Reviving stimulus negotiations: A lesson from the past century
Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steve Mnuchin said on Sept. 24 that they will resume talks on a virus-related spending package that have been dead since July. Americans had better hope they succeed because the economic future is becoming increasingly precarious for everyone threatened by a Covid-related depression that is bearing down on us.
The $2 trillion CARES package that passed in March included unemployment insurance for gig workers and contractors and relief for renters that is starting to run out. Pelosi’s Democratic House has supported a renewed $2 or $3 trillion package since May, but the Senate Republican caucus chokes on a quarter of that and has many members who do not want to spend another dime. That hard edged recalcitrance in the Republican Senate is why Mnuchin ignored Senate Majority Leader Mitch McConnell (R-Ky.) and his caucus and worked with Pelosi and the Democratic House to get the March package through, and why he will have to do so again if hard-pressed American households are to get anything like adequate continuing relief.
It is a frightening repeat of history. Serious economists, Republican and Democrat, are trying to convince Republican politicians that a $2 or 3 trillion package is needed, but the history of the last 90 years suggests that right-wing politicians cannot be taught economics. I say this because what is happening in the Senate in 2020 is a repeat of what happened in 1930-1933. As the Great Depression worsened, long lists of the most prestigious American economists tried to save the economy and President Hoover from himself by urging government to spend money but to no avail. (See Davis, J. Ronnie, “The New Economics and the Old Economists,” 1972, U. of Iowa Press) The economists in 1930, 4 years before the New Deal, petitioned Hoover and congressional leaders to launch a massive public works program to put millions of Americans to work. The politicians in 1930 though, like Republican senators today, were not buying and like today they had the ear of a public that they had made afraid of government deficits and debt.
What frightens me is that economic lunacy like we see being promoted in the Republican Senate seems to be a disease of crazy economic ideas all too familiar in democracies. I am reading “The Price of Peace” by Zachary Carter about the life of the famous British economist, John Maynard Keynes. The book is redolent with politicians ignoring Keynes carefully reasoned and experience-driven advice with disastrous consequences. In 1919 he tried to convince British and American leaders that imposing vengeful and impoverishing terms on the defeated Germans and Austrians would be a disaster. He was right and from 1920 until 1923 the German inflation, near famine, continuing wars in Eastern Europe, and the terrible resentments that resulted from botched economic policies were the predicted fall out of vicious economic policies that ignored Keynes’ advice.
Keynes tried again to get politicians to listen to him in the mid-1920s. He sought then to persuade the British establishment including prominently Winston Churchill, not to force Great Britain back to the pre-war relationship between the pound, dollar and gold. His argument was that such a policy would worsen the painful post-World War joblessness that had already dragged on for almost a decade. Again, the economist was ignored by the politicians who hankered mindlessly for the old gold standard. As Keynes predicted, however, trying to reconstitute those ravaged and outdated monetary relationships by driving down wages and prices led to even higher unemployment and near class-war.
To deal with that new surge in unemployment, the great economist tried again in the late 1920s to teach the politicians rudimentary economics. He called for substantial public works programs to counter the deflation that was ravaging the working class. Again, he failed and the bitterness engendered by the decade of post-war disregard for working class suffering made it impossible for the newly powerful Labor Party and Britain’s still powerful Tory establishment to work together until World War II came.
The lesson for Americans in the fall of 2020 is this. Listen to the economists who are more concerned about deflation than inflation if the government does not spend. Following what passes for economic wisdom in the Republican Senate would be a disaster. Listen to Fed Chairman Jerome Powell and the other conservative and progressive economists who are urging government spending to avoid another severe recession. The American political system may not be strong enough to handle another round of totally unnecessary unemployment if reactionary Republicans succeed in preventing the government from taking its responsibility to spend during this emergency when furloughed and cautious consumers and beleaguered businesses cannot.