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August 04, 2011 9:35 AM Causing calculated contraction

By Steve Benen

Alex Castellanos, a prominent Republican media consultant and former advisor to the RNC, has a fairly boilerplate piece on the right’s economic agenda this week, making a predictable case that deficit reduction should be prioritized above all.

But there was one argument, in particular, that’s worth highlighting.

[W]e can’t borrow forever. There is no perpetual motion, in physics, economics or governing. At some point, as our debt grows, China charges us higher interest rates. Those rates expand our debt and make it even more expensive to service. This vicious circle winds tighter and the long-term pain of continuing to live beyond our means becomes life threatening. Eventually, like Greece, we run out of borrowed money.

Deficit reduction now, despite the contraction it must compel, is a much smaller price to pay.

When it comes to economic policy, Castellanos’ case is wrong in just about every conceivable way. Indeed, his concerns reflect a reality that bears no resemblance to our own, since the United States is able to borrow money cheaply and easily, and should do just that to help create more demand in the domestic economy. For that matter, the Greece comparisons are gibberish.

But pay particular attention to that last line from the excerpt: focusing on deficit reduction “must” lead to economic “contraction.”

Now, for Castellanos and many of his allies, they envision the contraction as temporary. It’s not clear how long they expect this transition period to last — two years? five years? more? — but Castellanos & Co. believe we’ll take money out of the economy now, things will get worse as we focus on addressing the fiscal recklessness of the Bush era, and then we’ll eventually come out the other side in good shape.

I tend to think this is dangerously absurd, but putting that aside, Castellanos and I fully agree on the underlying point: the Republicans’ economic agenda intends to make matters worse, on purpose, right now. With a weak economy and high unemployment, conservatives believe economic “contraction” is a worthwhile, short-term goal.

Americans who endorse this Republican approach are arguing, in effect, that policymakers should deliberately undermine economic growth and job creation, in the hopes that conditions will eventually improve after the right’s agenda has worked its magic.

That’s the choice for voters: do you want to compel contraction in the short term or not?

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

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  • bignose on August 04, 2011 9:43 AM:

    That's ok - Any economic contraction can be mitigated with massive tax cuts for the wealthy.

  • E.Hatt-Swank on August 04, 2011 9:44 AM:

    Good catch, and nicely laid out.

    But please don't forget to mention the cornerstone of the Right's short-term-contraction plans: getting a Republican president elected, and more Republicans in Congress. Shrink the economy now, cause lots of short-term pain so that people get disgusted and throw out the Democrats in power. Then the economy improves later on, when Republicans are in office, and they can take credit for fixing everything that those nasty Dems destroyed. Neat trick!

  • Th on August 04, 2011 9:48 AM:

    No, no, no. If Republicans think we need economic retrenchment to lower the deficit, I welcome the debate about the best way to accomplish this. Go back to Mark Zandi's chart of multipliers on stimulus and look at it in reverse. Which multiplier causes the least harm? Tax increases on the wealthy. Which causes the most harm? Cutting unemployment benefits.

  • Ron Byers on August 04, 2011 9:58 AM:

    Why would we need a retrenchment? Just start to grow from here.

  • Danp on August 04, 2011 10:02 AM:

    The level of insincerity is mind-boggling. The debt is more important than the economy. But so is low tax rates for highest earners. On might think that high earners would rather pay a slightly higher amount if it keeps the old milk cow alive.

  • Josef K on August 04, 2011 10:04 AM:

    Now, for Castellanos and many of his allies, they envision the contraction as temporary.

    They're also likely envisioning they themselves won't be inconvenienced by it, never mind feel any of the pain it'll inflict.

    We've got 'Hooverville' tent cities springing up, and enough unemployed to match the populations of Montana, Wyoming, Idaho, and Nevada. Not a recipe for a stable, prosperous future.

  • Mimikatz on August 04, 2011 10:06 AM:

    And the fact that contraction of the economy undermines Obama and makes his reelection less likely is just the frosting on the cake. Couldn't be the whole plan, could it? We'll know if a GOPer wins and Congress goes on a defense and tax cut spend spree.

  • kevo on August 04, 2011 10:10 AM:

    These supply-siders gotta go!

    The prime concern among Castellanos and his crowd is the protection of wealth, and the unabated ability to grow more wealth for the top 2% among us. So, his effort is to keep us tightly wrapped around the canard of deficit reduction, while avoiding the real pathway out of our economic woe: Demand Therapy!

    Our nation needs that pivot the media is beginning to converse about, and that pivot should be policy focusing on restarting demand, building demand, and then sustaining demand!

    How? By re-embracing FDR's economic legacy!

    Tell a friend - A vote for the Republican Brand in 2012 is a vote against the livelihoods of most of their friends and loved ones!

    Republicans gotta go in 2012! -Kevo

  • zeitgeist on August 04, 2011 10:10 AM:

    i think the able commenters here have pretty well nailed it. To summarize:

    1) "Temporary" contraction means "long enough to elect more Republicans" who can then spend like Bushies and get credit for turning things around;

    2) "Temporary" means short enough that the wealthy can easily weather the storm while breaking the backs and resistance of the working class so unions get busted, wages, benefits and regulations lowered, so in the long run the rich get richer and more powerful than ever.

  • MuddyLee on August 04, 2011 10:11 AM:

    Let's not forget that the rich people that republicans work for can deal with the economic contraction much better than the rest of us. They can just cut back on vacation spending while those barely getting by cut back on necessities. It's time to tax rich people so that the rest of America can survive.

  • jtadetroit on August 04, 2011 10:23 AM:

    Castellanos is certainly wholly and dangerously wrong. The problem is not that Democrats can't refute his argument but that they are unable to present their points in a clear, logical and forceful manner. His points may be boilerplate but at least he has a format which he uses whenever the opportunity arises and which is consistent with what his fellow Republicans are saying.

  • JEA on August 04, 2011 10:28 AM:

    Conservatives seem to think the debt is an oncoming economic Armageddon.

    Liberals seem to think $14+ trillion dollars is entirely irrelevant and we can just keep going with an unsustainable model forever.

    Neither view is correct. Both are extreme.

    The economy will continue sputtering as long as no long-term reduction plan is in place.

    If the debt reduction deal was one that business thought would work, we wouldn't be seeing this drop in the Dow.

    We can't do it this year, but neither can we put if off for a decade.

  • jlt on August 04, 2011 10:29 AM:

    Castellanos just pointed out the whole repub bagger terrorists game plan...It has nothing to do with fiscal responsibility..everything to do with extortion and being out of power and doing ANYTHING to extort the people for the benefit of their corporate donors and have a shot at the Presidency and Senate!

    Including bringing down the Nation...call them what they are ..terrorists and extortionists!

  • Th on August 04, 2011 10:35 AM:

    The biggest problem the Democrats have is Obama. Like Bush fancied himself the "Decider". Obama fancies himself the "Winner." Every bill he signs is the best bill, every proposal he makes is the best proposal. Even when they turn out not very good: stimulus, HAMP, etc. the administration is still out there bragging like it was perfect.

    All this would be excusable (you don't want to look like a loser) except they demand support from all Democrats. Did Gene Sperling really yell at liberal congressmen for not touting all the great parts of the debt ceiling bill? What great parts? Obama lost the House in 2010. Will he lose the Senate this time?

  • david1234 on August 04, 2011 10:39 AM:

    Our mistake was in 2001 when we abandoned the policy of running surpluses in good times. Deficits are good in bad times and surpluses are good in good times. There was a time not that long ago that practically everyone agreed on that. Things went wrong when we forgot that. They will not get better until we start remembering that.

  • biggerbox on August 04, 2011 11:01 AM:

    I haven't read such condensed pseudo-economic nonsense as that Castellanos quote since the last Ayn Rand quote I saw. Seriously, that guy knows nothing (or pretends to know nothing) about how money is lent, or how economies work.

    BTW, as a liberal, I'm frickin' tired of the claims like liberals "think $14+ trillion dollars is entirely irrelevant and we can just keep going with an unsustainable model forever." There were plenty of liberals jumping up and down during the Bush years so we didn't run up this deficit. There were plenty of liberals working hard to get cost-control and effectiveness measures into the health-care reform bill. There were liberals fighting to defeat the extension of Bush tax cuts for the wealthy.

    Liberals also know that one of the fastest ways to cut the deficit is to get the economy working again, and put people back to work, which is why big short-term infrastructure and jobs programs would have big long-term payoffs, so borrowing more now would pay for itself later.

    Liberals are the ones who are talking seriously about how to manage a sustainable economy for the nation over decades. What's unsustainable is the "cuts only" approach of Republicans like Castellanos, who know that in a 'contraction', the wealthy do OK, and its only everyone else who really suffer.

  • JM917 on August 04, 2011 11:02 AM:

    And when are the Democrats, from President Obama down to the lowliest Democratic candidate for the House, going to start relentlessly and loudly charging the Republican Party with deliberate economic sabotage? And all in order to defend the interests and the ever-growing and too-lightly-taxed income of the richest 2%?

    That's a drum that has to be banged from now until November 2012.

  • larry birnbaum on August 04, 2011 11:19 AM:

    Someone should explain compound interest to this guy. He sounds like one of those downer "limits to growth" people!

  • Old Uncle Dave on August 04, 2011 11:24 AM:

    The GOP have become the underpants gnomes.
    1. Screw the economy 2. ? 3. Big profits

  • Disgusted Texan on August 04, 2011 11:38 AM:

    WHAT choice for voters? With austerity-loving Obama on board, we have no choice.

    At least if Republicans are elected they may want to loosen up a little bit so they DO look successful. Obama is so stupid he thinks austerity helps him!!!

    I'll vote in the down ballot races; there is no "choice for voters" with the likely presidential nominees!

  • danimal on August 04, 2011 11:44 AM:

    "Itís not clear how long they expect this transition period to last ó two years? five years? more?"

    Pick me, PICK ME, I know the answer. It's easy. The transition will be until Jan 2013, unless Obama wins reelection. Then the transition will be until Jan 2017.

  • left reach on August 04, 2011 11:44 AM:

    The Municipal Authority is allowing extensive Marcellus Shale gas well drilling on land right next to a 1,300 acre lake which provides *drinking water* to 150,000 of us in Westmoreland County, Pennysvania.
    See these stunning pictures. Real scary in PA, and we have no voice with republican takeover of state senate, assembly and governorship.

    http://www.marcellus-shale.us/Beaver-Run-Reservoir.html



  • jjm on August 04, 2011 2:45 PM:

    Despite what people may think, this is not just to get Obama unelected. It is their actual, real vision of life.

    The only economic model I can see in all this is "oriental despotism" so-called, of the antique type: a few families with billions and billions and the rest with next to nothing.

    I mean when Cantor praises private companies for taking money designated for taxes (FAA shutdown) that tells the whole story, doesn't it? WE continue to pay (at unregulated rates) the same or more than we ever paid in taxes, but the money doesn't go for the common good, but only to enrich a few....

  • Nina on August 04, 2011 8:22 PM:

    If you want to understand just how deliberate all these outrageous Republican positions are, just read Naomi Klein's The Shock Doctrine. No surprise here at all. Been going on for nigh on 40 years, starting in Latin America and moving from there around the world.

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