the consequences of conservative economic policy

8/8/2019 The Consequences of Conservative Economic Policy

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1 Center or American Progress | The Consequences o Conservative Economic Policy

The Consequences of Conservative

Economic PolicyA Tried and Failed Approach that Should not be Repeated

Adam S. Hersh, Michael Ettlinger, and Kalen Pruss October 2010

Introduction

Te Grea ecession deal a crushing blow o he well-being o he Americanpeople, bu our economy had acually been in a ough spo or many years. Beore

Presiden George W. Bush le a deep nancial crisis and economic collapse on

Presiden Barack Obama’s doorsep, he presided over wo erms o laissez-aire

supply-side policies ha yielded he weakes expansion in recen U.S. economic

hisory, marked by epid job growh, weak privae invesmen, sagnan amily

incomes, and a hos o oher ills ha mouning housing and nancial bubbles

helped parially obscure. Ta Presiden Bush ook no acion o address he unda-

menal weakness o he American economy and proec i rom nancial collapse

was a ragic ailure—bu i was a ragic ailure o be expeced by a conservaive

presiden pracicing conservaive economics.

Tis approach sowed he seeds or oday’s ederal budge deci, nancial cri-

sis, and he Grea ecession. And i is no less ragic ha hose who share ha

presiden’s philosophy—and who sill reain power hrough heir posiions in

Congress—are compounding heir ideological broher’s misakes by sanding in

he way o economic progress and growh.

Aer he Obama adminisraion ook oce in January 2009, conservaives in

Congress worked hard o weaken he American ecovery and einvesmen Ac, ough eors o reorm our nancial sysem, and demanded ax breaks or

he riches o he rich in exchange or exending unemploymen benes or

hose who los heir jobs hrough no aul o heir own. Now, “Pledge o America”

promises more o he same or he American people in he second decade o




he 21s cenury. Teirs is a ried-and-ailed

economic sraegy ha coninues o hold he

naion back rom growing prosperiy. In his

memo we will lay ou he crippling conse-

quences o conservaive economic ideology

over he pas decade, oday, and ino he uure.

Lisening o conservaives, i would be easy o

hink ha America’s economic woes began wih

he inauguraion o Presiden Barack Obama

on January 20, 2009. In ac, upon aking oce

he Obama adminisraion and a new Congress

inheried rom he previous adminisraion an

economy plunging ino wha hreaened o be

a second Grea Depression. For he prior eigh

years, Presiden George W. Bush and his admin-israion pursued a one-rick economic policy

o supply-side ax cuting ha did nohing o

address deep-seaed srucural problems bu

successully produced ederal budge decis

ha le he counry scally weak going ino

he Grea ecession. A he same ime, he

Bush adminisraion’s regulaors sood by as he

nancial indusry engaged in some o he mos

caasrophic and irresponsible pracices seen in

he hisory o nancial markes.

In rerospec, some leading conservaive econo-

miss admited o hese ailings, bu conserva-

ives in Congress did no change heir une. Te

passage o he emporary Asse elie Program,

or AP, lae in Bush’s presidency o bring

sabiliy o global nancial markes on he edge o meldown was necessary, bu is

design was hardly refecive o a new way o doing business. And since he chang-

ing o he guard in Washingon in January 2009, conservaives in Congress havedone every hing hey can o obsruc eors o x he economic mess le a he

end o he Bush era. Wih oo-dragging in commitees, hreas o libuser, and

oher parliamenary ricks in he Senae—where governance rules allow even one

lone senaor o derail he enire legislaive process—hey have seriously weakened

he naional response o our naion’s economic woes.

• Theone-noteeconomicstrategyofPresidentGeorgeW.Bush

taxcutsfocusedonthewealthy,wasanabysmalfailureyield

worstinvestmentgrowth,employmentgrowthandincomeg

inpost-WorldWarIIU.S.history—andleftthecountryecono

andscallyexceptionallyweakgoingintotheGreatRecessio

• Bush’sfailuretoaddressfundamentaleconomicproblemsw

terribleforthecountry,andthedevotiontomarkets-take-ca

themselvesideologyinthefaceofsomeofthemostirrespon

nancialmarketpracticesinhistoryallowedthenancialcol

anditsmyriadconsequences.Thesepoliciesandtheirfailure

notsurprisingfromapresidentdevotedtoaconservative,su

side,economicphilosophy.

• ConservativemembersofCongresshavestucktothistried-a

failedeconomicapproach.AlthoughtheAmericanRecovery

ReinvestmentActhascreatedandsavedmillionsofjobs,and

wardedoasecondGreatDepression,itwouldhavebeenm

eectivebutforchangesthatweremadeintheSenatetoga

conservativevotes.

• Timeaftertimesincethebeginningof2009,conservativeshave

delayedorstoppedadditionalmeasurestoimprovetheweak

economy.Assistanceforsmallbusiness,employmenttraining,s

forprivatesectorjobcreation,infrastructureinvestmentandm

otherproposalstomovetheeconomyfromweakrecoverytost

growthhavebeenblockedordelayedbyconservativesinCong

• The“PledgetoAmerica”oersmoreofthesame.

Conservative economics in the 21st cen




I sared wih he American ecovery and einvesmen Ac, which conservaive

senaors ough in general and hen worked o weaken by sripping ou more eec-

ive job-creaing provisions in avor o less eecive conservaive prioriies. Tese

changes, some o which were disdained by even conservaive economiss, ensured

ha axpayers go less economic bang or heir buck han hey should have. Te

ecovery Ac saved or creaed millions o jobs, bu i could have done more.

Te deah o Democraic Sen. ed Kennedy o Massachusets and his replacemen

by epublican Sen. Scot Brown increased conservaive power, making i almos

impossible o ake addiional seps o improve our economy. Among oher poli-

cies, conservaives over he pas wo years delayed and waered down eors o:

• Provide lending o small businesses and sar-up companies• Creae jobs by oering privae employers a payroll ax cu• Preven layos o eachers and criical service providers in sae and local

governmens o avoid urher weakening o he labor marke• Exend unemploymen insurance benes o long-erm unemployed workers o

help keep up economic demand

Wha’s more, i he recenly mined “Pledge o America” epublican policy pla-

orm is any guide, hen devoion o bankrup—and bankruping—conservaive

policies isn’ jus an embracing o pas policies or blocking o curren proposals.

I is, in ac, heir blueprin or he uure as well. Undersanding he devasaing

consequences o conservaive economic policies in he 21s cenury, hen, is he

aim o his policy memo.

The Bush-era economy: Laissez-faire too far

Presiden Bush’s economic policy agenda consised o litle more han supply-side

ax cus paired wih a disdain or pruden regulaion. Te Bush ax cus, his admin-

israion argued, would pu money in he hands o hose people bes posiioned

o make invesmens and creae jobs. Wha we see all oo painully now is ha

supply-side ax cu policies were, as hey have been in he pas, an abjec ailure.1

Te resuls are well known, bu worh repeaing. Te ax cus ocused on he

wealhy, reversed he ederal budge surplus le by Presiden Bill Clinon, and

resuled in escalaing budge decis ha le our counry scally weakened going

ino he Grea ecession. And in he 2000s under Bush adminisraion policies,

http://www.americanprogress.org/issues/2008/09/supply_side.html

http://www.americanprogress.org/issues/2008/09/supply_side.html




invesmen growh, employmen growh, and income growh were all a heir low-

es poin o any economic expansion in pos-World War II U.S. hisory.2

Tese conservaive policies simply did no work. Even hough he recession

ending in November 2001 was relaively mild in hisorical comparison, Bush

adminisraion economic policies conribued o he weakes economic expansionin he pas 40 years. Te average employmen growh over he period beween

recessions was a mere 0.9 percen compared o he average or pos-war periods o

economic expansion o 3 percen. Invesmen growh was 2.1 percen compared

o an average o 6.7 percen. And growh in our gross domesic produc—he sum

o all goods and services cranked ou in our economy—was 2.7 percen compared

o an average o 4.8 percen.

By almos any measure, he period o economic expansion under Presiden Bush,

beginning wih he end o one recession and ending wih he greaes recession o

hem all, was he weakes in our pos-war hisory.

Te consequences or working amilies were paricularly devasaing. Tanks

o weak labor markes, amily incomes ell hrough much o he Bush era, push-

ing households o ake on record levels o indebedness alongside bankrupcies

or hose who could no keep up.3 Median amily income—wih 50 percen o

amilies having income above, and 50 percen below—sood a $63,189 in 2000,4

bu by he end o 2007, aer six years o business cycle expansion, median amily

income reached only $63,471. Under Bush adminisraion economic policies, real

median amily income grew a an anemic average rae o 0.06 percen annually

rom business cycle peak o peak. In comparison, on average over he prior our

business cycles median amily income grew by almos 1 percen annually—or

15 imes aser han under supply-side policies.

Middle class incomes essenially made no progress during he Bush presidency.

“No progress” may no sound ha bad, bu here are wo hings imporan o noe.

Firs, when incomes sagnae during an expansion, when a recession evenually

his, i cus ino he mea and bone, no jus he gravy. Second, wha a sagnan

median income hides is he vas numbers whose incomes are going down. When

he median income is growing srongly i’s a sign ha here is a srong economy and mos people’s incomes are going up even hough by varying amouns. When

he median is unchanged i means ha while some amily incomes are going up, as

many are ypically going down.

Family incomes

ell through

much o the Bus

era, pushing

households to t

on record levels

o indebtedness

alongside

bankruptcies o

those who coul

not keep up.

http://www.epi.org/publications/entry/bp214/


http://www.americanprogress.org/issues/2006/05/b1655517.html

http://www.americanprogress.org/issues/2008/04/bankruptcy_column.html














Te counry also paid a price or he conservaive approach o regulaion—or,

raher, he disdain or i. Alhough i is cerainly possible o regulae oo much and

do damage o an economy, he opposie is clearly also rue. Te nancial collapse

we have jus seen oers he deniive proo o ha.

Te sysem o nancial regulaion ha exised prior o he collapse was fawed, bu he pracices ha lead o he collapse could have been addressed by aggres-

sive regulaors operaing under ha sysem. Ta was no, however, he cu o he

sails o he regulaors ha were in power. Tey were oo devoed o heir liberar-

ian markes-ake-care-o-hemselves ideology o ake seriously he evidence ha

marke ailures were hreaening o bring down our nancial sysem, wih grea

derimen o he naion. Te resul was a nancial collapse or which he counry

is paying deeply and will coninue o pay or some ime.

Te Bush adminisraion’s conservaive economic policies o commission and

omission are a primary reason he counry is in such rough economic sraighsrigh now. Dealing wih he srucural problems in any economy is a complicaed

and dicul underaking, and here would have been a business-cycle recession

a some poin. Bu he ailure o he Bush adminisraion o heed obvious signs o

undamenal weakness and ake acion leaves our counry grealy weakened. And

he ailure o properly regulae he nancial markes was devasaing.

I will ake ime o overcome he eigh years o low levels o producive inves-

men during he Bush presidency, boh privae and public, and or balance shees

o be resored so ha economic acors can buy, sell, lend, borrow, and engage in

myriad ransacions a levels consisen wih a well-uncioning, hriving, econ-

omy. Unorunaely, conservaives in Congress during he Obama adminisraion

decided o double down on heir ailed policies o he 2000s by obsrucing new

policies o creae jobs and resore he progress o our economy, while demanding

only more o he same ried-and-ailed conservaive policies.

Less bang for your economic recovery buck

When Presiden Obama ook oce, our economy was in he hroes o a majorrecession and a nancial crisis, wih he economy shedding jobs a an acceleraing

rae. Te rs orders o business: sop he bleeding, sabilize he economy, and pu

people back o work wih he American ecovery and einvesmen Ac o 2009.

Te ecovery Ac was he rs bill inroduced ino he House o epresenaives




and he Senae o he new 111h Congress, proposing a range o spending and ax

relie o promoe public and privae invesmen and household consumpion ha

would creae jobs.

Firs, he good news: he ecovery Ac was eecive. I provided, among oher

hings, $98 billion or public ransporaion and inrasrucure invesmen, $71 bil-lion or creaing green jobs, $116 billion or he making work pay middle-class ax

cu—a saple o Presiden Obama’s elecion plaorm—an expanded earned income

ax credi, and exended emergency unemploymen benes ha were se o expire.

Economiss Mark Zandi and Alan Blinder—respecively, ormer presidenial cam-

paign advisor o Sen. John McCain (-AZ), and Princeon Universiy proessor

and ormer Vice Chairman o he Federal eserve—nd ha he ecovery Ac

increased real GDP by 3.4 percen, lowered he unemploymen rae by 1.5 per-

cenage poins, and added 2.7 million jobs o he economy.5 Te Obama adminis-

raion’s own assessmen rom he Council o Economic Advisors ound ha heecovery Ac increased GDP by 2.7 percen o 3.2 percen, and increased employ-

men by 2.5 million o 3.6 million.6

Te nonparisan Congressional Budge Oce esimaes ha he ecovery Ac

increased real GDP by 1.7 percen o 4.2 percen, lowered he unemploymen

rae by 0.7 percenage poins o 1.5 percenage poins, and increased employmen

by 1.2 million o 2.8 million jobs relaive o where he economy would have been

wihou i.7 Te business communiy also ound he ecovery Ac eecive. In a

Wall Sree Journal Survey o business economiss in March 2010, 75 percen o

respondens concluded ha he ecovery Ac resuled in a ne posiive gain or

U.S. economic growh. Tis is abou as close o unanimous as economiss ge.

Bu he ecovery Ac would have been even more eecive had no conservaives

go heir ngers in he pie. Alhough conservaives did no have srong sway in he

House, hey did in he Senae. A he ime o passage here were 57 Democras

and one progressive independen in he Senae—making he garnering o he

needed 60 olks a challenge in oday’s highly parisan environmen. In addiion,

Presiden Obama and leaders in he Senae wished or his rs iniiaive o he

new presidency o be an example o biparisan cooperaion. Given his objecive,and he challenge o geting 60 voes, concessions o conservaives o boh paries

were ineviable.

T he Recovery A

increased real

GDP, lowered th

unemployment

rate, and increas

employment by

million to 2.8 m

jobs relative to

where the econ

would have bee

without it.

http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf

http://www.whitehouse.gov/administration/eop/cea/factsheets-reports/economic-impact-arra-4th-quarterly-report/summary

http://cboblog.cbo.gov/?p=967




http://www.whitehouse.gov/administration/eop/cea/factsheets-reports/economic-impact-arra-4th-quarterly-report/summary





Te House passed he ecovery Ac in jus wo days—wih no epublicans voing

or he bill. Te House bill came in a a oal o $820 billion, providing $545 bil-

lion in spending and $275 billion in ax cus—mos o i o be spen in wo years.

In conras o he speedy work o he House, conservaives in he Senae held up

he ecovery Ac or wo weeks beore allowing a voe. Alhough he Senae bill

came in wih a higher price a $838 billion, in he ensuing ime conservaives man-aged o srip money away rom job-creaing provisions, moving unds o provi-

sions wih much weaker economic impacs.

Tere were a number o key dierences beween he House-passed bill and he

version passed by he more conservaive Senae. One example was aid o sae and

local governmens. Wih sae-and-local-governmen ax revenues plunging in he

recession, hose governmens (mosly barred rom deci spending) can become

a big par o he problem. Pouring laid o public employees ino a pool o unem-

ployed privae secor workers hurs everyone. Tose erswhile public employees

join he laid o privae secor workers in compeiion or wha ew jobs are avail-able. Adding o he numbers o workers wihou jobs who are reining in heir per-

sonal spending means even ewer cusomers in sores, which means in urn more

privae secor layos and lower invesmen. Cubacks in sae-and-local spending

beyond he salaries o public employees also has he eec o pulling back one o

he major cusomers or he privae secor—escalaing wha was already being

called he Grea ecession.

Federal aid o he saes is one o he mos powerul opions or priming economic

aciviy. By prevening layos and urloughs o criical public employees (each-

ers, rs responders, and so on) and mainaining public spending levels, aid o he

saes spurs demand or privae secor oupu and prevens a vicious cycle o spi-

raling recession. Te House bill proposed $172.5 billion o sae and local govern-

mens; he Senae bill oered $38 billion less. I conservaives had prevailed, he

ecovery Ac would have delivered 182,000 ewer jobs under he lower Senae

bill spending on sae aid.8 In he end, Senae conservaives sill managed o bleed

$25 billion o sae and local aid spending rom he House proposal in he nal bill

enaced resuling in an esimaed 120,000 ewer jobs.9

Conservaives pu he pinch on several addiional key provisions. Conservaivescu Presiden Obama’s “making work pay” middle class ax relie by $26 billion, and

cu in hal he unds provided or public school consrucion.10 For he mos par,

he provisions ha replaced he eecive measures ha were aken ou were ar

less eecive. ake, or example, he $70 billion exension o alernaive minimum

Conservatives

put the pinch o

several addition

key provisions.

http://www.americanprogress.org/issues/2009/02/senate_cuts.html

http://www.americanprogress.org/issues/2009/02/senate_cuts.html




ax, or AM, relie ha was

added. Economiss ranked

his ax cu second-o-las in

job-creaing power o avail-

able policy opions or helping

pu he economy back on isee.11 And, since he AM

relie would have likely passed

separaely rom he ecovery

Ac i probably added nohing

o he economy.

Anoher ineecive provi-

sion in he Senae-passed bill

was $20 billion ax breaks or

businesses o “carryback” neoperaing losses, or NOLs, or

ve years. Tis would mean

ha businesses experiencing

a loss oday could deduc he

loss rom pros hey already

made and recover axes hey

already paid going back ve

years. Wih businesses no

invesing due o he reces-

sion and high unemploymen, his provision would line business owner’s pockes

wihou incenivizing business spending or economic recovery.12 In he end, he

NOLs ax giveaway was scaled back o $1 billion in he nal version o he bill.

Even conservaive economis Marin Feldsein, wriing in he Washingon Pos ,

was disappoined ha some o hese ax cus would “do litle o increase business

invesmen and employmen.”13

As a resul o compromises due o conservaive obsrucion in he Senae, i is

esimaed ha he $789 billion ecovery Ac as enaced would yield hal a million

ewer jobs han would have been creaed under he House bill.14

Even houghconservaives ensured he ecovery Ac packed less bang or he buck, i is clear

ha he eecs on employmen in he economy were immediae and signican.

(See Figure 1)

-1,000

-750

-500

-250

0

250

500

D e c - 0 7

M a r

- 0 8

J u n - 0 8

S e p - 0 8

D e c - 0

8

M a r

- 0 9

J u n - 0 9

S e p - 0 9

D e c - 0

9

M a r

- 1 0

J u n - 1 0

Thousands of jobs

Recovery Act

Figure 1

Recovery Act job creation

TotalandprivateemploymentlossesandjobsgrowthbetweenDecember2007

andSeptember2010

Totalemploym

Privateemploy

http://www.americanprogress.org/issues/2009/02/nol.html







Consider hese job gures. Monhly employmen losses during he Grea

ecession peaked a 779,000 jobs in February o 2008, jus weeks aer Presiden

Obama’s inauguraion. Wih he help o he ecovery Ac enaced in lae February,

monhly employmen losses began slowing and evenually reversed he negaive

economic momenum o yield susained monhly privae secor employmen

gains. Te pace o job creaion is, however, obviously sill no as enough.

Darned if you don’t

Te ecovery Ac, however, was jus an opening salvo o progressive policy eors

o spur job creaion. By he summer o 2009 i was clear ha more suppor or

economic recovery would be needed. In June, he House passed a bill oering

$175 billion or a range o provisions o spur job creaion and economic growh,

including unds or:

• Public inrasrucure and ransporaion invesmen• Clean energy and waer invesmens• Educaion and school renovaions• Suppor o small business lending and invesmens in innovaive echnologies• Aid o sae governmens in Medicaid maching unds and COBR healh insur-

ance paymens or laid-o workers• Exended unemploymen benes, job raining, and workorce developmen• Job creaion or rs responders, law enorcemen, and summer youh employmen

Known a he ime as he “Jobs or Main Sree Ac,” he bill acually enjoyed more

biparisan suppor han mos in he 111h Congress—24 epublicans joined wih

235 Democras in voing yea in he House.

Bu he bill hi a brick wall wih conservaives in he Senae. I languished here or

anoher ve monhs, unil November 5, 2009 when Senae progressives were able

o overcome conservaive hreas o a libuser by cuting he bill down o jus

$17.5 billion, one enh o he size o he House bill. Insead o he ambiious pro-

visions in he original House bill, he pared-down bill swiched o a small payroll

ax cu or employers hiring new workers, acceleraion o depreciaion o capialinvesmens by business, a small expansion o he Build America Bonds program,

and a emporary one-year reauhorizaion o he highway rus und. enamed he

Hiring Incenives o esore Employmen Ac, or HIE, his more modes help

ook an addiional our monhs o work ou he dierences beween he House




and Senae bills. A ull nine monhs aer he iniial House Jobs or Main Sree

Ac, during which ime he economy los more han hal a million more jobs, he

HIE Ac nally became law.

Some o he oher provisions sripped rom he original Jobs or Main Sree Ac

did, evenually, become law. Aid o sae and local governmens o save public sec-or educaion and police and rs responder jobs o provide Medicaid maching

unds were enaced under separae legislaion—on Augus 10, 2010, or oureen

monhs aer he House voed on hese job-creaion measures. In his ime waiing

or sae and local aid, sae and local governmens los 292,000 jobs.

Te delay o all hese provisions, o course, also means ha he impac o hese

measures has ye o be el o any signican degree even as he economy con-

inues o suer. And some o he criical provisions ha passed he House never

made i hrough he Senae.

Te inrasrucure unding, or example, originally passed he House in November

2009 bu ared less well in he Senae. In addiion o holding up inrasrucure

invesmens ha would creae jobs in he consrucion secor where unemploy-

men raes are highes, conservaives also squandered an opporuniy o build

innovaive ransporaion and energy inrasrucures criical o uure economic

growh. For he pas wo years, Presiden Obama requesed unding or a naional

inrasrucure bank o increase ederal ransporaion invesmen and o provide

billions o dollars in acceleraed unding or high-prioriy projecs, including

high-speed rail. Mos recenly, he presiden called or $50 billion o inrasrucure

invesmens on Labor Day 2010 and in Ocober released a repor deailing our

naion’s subsanial inrasrucure needs and he many middle-class jobs o be cre-

aed by making hose invesmens.15

Conservaives, however, have blocked all acion in Congress.

Job-creaing scal expendiures were no he only hings held up by conservaives

in Congress. Tey delayed criical regulaory reorms direly needed o make our

nancial sysem sable, accounable, ecien, air, and producive in supporing

invesmen and growh raher han bubbles and execuive largesse. Tough arrom an ideal policy, he Bush adminisraion’s emporary Asse elie Program,

or AP—along wih massive inervenion rom he Federal eserve—did

manage o emporarily sabilize banks eeering on he brink o insolvency . Bu

he bigger sysemic problems—resoring invesor condence in he inegriy o

http://www.whitehouse.gov/sites/default/files/infrastructure_investment_report.pdf


http://www.americanprogress.org/issues/2008/09/handle_with_care.html

http://www.americanprogress.org/issues/2008/09/handle_with_care.html






U.S. nancial markes and, hrough appropriae prudenial regulaion, creaing

a sysem o incenives or nance o suppor invesmen and growh in he real

economy—go kicked down he road o he Obama adminisraion.

Te House passed a sweeping nancial reorm bill on December 11, 2009; no

one epublican voed or he bill. Senae conservaives’ libusered he bill ineors o weaken reorm, ulimaely delaying a voe unil May 20, 2010, more

han ve monhs aer he House. Conservaive pressures skewed he Senae

reorm bill enough o lose he voes o progressive Sens. Feingold (D-WI) and

Maria Canwell (D-WA). Leaving aside he conen o reorms in he Wall Sree

eorm and Consumer Proecion Ac, conservaive delay o reorm creaed grea

uncerainy in he nancial sysem ha impeded no only a recovery o he nan-

cial secor, bu a reurn o normal bank lending and borrowing necessary o uel

recovery in he nonnancial secor o he economy.

Squeezing small businesses

Wih all heir rheorical worship o small business, conservaives should champion

legislaion o help small businesses access credi amid he nancial crisis. No so.

In May, ep. Barney Frank (D-MA), Chair o he House Financial Services

Commitee, inroduced he Small Business Jobs and Credi Ac o 2010.16

Concerned wih he abiliy o small business o access lending due o he nan-

cial crisis-induced credi crunch, his bill proposed a $30 billion small business

lending und and $12 billion in ineres rae subsidies o communiy banks ha

expanded lending o small business and enrepreneurs. Te spending would draw

rom unds repaid o he emporary Asse elie Program, and hereore no

aec he budge deci. By using public unds o leverage privae capial markes,

he legislaion would make available up o $300 billion in loans o small busi-

nesses. Te House passed he bill jus one monh laer on a nearly pary-line voe;

wih hree epublicans voing or he bill.

Te benes o small businesses and he economy rom his bill could no be

more clear. Demand or he Small Business Adminisraion loans included in heecovery Ac was so high ha he SBA ran ou o unds in he spring o 2009, leav-

ing over a housand small businesses on a waiing lis. Helping small businesses

access privae credi would generae an esimaed 500,000 jobs. Even so, conserva-

ives delayed a voe on he Small Business Jobs and Credi Ac or anoher hree

monhs as hey ried o atach a permanen cu o he esae ax—a ax ha in

With all their

rhetorical worsh

o small busines

conservatives

should champio

legislation to he

small businesse

access credit am

the nancial cris

Not so.




2009 aeced only 80 small businesses or amily arms in he enire counry , all

worh a leas $3.5 million (or ypically $7 million or married couples).17

Conservaives blocked he bill hroughou he summer. All 41 epublicans voed

o coninue he libuser in July, leaving he bill or aer he Augus recess and

orcing small businesses o go weeks more wih he uncerainy over heir nan-cial uures. On Sepember 16, 2010, epublican Sen. George Voinovich o Ohio

nally broke he conservaive libuser, allowing or anoher near pary-line voe—

hree monhs aer he House had passed he much-needed measure.

Blocking boosts to economic demand

One o he mos roubling examples o conservaive obsrucion o economic

recovery is heir acions on unemploymen insurance. Unemploymen insurance

is boh good social policy and among he mos sound, bes counercyclical eco-nomic policies. In an economy in recession wih millions o people ou o work

hrough no aul o heir own, unemploymen insurance is he las line o deense

or many amilies o keep up wih he ren or morgage and pu ood on he able.

Te Census Bureau esimaed in Sepember ha unemploymen insurance helped

keep 3.3 million people ou o povery in 2009.

Bu wih long-erm unemploymen—hose ou o work and acively seeking work

or more han 27 weeks—reaching a record high o 46 percen o he unemployed

in he spring o 2010 and alling only slighly since hen as more people became

unemployed—i is clear ha 26 weeks o eligibiliy or normal unemploymen

insurance is inadequae. Unemploymen insurance benes would need o be

exended again in 2010.

Exending unemploymen insurance is also good economic policy ha benes

everyone. When he economy slows down, unemploymen insurance paymens

kick in o suppor consumer spending, helping o seer he economy back in he

righ direcion. And unemploymen insurance is one o he bes policy ools avail-

able or simulaing economic aciviy. Te CBO esimaes ha or every dollar

spen on unemploymen insurance, GDP increases by up o $1.90. Mark Zandiesimaes a slighly smaller bu sill big eec o $1.61 in GDP or each dollar

spen on unemploymen insurance. ax cus avored by conservaives are only

one-h as eecive a boosing he economy.18

Extending

unemployme

insurance or

workers in the

Great Recessio

was not a pol

matter until

President Oba

took ofce.

http://www.americanprogress.org/issues/2009/12/chipping_away.html

http://www.talkingpointsmemo.com/news/2010/07/republicans_block_small_business_lending_bill.php?ref=fpb

http://www.cbo.gov/ftpdocs/112xx/doc11255/Unemployment_Testimony.shtml


http://www.talkingpointsmemo.com/news/2010/07/republicans_block_small_business_lending_bill.php?ref=fpb

http://www.americanprogress.org/issues/2009/12/chipping_away.html




I is imporan o noe ha exending unemploymen insurance or workers in

he Grea ecession was no a poliical mater unil Presiden Obama ook oce.

Under Presiden Bush, conservaives did no objec o emergency unemploymen

compensaion in June 2008, nor did hey objec o exending emergency unem-

ploymen insurance in November 2008 as he recession deepened.19 Te rs

exension passed he House on a 409 o 2 voe and he Senae 92 o 1. Te secondexension passed he House 368 o 28 and he Senae on an unrecorded voice

voe (alhough he voe or cloure passed 89 o 6). Conservaives also suppored

unemploymen bene exensions under Presiden Bush in 2003, as well as during

hree oher earlier recessions.

Par o he ecovery Ac exended emergency unemploymen insurance hrough

December 31, 2009. As ha deadline approached and unemploymen sill

remained unaccepably high, Sen. Jim Bunning (-KY) surprised his colleagues

by blocking exension o unemploymen benes or days. Sen. Bunning evenu-

ally capiulaed in he elevenh hour, allowing reauhorizaion.

Ten, in June 2010, Sen. Bunning was joined by several more o his conservaive

colleagues (including Senae Minoriy Whip John Kyl (-AZ), who claimed

mos o his pary shared he senimen) in again blocking he reauhorizaion o

exended unemploymen benes. Conservaive obsrucion resuled in he expi-

raion o exended benes or he long-erm unemployed on June 2.

Conservaives hen repeaedly libusered atemps o reinsae he benes,

demanding ha unemploymen bene exensions be paid or wih commensu-

rae budge cus, and ha he deci-busing $830 billion Bush ax cus or he

riches wo percen o Americans be exended bu no paid or. Finally Care

Goodwin (D-WV) was sworn ino he Senae, replacing he recenly deceased

Sen. ober Byrd (-WV). Wih his one addiional voe, he Senae majoriy

could overcome conservaives’ libuser o unemploymen insurance exension,

reauhorizing he criical benes on July 22. Sill, conservaive obsrucion orced

unemployed workers o go seven weeks wihou benes.

Pledging to the same failed conservative economic policiesin the future

epublicans las monh unveiled a “Pledge o America,” deailing heir “new gov-

erning agenda.” Tis agenda is jus recycled, supply-side, Bush economics. CAP

http://www.americanprogress.org/issues/2010/09/ui_benefits101.html


http://tpmdc.talkingpointsmemo.com/2010/07/its-unanimous-gop-says-pay-for-unemployment-benefits-not-tax-cuts-for-the-rich.php


http://www.americanprogress.org/issues/2010/09/pledge_to_america.html









analysis shows ha puting he plan’s proposals ino place would cause he ederal

budge deci and deb o grow much aser han hey would under Presiden

Obama’s budge. Te deci would be $200 billion larger in 2020 under “Pledge o

America,” and $1.5 rillion larger by 2030, while he ederal deb would rise above

93 percen o GDP wih ineres paymens surpassing $1 rillion a year.

Te deci spikes under he pledge because massive ax cus lie a he cener o

is budge, which exends all expiring ax provisions and makes several big new

cus. evenues would all o 16.7 percen o GDP as a resul, compared o he

20 percen o GDP achieved las ime he ederal governmen ran a balanced bud-

ge rom 1998 o 2001. Te “Pledge o America” promises o se “hard caps” on

spending o make up or he los revenue, bu he ew deails oered don’ add up,

leaving decis and deb o grow unchecked.

Te botom line is ha he pledge merely recycles he same ailed Bush poli-

cies ha caused he six years o jobless economic growh ollowed by he Greaecession and oday’s curren malaise in he broader economy accompanied by

los o ederal red ink—a relenless ocus on ax cus or he riches Americans.

Michael Etlinger is vice presiden for economic policy a he Cener for American

Progress. Adam Hersh is an economis a he Cener. Kalen Pruss is an adminisraive

assisan for he Cener’s execuive eam.

Endnotes

1 Michael Ettlinger and John S. Irons, “Take a Walk on the Supply Side” (Washington: Center or American Progress,2008),available at http://www.americanprogress.org/issues/2008/09/supply_side.html.

2 Josh L. Bivens and John S. Irons, “A Feeble Recovery: The undamental economic weaknesses o the 2001-07 expansion.”EPI Brieng Paper #214, available at http://www.epi.org/publications/entry/bp214/.

3 Christian E. Weller, “Drowning in Deb.” (Washington: Center or American Progress, 2006), available at http://www.ameri-canprogress.org/issues/2006/05/b1655517.html; Amanda Logan and Christian E. Weller, “Bush’s Bankruptcy Legacy:

Three Years and Nearly 1.5 Million Bank ruptcy Filings Later” (Washington: Center or American Progress, 2008), availableat http://www.americanprogress.org/issues/2008/04/bankruptcy_column.html.

4 Measured in real 2009 dollars.

5 Mark Zandi and Alan Blinder, “How the Great Recession was Brought to an End,” Economy.com, July 27, 2010, available athttp://www.economy.com/mark-zandi/documents/End-o-Great-Recession.pd .

6 Council o Economic Advisors. “The Economic Impact o the American Recovery and Reinvestment Act o 2009: Fourth

Quarterly Report” (2010) , available at http://www.whitehouse.gov/administration/eop/cea/actsheets-reports/econom-ic-impact-arra-4th-quarterly-report/summary.

7 Congressional Budget Ofce, “Estimated Impact o the American Recovery and Reinvestment Act on Employment andEconomic Output” (2010), available at http://www.cbo.gov/tpdocs/115xx/doc11525/05-25-ARRA.pd.

8 Will Straw, “Cuts to Senate Recovery Bill Mean Fewer Jobs in States” (Washington: Center or American Progress, 2009),available at http://www.americanprogress.org/issues/2009/02/senate_cuts.html.


http://www.americanprogress.org/experts/EttlingerMichael.html

http://www.americanprogress.org/experts/HershAdam.html

http://www.americanprogress.org/aboutus/staff/PrussKalen.html





http://www.americanprogress.org/aboutus/staff/PrussKalen.html

http://www.americanprogress.org/experts/HershAdam.html

http://www.americanprogress.org/experts/EttlingerMichael.html




9 Estimate is based on the implicit job multiplier or state and local government aid.

10 David Rogers , “Early Setbacks Test Obama’s Cool,”Politico , February 13, 2009.

11 Douglas W. Elmendor, “Policies or Increasing Economic Growth and Employment in the Short Term,” Testimony to theJoint Economic Committee, February 23, 2010, available at http://www.cbo.gov/tpdocs/112xx/doc11255/Unemploy-ment_Testimony.shtml.

12 Michael Ettlinger, “Corporate Tax Break Puts the Cart Beore the Horse” (Washington: Center or American Progress, 2009),available at http://www.americanprogress.org/issues/2009/02/nol.html.

13 Martin Feldstein, “An $800 Billion Mistake,”The Washington Post , January 29, 2009.

14 Congressional Quarterly, “The Economic Stimulus Agreement,” Congressional Quarterly House Action Reports No. 111-1 (2009), available at http://stimulus.ms.gov/msgo/mssr.ns/webpageedit/LN_RL_Page_LOLAR_SPL_GSOAPFANP/$FILE/cqSummary.pd?OpenElement.

15 Council o Economic Advisors, “An Economic Analysis o Inrastructure Investment” (2010), available athttp://www.white-house.gov/sites/deault/les/inrastructure_investment_report.pd .

16 Small Business Jobs and Credit Act of 2010 , Public Law 111-240, 111th Cong. available at, http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR5297:/.

17 Michael Linden, “Chipping Away at the Estate Tax,” (Washington: Center or American Progress, 2009), available at http://www.americanprogress.org/issues/2009/12/chipping_away.html.

18 CBO estimates that extending the AMT or reducing income taxes in 2011 would only yield $ .10 to $.40 or each dollar spent.

19 Emergency Unemployment Insurance, H.R. 2642 contained in “The Supplemental Appropriations Act o 2008” Title IV.November 21, 2008, available at http://en.wikisource.org/wiki/Supplemental_Appropriations_Act,_2008; The Unemploy-ment Extension Act of 2008, Public Law 110-449, 110th Cong. (November 21, 2008), available at http://www.ows.doleta.

gov/dmstree/pl/pl_110-449.pd .



http://stimulus.ms.gov/msgo/mssr.nsf/webpageedit/LN_RL_Page_LOLAR_SPL_GSOAPFANP/$FILE/cqSummary.pdf?OpenElement




http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR5297:/


http://en.wikisource.org/wiki/Supplemental_Appropriations_Act,_2008

http://www.ows.doleta.gov/dmstree/pl/pl_110-449.pdf




http://en.wikisource.org/wiki/Supplemental_Appropriations_Act,_2008









the consequences of conservative economic policy

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