Weekly Audit: Are Handouts For Billionaires More Important Than Feeding Children?

by Zach Carter, Media Consortium blogger

The crazy conservative assault on government spending has become one of the most irrational economic policy debates in recent years.

The Republican Party is trying to maintain the fiction that direct economic relief for millions of working Americans is a fiscally irresponsible splurge, while simultaneously backing hundreds of billions of dollars worth of economically useless tax cuts for the wealthy. The demands are staggering: cut food stamps for the poor, but preserve perks for billionaires.

As Tim Fernholz notes for The American Prospect, serious economists do not believe that President George W. Bush’s tax cuts for the rich are an effective way to stimulate the economy. Rich people don’t spend money, they save it. We need lots of consumer spending to reinvigorate economic growth and put people back to work.

If we want to create jobs, we need to put money in the hands of people who will spend it. At minimum, that means directing aid to the unemployed and providing federal assistance to states, so that local governments don’t lay off hundreds of thousands of teachers and cops. This is not only the decent, humane thing to do when the economy is struggling, it actually helps. Money the government spends to save a teacher’s job goes out into the economy to pay bills and buy products. For states, this also means that basic public infrastructure is preserved—kids learn and the streets stay safe.

Stonewalling aid

But as the editors of The Nation highlight, Republican politicians have made it nearly impossible to get that critical aid out to American families. They’ve demanded strict measures for these benefits, forcing Democrats to cut food stamps—that’s right, food stamps—in order to keep teachers in school and cops on the street.

Millions of families all over the country depend on food stamps. In the middle of the worst recession since the Great Depression, Republican politicians took a stand to take food from the mouths of children—and they did it while supporting a $300 billion a year in handouts for the rich.

There is no immediate budget crisis. The government can borrow money at record low interest rates, meaning that investors don’t believe the federal budget deficit is too big. But if conservatives were really serious about shrinking the deficit, they’d be encouraging economic growth, not backing billionaire giveaways.

Banking on predation

Our perverse economic policy preferences aren’t limited to budget priorities. As Amy Goodman and Juan Gonzalez emphasize in a segment for Democracy Now!, inadequate rules governing bank lending practices were a fundamental cause of the recession, and are actively hampering the economy’s recovery today.

The Community Reinvestment Act of 1977 (CRA) required banks to make good loans to credit-worthy borrowers in the bank’s community. The idea was simple: If a bank wants to benefit from a community’s resources, it has to give something back and help strengthen the local economy.

Conservatives have lashed out at CRA, blaming it for the mortgage crisis, but the truth is that CRA loans had almost nothing to do with the subprime disaster. CRA loans are affordable loans to creditworthy borrowers—the whole point of subprime lending was to charge outrageously high rates to borrowers with poor credit.

In reality, policymakers’ refusal to expand CRA exacerbated the crisis. Only traditional banks are subject to CRA guidelines, and during the past two decades a host of independent mortgage companies have taken over large swaths of the mortgage market. These unregulated firms issued a lot of lousy loans, often working under direct, explicit instructions from bigger banks, who outsourced their lending in order to get around CRA rules and rip off whole neighborhoods.

Lending is critical to moving the economy out of the recession, and CRA provides reliable, proven rules to get banks back in the business of helping our communities and our economy.

Overdrafting the banks

But a host of other banking policies are also making the recession worse. One of the most egregious is the overdraft fee, which, as Annie Lowrey notes for The Washington Independent, scored banks over $38 billion in 2009 alone. To put that in perspective, the entire banking industry earned a combined profit of $12.5 billion last year, which means that the banks are making their money from gotcha fees, not from productive lending.

Banks have spent years charging overdraft fees without telling their customers that they’re subject to such gouging. Lowrey notes that the average fee is $35 on an average charge of $17. But they also have engaged in a backdating scam, rearranging the order of their customers’ purchases in order to charge more overdraft fees. As I explain for AlterNet:

“Say you’ve got $80 in your checking account, and you decide to pay some bills and run some errands. You spend $30 on gas and another $20 on your water bill. Later, you head to the grocery store and spend $81—oops!—on groceries. To reasonable people, it looks like you’re going to get hit with an overdraft fee. That last purchase put you over the line. But instead, the banks reorder your transactions, processing the groceries first. Now you’re below zero, and they can charge additional fees for your gas and water bills. Wells Fargo charged up to $39 per overdraft. This one mistake cost you $117, and nobody even bothered to tell you it was going to happen.”

Fortunately, a federal judge in California just ruled that this backdating scam was grossly illegal, and ordered megabank Wells Fargo to pay back every penny that it swindled from its California customers with the practice since 2004. But Wells Fargo was not alone—every large bank in the United States does the exact same thing, and it’s allowed them to score billions in deceptive profits. A similar ruling in a larger case against all of the big banks could end a transparent outrage, and restore an enormous amount of unfairly seized wealth to citizens all over the country.

We don’t need to be pushing policies that benefit billionaires at the expense of everyone else. The Bush tax cuts are an unnecessary economic waste. Financial policy that puts the interests of a few giant predatory banks above those of the entire citizenry makes no economic sense.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

Weekly Audit: Why Are Unemployment Benefits A Major Political Fight?

by Zach Carter, Media Consortium blogger

Congress finally authorized an extension of unemployment benefits on Wednesday, providing a critical lifeline to families across the country and an absolutely essential boost to the economy.

But with the jobless rate hovering near 10 percent, minimum measures like unemployment benefits shouldn’t be a source of controversy. Lawmakers should be debating big-picture jobs packages to get people back to work, not drips and drabs that keep a worst-case-scenario from getting unbearable.

As Annie Lowrey notes for the Iowa Independent, Senate Republicans blocked the unemployment benefits bill for two months, causing benefits to lapse for 2.6 million Americans. That’s a humanitarian outrage. When people don’t have access to this minimal support, they can’t pay bills or feed their kids. There is no excuse for anyone in a position of power to cut off access to such basic social necessities. So what’s the hold up?

It’s a mix of talking points and public misconception. Conservatives have been demonizing the unemployed and using erroneous claims about the federal budget deficit as an excuse to block unemployment benefits, and that narrative has been reinforced by President Barack Obama’s handling of the public debate over the economic stimulus package approved in February 2009.

Unemployment Benefits = Economic Stimulus

In addition to the humanitarian imperative, there’s a broader economic case for extending unemployment benefits. When people are out of work, they can’t spend money. If people don’t spend money, businesses can’t sell anything. And if businesses can’t sell anything, they have to lay off more workers. Putting money in the pockets of the unemployed isn’t just a humanitarian necessity—it also prevents layoffs and creates jobs.

But you wouldn’t know it from the economically illiterate nonsense that conservatives have been spewing during the unemployment benefits debate. Writing for The Nation, Robert Scheer quotes prominent conservative intellectual Niall Ferguson. Here’s Ferguson’s vile diatribe blaming lazy, unemployed people for the recession:

“If you pay people to do nothing, they’ll find themselves doing nothing for very long periods of time. Long-term unemployment is at an all-time high in the United States, and it is a direct consequence of a misconceived public policy.”

$293 a week

Ferguson actually said that. He really believes that a major reason why unemployment is so high is because the United States pays out unemployment benefits, and that jobs would just miraculously be created if we stopped supporting the people hit hardest by the recession. And as Seth Freed Wessler emphasizes for ColorLines, Republican politicians repeatedly parroted this nonsense argument again as they attempted to block the unemployment benefits legislation.

Wessler notes that the average unemployment benefits package comes to just $293 per week. People like to feel like they have contributed meaningfully to society and be rewarded with an honest day’s pay. They do not choose to live in squalor out of laziness, as much as Ferguson might wish that were the case.

Preventing more public-sector layoffs

The economy has shed 8 million jobs since the Wall Street crash. Our job woes are a direct result of recklessness in the upper echelons of the financial sector—lazy workers did not create the recession, and they are not prolonging it.

Given the enormity of lost jobs, you’d think politicians would be considering robust programs to put people back to work—hundreds of billions of dollars in jobs programs, rather than a $30 billion extension of unemployment checks.

As Danny Schechter details for GRITtv, the economy is facing a host of major hurdles that hit families hardest. In addition to epic joblessness, we’re also facing record foreclosure numbers and state budgets that are stretched beyond the breaking point. The state situation is dire. Without federal aid, states will be forced to lay off 900,000 public employees in the coming months

That’s what makes the jobs debate so crazy. There are easy ways to prevent layoffs and create jobs right now. A quick injection of cash into state governments would have an immediate stabilizing effect. The government can’t bring the unemployment rate down to 5 percent overnight, but it can keep things from getting worse and start bringing the rate down.

Don’t blame the deficit

But, as Lowrey notes, some conservatives are not blaming the unemployed, but harping on the deficit, claiming that they’re all for benefits, they just want them to be paid for. This is a disingenuous excuse for inaction.

The conservative deficit-talk is totally misleading, and it’s the wrong way to deal with deficits. Since Republicans have been universally opposed to all tax increases, demanding that unemployment benefits be paid for means pulling spending out of other programs, which means cutting jobs in other areas (slashing the defense budget probably wouldn’t hurt the jobs picture, but good luck getting a Republican to vote for it).

The U.S. doesn’t have a deficit problem. If it did, investors would be demanding a very high interest rate on U.S. Treasury bonds. But in fact, the interest rate on those bonds is at record lows. If the U.S. did have a deficit problem, however, sabotaging jobs and growth would be a lousy way to fix it. Consider Ireland. The country had a vastly larger deficit than that faced by the U.S., and implemented draconian austerity programs. Those spending cuts hit economic growth so hard that the nation’s deficit problem actually got worse, so much worse that the rating agency Moody’s just downgraded Ireland’s debt.

If the U.S. wants to deal with deficit issues, it should address big long-term structural issues, like the enormous defense budget, extremely generous tax rates for the wealthy and the rising cost of health care. It makes zero economic sense to be attacking jobs in the name of the deficit, when doing so only makes the deficit larger.

What about that economic stimulus package?

So why can’t we get a decent jobs package? As Steve Benen notes for The Washington Monthly, much of the public uneasiness stems from misunderstandings about how the economic stimulus package passed in February 2009 worked.

The stimulus was very much a success—it kept the unemployment rate from reaching 12 percent or higher. But it was also much too small, in part because the Obama administration underestimated the severity of the recession, but mostly because Republicans created ludicrous political hurdles for the package, forcing it to shrink. Unfortunately, with unemployment still out of control, many in the public believe the stimulus didn’t actually stimulate. That’s the wrong lesson to learn. As Benen puts it:

“Imagine there’s a massive, dangerous fire. Those responsible for the blaze insist that some lighter fluid should take care of the problem, while the fire department recommends water. Forced to compromise, the fire department uses less water than is needed, and the blaze is only partially contained.”

It’s about time Congress got around to extending unemployment benefits. But in the face of the longest and most severe jobs crisis since the Great Depression, much stronger action on jobs is needed, and soon.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

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