Debunking a Consumate Liar, Sen. Jon Kyl

Posted by AzBlueMeanie:

On Sunday our local fish wrap, the Arizona Daily Star, turned over its opinion page to Arizona's "other" senator, Sen. Jon Kyl. Bailouts won't fix economy His opinion is a stunning display of sophistry and fraud built upon a foundation of lies. If politicians could be prosecuted for lying to their constituents, Jon Kyl would be serving hard time for consecutive sentences.

In the future I recommend that our local fish wrap assign a team of its reporters to write a "fact check" column to decode the ideological nonsense spewed by Sen. Jon Kyl (so I don't have to).

Let's begin with this chestnut, "The U.S. Bureau of Labor Statistics found that when tax rates were lowered in 2001 and 2003, more than 5 million jobs were created over five years, and the economy saw 17 straight quarters of growth." This is cherry picking of data, an act of sophistry to defraud the reader into agreeing with his argument that the Bush tax policies should be extended or made permanent — something the American people overwhelmingly rejected as recently as this November's election.

The Economic Policy Institute released its report in 2008, A Feeble Recovery: The fundamental economic weaknesses of the 2001-07 expansion debunking this frequent conservative talking point. (This report was written before the National Bureau of Economic Research recently announced that the U.S. entered a recession beginning in December 2007.) I will quote from this article at length:

[A] complete business cycle from 2001 through the end of 2007 (or perhaps the start of 2008) is now on the books, and the economic performance of the current decade can be held up in comparison to that of past business cycles. By almost all measures, the most recent expansion was the worst since WWII.

* * *

The bottom line of such a comparison is that the economic performance from 2001 to 2007 was anemic by most measures, especially in regards to the labor market. For the vast majority of American households—that is, those who depend on earnings derived from the labor market for the bulk of their income—the economy has been seriously mismanaged.

How strong was the expansion?

Administration officials, including President Bush himself, have suggested that the “fundamentals are strong” even as the nation was clearly drifting toward recession…

This paper retrospectively assesses these claims of “strong fundamentals” by examining U.S. economic performance over the full run of the latest business cycle that began in March 2001 and comparing this recent performance with past cycles. Key findings include:

• Of the 10 expansions since 1949, as measured from the end of the recession (trough) to the end of the expansion (peak), the expansion from 2001 through last year ranks last in average growth of GDP, investment, employment growth, and employee compensation.

• GDP growth in the latest expansion was a full 40% slower than the post-World War II average (2.7% versus 4.8% in previous expansions).

• Despite tax changes that were promoted as incentives to increase investment, average growth in total investment over the latest expansion was less than half of the post-WWII average, and ranked last in this group.

• Compared to the start of the last recession (the peak that occurred in the first quarter of 2001), the percent of the population employed declined by 1.5 percentage points by the end of 2007. The only previous drop in this measure relative to a previous business cycle peak came during the mini-expansion of the early 1980s, and the drop in the latest expansion was five times as large.

If this employment-to-population ratio had remained constant, there would have been roughly 3.2 million more jobs, or an additional 39,000 jobs created each month in the U.S. economy over the course of the most recent expansion.

• Corporate profits were the only area of strength in the latest full cycle, ranking 2nd strongest among the last the prior 10 cycles.

Assessing macroeconomic performance

Assessments of economic performance can vary substantially depending on the start and end dates chosen for comparison. For example, an assessment of GDP growth that starts in the middle of a recession and ends in the middle of a boom would look artificially good compared to a longer-term average over equivalent points within a cycle.

A fairer assessment compares the economy’s performance over equivalent phases of the business cycle. This paper does so by comparing the latest business cycle with former ones, both over the course of a complete recession-expansion cycle (a “peak-to-peak” measure) and over the course of the expansion alone (a “trough-to-peak” basis).

By nearly all measures, the expansion from 2001 to 2007 ranks as one of the worst on record. Table 1 provides the relevant rankings for all of the comparisons in this paper…

Measuring booms: Trough-to-peak

The first column of Table 1 ranks various indicators for each economic expansion since the end of World War II. This column measures from the beginning to the end of each expansion (trough-to-peak) as identified by the National Bureau of Economic Research (NBER)) since the end of World War II.

Of the 10 trough-to-peak expansions since WWII, the 2000s rank last in growth of GDP, investment, labor compensation, and the employment-to-population ratio. The 2000s expansion is next-to-last in consumption, and in improving unemployment rates. Profits in the 2000s did a bit better, coming in fourth overall.

* * *

Assessing job-growth and family incomes

As the recession began in the start of 2008, the unemployment rate was 5.1%, relatively low by historical standards. However, this low average rate masks the serious labor market weakness of the 2000s expansion.

Policy makers in 2001 inherited an economy that had sustained low unemployment (below 5%) for almost four years. This inheritance was driven overwhelmingly by a new recognition that unemployment rates at these levels were, contrary to previous wisdom, consistent with stable rates of inflation. This new recognition led the Federal Reserve to allow these low rates to persist without raising interest rates.

Because the level of the unemployment rate is largely an expansion’s inheritance, the more relevant measure for comparing labor market performance across time is changes in the unemployment rate. On this measure, the 2000s unemployment performance is less than mediocre.

Perhaps the single most visible indicator of the economy’s performance for most American families is the simple availability of jobs. As noted before, the most recent cycle is a poor performer when compared to past cycles, both in regards to the slow payroll employment growth (0.6%) and also in the large drop in the employment-to-population ratio (-1.5 percentage points).

If the employment-to-population ratio had just remained constant over the cycle (which would still be a stark underperformance relative to the past), the economy would have an additional 3.2 million jobs today, or an additional 39,000 jobs created per month during the 2000s.⁶

This weak job market is most likely the driver of another trend: the historically poor performance of median family income over the course of the 2000s. Figure A below shows that median family income—income earned by families in the middle of the income distribution, with half of all families poorer and half richer—took seven years to surpass its previous peak and tied for the longest such lag since World War II.

Temporary influences: Housing and taxes

The anemic performance of the U.S. economy in the 2000s is even more striking when one considers that the economy was boosted greatly (in the short-run) by two unsustainable influences: the meteoric rise in housing prices and the over $1 trillion in deficit spending resulting from tax cuts passed by the Bush administration and the Congress.

First, the historic home price increases led to record levels of residential investment spending, and the ability of households to withdrawal equity from their homes to support current spending essentially gave disposable incomes a 5% boost over the run of this business cycle relative to those in the past. However, the recession resulting from the housing market decline will be more severe and protracted as residential construction continues to fall and consumer spending is slowed due to the decline in home equity withdrawals.

Secondly, the Bush administration and the Congress enacted two major tax changes (in 2001 and 2003) that added over $1 trillion in federal deficit spending to the U.S. economy. In the short-run, deficit spending can boost economic growth; however, it is unlikely to have a significant impact on longer-run growth. The resulting budget deficit puts further economic growth at risk as it constrains the nation’s ability to address other pressing problems: the Bush tax changes have meant that future policy makers have less leeway to address unmet social needs through public spending and have less room to use deficit spending to fight recessions. Again, these future costs come at the expense of a tax policy that that has not yielded much in the way of past or present benefits.

As noted above, whatever the impact has been of the Bush tax and economic policies, they have not led to superior macroeconomic performance. In fact, the economic performance of the last expansion has been one of the worst on record by most measures.

Conclusion

By most widely-accepted and honest measures, the most recent economic expansion should receive a failing grade. Measures of total output, investment, consumption, employment, wage and income growth, all rank at or near the bottom when compared with past business cycles.

Worse, these anemic results have been accompanied by rising inequality as well, meaning that the bulk of the (historically weak) gains have accrued to a small sliver of the population. This makes the fruits of the current recovery even smaller for the typical working family.

For most American families, this has been a fundamentally weak U.S. economy for some time, and it seems poised to get much worse. Now is the time for a new direction in economic policy.

What about those "five million jobs in five years" that Sen. Kyl touts as if this number is something exceptional of which to be proud? Many of these jobs were simply recovering jobs lost during 2001-03. Bush did not achieve a net gain in employment until November 2004. And according to the Bureau of Labor Statistics Employment Situation Summary (11/5/2008), "Since the start of the recession in December 2007… the number of unemployed persons increased by 2.7 million." That number is expected to be adjusted upward with the release of the preliminary December unemployment report on January 9, 2009.

At the rate of job losses since September 2008, Bush is on a pace that could entirely erase any net gain in employment during his two terms in office. In any event, Bush will leave office with one of the worst records of job creation since Herbert Hoover. Jobs created during U.S. presidential terms

job creation by term

Numbers listed here are measured from January of the year at the beginning of the term to the January four years later, when the term ends.

U.S. president	Party	Term years	Start jobs*	End jobs*	created (in millions)	Average annual increase
Herbert Hoover	R	1929-1933	32.1k **	25.7k **	-6.4	-9.0%
Franklin Roosevelt	D	1933-1937	25.7k **	31.2k **	+5.5	+5.3% **
Franklin Roosevelt	D	1937-1941	31.2k **	34,480	+3.3	+2.6% **
Franklin Roosevelt	D	1941-1945	34,480	41,903	+7.4	+5.2%
Roosevelt/Truman	D	1945-1949	41,903	44,675	+2.8	+1.8%
Harry Truman	D	1949-1953	44,675	50,145	+5.5	+3.0%
Dwight Eisenhower	R	1953-1957	50,145	52,888	+2.7	+1.4%
Dwight Eisenhower	R	1957-1961	52,888	53,683	+0.8	+0.4%
Kennedy/Johnson	D	1961-1965	53,683	59,583	+5.9	+2.6%
Lyndon Johnson	D	1965-1969	59,583	69,438	+9.9	+3.9%
Richard Nixon	R	1969-1973	69,438	75,620	+6.2	+2.2%
Nixon/Ford	R	1973-1977	75,620	80,692	+5.1	+1.7%
Jimmy Carter	D	1977-1981	80,692	91,031	+10.3	+3.1%
Ronald Reagan	R	1981-1985	91,031	96,353	+5.3	+1.5%
Ronald Reagan	R	1985-1989	96,353	107,133	+10.8	+2.2%
George H. W. Bush	R	1989-1993	107,133	109,725	+2.6	+0.6%
Bill Clinton	D	1993-1997	109,725	121,231	+11.5	+2.6%
Bill Clinton	D	1997-2001	121,231	132,469	+11.2	+2.3%
George W. Bush	R	2001-2005	132,469	132,476	0.01	0.002%
George W. Bush	R	2005-Nov. 2008	132,476	136,167 as of Nov. 2008	+3.7 as of Nov. 2008	+0.7% ** as of Nov. 2008

*In Thousands **Approximate

Note: I understand that the above charts got cut off in formatting. See the sources.

When Bush took office the national debt was slightly more than $5 trillion dollars and Bill Clinton had reduced the national debt by 10% over five years due to several annual budget surpluses. The national debt is now approaching the current debt ceiling of $11.3 trillion dollars, due mostly to borrowing to finance the Bush tax cuts for the wealthy, but also due to borrowing to finance two wars and to finance the bailout of the banking and financial services industry. If the Bush tax cuts were made permanent as Jon Kyl proposes, the national debt would continue to grow exponentially indefinitely into the future.

Any rational right-thinking person would realize that continuing the discredited and failed conservative economic policies of the Republican Party is commiting national suicide. Jon Kyl should be laughed at, mocked and ridiculed any time he says that we should continue the Bush tax policies. He is the village idiot not to be taken seriously by serious people.

Sen. Kyl next asserts that the U.S. is "hampered by having the second-highest corporate tax rate in the world. Lowering corporate tax rates is the key to preventing companies from moving overseas and it would make the United States more attractive to foreign investment." Tax rates are meaningless when most corporations are not paying any federal income taxes, either lawfully (i.e., 80% report no profits after deducting expenses) or through legally questionable tax avoidance schemes (e.g., transfer pricing).

According to a Government Accountability Office (GAO) Report issued in August 2008, two out of three corporations paid no federal income tax between 1998 through 2005. 66% of U.S. corporations and 68% of foreign corporations paid no federal income taxes during this period of time. Study Tallies Corporations Not Paying Income Tax A second GAO Report issued in August found that of the $282 biliion in cumulative unpaid taxes businesses owe, 1.6 million businesses owe over $58 billion in unpaid federal payroll taxes. Tax-Cheating Businesses Owe Billions Jon Kyl's tax scofflaw friends need to be audited by the IRS and prosecuted where appropriate, they do not need another tax break. You and I wind up paying more in taxes because of the tax cheat friends of Jon Kyl.

Jon Kyl next asserts that "free trade agreements create American jobs." See the discussion of jobs above. Moreover, America's manufacturing base has largely been outsourced to foreign countries by companies seeking to exploit cheap labor (as discussed in previous posts).

Jon Kyl next opposes "stimulus bills" – you know, the tax rebate check for $600 that his president, George W. Bush, insisted would be a magic bullet to stimulate the economy and solve all our problems. Kyl complains that the stimulus accomplished little and only added to the national debt. This much is true. But for the GOP's number three man in the Senate, who presided over the Bush Republicans' more than doubling our national debt over the past eight years, to try to wash his hands of any responsibility for this rings hollow. Kyl, like George W. Bush, blames everyone but himself for his own failures.

Kyl next opposes "bailing out" the Big Three American auto makers, resorting to an ad hominem attack upon the UAW to blame the union for all of Detroit's ills. The Republican Party's visceral hatred for unions has blinded them to the reality that one in ten jobs (some estimates are one in seven jobs) are in some way tied to the domestic automobile industry. Republicans like Kyl would rather see the Big Three and thousands of related businesses fail, millions of Americans unemployed, and our economy thrown into a depression in the hope of killing the UAW. Kyl is not among the rational, clear-thinking leaders this country desperately needs right now. He is nothing but a partisan ideological hack.

Kyl is, however, in favor of bailing out his white collar criminal friends on Wall Street who have engaged in the world's largest Ponzi scheme, the unregulated "shadow banking system" of complex speculative investments that blew up in their faces and caused the current economic melt down. Bernie Madoff is not the only criminal on Wall Street, but there have been no other arrests.

More importantly, Congress, Henry Paulson and Ben Bernake did not require any accountability for companies receiving TARP funds. We are all familiar with the AIG executives who went on a vacation retreat with the money. Other companies have paid their executives excessive bonuses The Reckoning – On Wall Street, Bonuses, Not Profits, Were Real, or paid shareholders dividends. Several banks are engaged in mergers and acquisitions of other banks with the money. All but one of the companies that has received TARP funds has refused to provide any specifics about how they have used or intend to use the money. Morgan Stanley Is One Bank That Cites a Loan From TARP Money

Kyl's white collar criminal friends turned Wall Street into a casino and stole billions in investor money, and then were rewarded with billions of dollars more from the U.S. government with no strings attached and no accountability. "Heckuva job," as George Bush would say.

Kyle unbelievably asserts that "Some have wrongly argued that Congress 'bailed out' the financial industry. Actually, the $700 billion 'rescue plan' was intended to create liquidity in the financial industry so that all Americans would have better access to credit." Kyle falsely asserts that the "Federal Reserve's action to buy debt and cut the interest rate, is beginning to stabilize the credit markets." Apaprently Kyl is unaware that Ben Bernake's original plan to buy up toxic debt was abandoned in favor of direct loans.

And as Nobel Prize winning economist Paul Krugman pointed out in his column today, liquidity has not returned to the financial markets in any substantial way and the U.S. is in real danger of a depression. Fighting Off Depression Krugman takes to task Republican leaders like Kyl who are already posturing to obstruct President Obama's economic recovery package, insisting upon "proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on [GOP] proposals for tax cuts."

In fact, Kyl made the factually unsupported (and ideological) assertion that "sending 'federal' money to the states and building roads and bridges also adds to the deficit and debt without having any stimulative effect or creating any new jobs for laid off workers." The Keynesian economic policies of the New Deal discussed by Paul Krugman refutes Kyl's factually challenged assertion. History has demonstrated that Kyl is clearly wrong, per usual.

Finally, economic recovery is going to take more than the "creativity and the ingenuity of the American people." It is going to require the complete rejection of the discredited and failed conservative economic policies of the Republican Party. "Reaganomics" was always a fraud. Its adherents must concede this reality and abandon their foolishness. It is time to consign Reaganomics to the ash heep of history alongside that other discredited and failed economic theory, communism.