Beyond Beltway Bipartisanship:

Lib Groups Need to Get in the Fray

Bipartisanship is in the air a lot these days. Unfortunately, the sort of bipartisanship likely to thrive in today's political atmosphere neglects the interests of poor and working class Americans. More surprisingly, it also risks undermining the prospects of our nation's long-term health.

Economic policy is likely to be one of the first arenas for the new bipartisanship. Amid the growing and probably accurate consensus that an economic slowdown -- if not a recession -- is imminent, the Bush administration has advanced an old liberal argument for tax cuts. Acknowledging declines in consumer confidence and overextended consumers, they argue that putting more money in citizens' pockets will help revive the economy.

Many Democrats, and some moderate Republicans, want to stress fiscal moderation. They would prefer to pay the debt down more rapidly and trust Alan Greenspan's control of interest rates to keep the economy moving. These two sides will probably compromise on a slightly smaller tax cut that may forego some of Bush's most egregious proposals, such as the complete repeal of the estate tax. Most of us, however, should take little comfort in this new spirit of accommodation.

Commentators forget that the argument is really an intramural squabble among conservatives. Both Bush and the fiscal moderates want to continue reductions in the economic role Federal expenditures have played in our post World War II history. Bush will put more money directly in private hands whereas the fiscal moderates will place more trust in private borrowing as mediated by the Federal Reserve.

There are good reasons to worry about either course. George W. Bush's father became a former president sooner than he intended because of the limits of Federal Reserve policy. Even drastic cuts in the Federal funds rate were slow in extricating the economy from a Fed-induced recession that emerged in the middle of his term. Low interest rates don't stimulate much business borrowing when inventories are accumulating.

Bush's tax cuts are targeted primarily to the wealthy. Apart from any equity issues this raises there are macroeconomic concerns as well. Wealthy citizens are less inclined to spend this money immediately. In addition, their probable decision to channel more money into securities might re-ignite the stock market bubble. That bubble has siphoned many funds away from needed productive investment into risky and tenuous dot com schemes the collapse of which is part of our current difficulties.

Bush could achieve sounder ground, both ethically and economically, in his quarrel with the moderates. Such a stance would entail a tax cut that was both fast acting, temporary, and targeted toward those who have been left out of the last ten years of boom. The Economic Policy Institute has proposed a one-time tax rebate this year of $500 for every man, woman, and child. It would cost $170 billion, but would make no permanent change in the tax structure. [The Congressional Progressive Caucus is pushing a $300 rebate.]

Unfortunately, however, both Bush and the moderates are neglecting the larger economic context in which this debate is playing out. The US balance of trade continues to show staggering monthly deficits and energy prices are rising. Such environmental concerns as the "greenhouse effect" appear to be both harder to deny and more severe than once imagined. These dilemmas create a context in which the continuing retreat from positive Federal initiatives is even more serious.

Stimulating the economy by reducing interest rates is likely to become more difficult in the next few years. As Jeffrey Madrick points out in a recent New York Times column, foreign investors may have second thoughts if US growth continues to slow: "As the dollar falls, because of falling stock prices and the pullout of investors, it could precipitate still more capital flight. And the falling dollar would be inflationary, pushing up import prices and probably persuading the Fed that to attract foreign investors, it has to keep interest rates higher than it would otherwise." No one can predict the point at which a domestic slowdown would trigger an erosion of foreign confidence in the dollar. If Bush-initiated tax cuts fail to stimulate the economy and only serve to reduce federal surpluses, foreign anxieties could increase.

There are other strategies that might address both the vulnerability of the dollar and the growing range of social and environmental issues. Federal expenditures in such areas as education, through the GI Bill, on interstate highways, and in basic research in a range of scientific fields played a major role in the steadily rising worker productivity of the 1945-1970 era, often recalled as the golden age of US capitalism. Though the era saw persistent injustices to minorities and clearly neglected early warnings of environmental crises, it is difficult to argue that constructive federal spending did not enhance the economic expansion. Economists Barry Bluestone and the late Bennett Harrison have argued that even the gains made possible by today's high technology marvels -- including both the internet and many breakthrough drugs -- would not have been possible without extensive Federal expenditure on basic research.

Yet the bipartisan consensus that the Federal role must be reduced, a consensus consistently reinforced by the Clinton Administration, may erode the possibilities of such future growth. Boston Globe columnist Robert Kuttner recently captured the extent of this sea change: "In 1992, federal spending accounted for about 22% of gross domestic product. Now, it's down to 18%. With the Bush tax cut, it would drop to about 15%. That's a net cut of fully one-third. You can see the effects. Hospitals are squeezed because of Medicare cuts. Affordable housing and decent social services are evaporating. Plans to expand Head Start have been shelved. Federal transit subsidies are mostly history."

Both Madrick and Kuttner have also correctly pointed out that Federal expenditures for education, childcare, flexible working hours, and better health care would be especially beneficial during a slump. Such programs would substantially enhance long-term productivity growth, minimizing possible inflationary shocks from new Federal spending.

Nonetheless, if international economic and ecological concerns are to be addressed, proactive energy policy also needs to be part of the mix. Growing demand for oil worsens our trade deficit and is associated with increased social, environmental, and public health costs. Investment in public transit, energy conservation, and alternative energy would reduce oil imports, boost economic efficiency, create new jobs, and lessen the burdens of poverty. Just as significantly, such investments would enhance US standing among European leaders, many of whom are bothered by our government's disregard of the Kyoto accords.

Bipartisanship, at least of the sort currently being discussed in Washington, will not get us there. It will be up to labor, social justice, and environmental organizations to demand more effective and inclusive compromises. Enduring compromises would fully acknowledge the role that appropriate federal spending has played and must continue to play in the prosperity and sustainability of our market economy.

John Buell lives in Southwest Harbor, Maine. Email

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