real point of view is that of the business or corporation. Workers don't have points of view.

Posted by: rivers on March 27, 2011 at 6:37 PM | PERMALINK

Step right up, and holler down the well!
The echo is in perfect agreement, and soothing to the soul.

If that doesn't satisfy, then let's emulate the French and the English and the Germans (it was all over today's Al Jazeera America newscast)-and take to the f*ckin' streets!

Posted by: DAY on March 27, 2011 at 7:48 PM | PERMALINK

IIRC, consumerism was seen as the answer to the Great Depression. We would all be so busy buying things that business would thrive and consumers would be employed and have money to buy more things; a virtuous circle of activity.

The wizards of Wall Street and their GOP enablers appear have thrown out consumerism as an economic model. In its place they have gone all in on rentier capitalism.

Posted by: AK Liberal on March 27, 2011 at 8:33 PM | PERMALINK

As we become Mexico, the global corporations won't be hurting bc they have the growing middle class in India and China and So Amer to buy their stuff (a LOT more consumers there than here). As soon as they "fix" the rules the Koch bros et al don't like, they really won't need us all that much. Buckle your seat belts.

Posted by: pea on March 27, 2011 at 8:40 PM | PERMALINK

Wait! Who told them they could talk about something other than abortion?

Posted by: ComradeAnon on March 27, 2011 at 9:09 PM | PERMALINK

To put it simply, Republican leaders, both political and financial, are sadists...who want everyone else in America to be willing (or unwilling) masochists.

Posted by: The Oracle on March 27, 2011 at 9:30 PM | PERMALINK

It like these folks read Naomi Klien's "Shock Doctrine" as a how to book.

Posted by: Henk on March 27, 2011 at 9:37 PM | PERMALINK

WIth low wages and high unemployment, American managers will be able to continue to produce "productivity" gains by making the workers work harder for less pay.

This has been the only trick this generation of managers has ever known. Apart from a handful of companies like Apple, perhaps a telcom or two, and a few others, name a US corporation (managed here) that has innovated its way to growth. (I think we can safely exclude our innovative bombs and rocket companies, too.)

They only know how to post ever larger profits by reducing/eliminating cost.

Posted by: Jim Pharo on March 27, 2011 at 11:45 PM | PERMALINK




 

 

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