March 4 (Bloomberg) -- Republicans are headed for a political disaster of their own making. As bad news about the economy gets ever worse, the party of growth, markets and business is opposing every effort by President Barack Obama to shorten the recession and put people back to work. Congressional Republicans have crowed about their almost- unanimous nay vote against Obama’s $787 billion stimulus package. They say the money will be wasted, add to the national debt and do little to help promote economic recovery.
They are wrong. There’s every reason to think the added spending and tax cuts will slow the sharp contraction in economic growth and then speed the ensuing recovery. The claim that governments can’t boost growth -- because, as this theory goes, anything they spend reduces resources available to the private sector -- is bogus.
Some officials in the British Treasury made the same claim during the Great Depression to counter John Maynard Keynes’s argument that added government spending was needed to fill the gap left by the big drop in private consumption and investment.
The U.S. economic boom produced by World War II spending buried this view. You have to wonder why Republicans exhumed this discredited theory.
Now that they have, all that’s needed for a spectacular Republican failure is for a solid recovery to start before the mid-term elections in November 2010 -- a highly likely prospect.
By then, after two years of opposition to Obama’s efforts to make the lives of most Americans better, it shouldn’t be hard to convince voters that Republicans are an uncaring lot. Polls show that almost two-thirds of Americans believe the Republican opposition is nothing more than an attempt to gain political advantage.
Shrinking Ranks
If those feelings persist, the Republican minorities in the House and Senate will be even smaller after the next elections than they are today.
The all-out opposition to Obama is more than a political calculation that may backfire. It’s an attempt to rewrite history. For when times are tough, even many conservatives look to the government for help, as President George H.W. Bush found when he ran for re-election in 1992.
During the 1990-1991 recession, conditions weren’t close to as bad as they are today, and a recovery had begun before the election. Still, there was a widespread perception that Bush didn’t understand or care about the suffering of Americans when times were hard.
The message was delivered in the 1992 New Hampshire presidential primary when Pat Buchanan got more than a third of the vote against the sitting president. I remember several conservative voters telling me they would vote for Buchanan to send Bush a signal about their unhappiness with his economic policies.
Less Stimulating
Republicans weren’t able to block the Obama-backed stimulus bill. Still, their obstinacy in the Senate limited its effectiveness. To win just the handful of Republican “yes” votes needed to pass, the bill had to include a provision preventing the alternative minimum tax from affecting a wide swath of middle-income taxpayers. That meant $70 billion -- almost 10 percent of the total measure -- wouldn’t provide any stimulus at all.
Just think about the dire state the financial system would be in today if Republicans had succeeded in defeating the Troubled Asset Relief Program last year. Without TARP money to shore up some big banks, the financial system would be in far worse shape than it is now.
In case you’ve forgotten: Even after the failure of Lehman Brothers Holdings Inc. in September shocked the world’s financial system, many Republicans -- and some Democrats -- refused to vote for the $750 billion in TARP funds.
Doctrinaire Freshmen
A closer look revealed a telling discrepancy. A large share of the House Republicans who were retiring voted for it; none of the freshmen Republicans did so. The younger, more doctrinaire members weren’t moved by concerns about what might happen to the financial system without the TARP money. The older, retiring members felt less bound by conservative orthodoxy.
No one likes bailing out banks or other financial institutions. Some, though, really are too big to be allowed to fail. Republicans and Democrats alike have to accept that fact. If it takes hundreds of billions of dollars worth of taxpayer money to keep Citigroup afloat -- and it already is -- then the money has to be available.
Citi has almost $1.8 trillion of liabilities and a vast array of deals with other institutions, companies and individuals around the globe. Its failure could create doubts about the creditworthiness of many of those other parties, undermining the world financial system.
It’s fine to worry about the cost to taxpayers of risking their money on bank rescues or raising the government’s annual deficit and long-term debt.
Just be sure to consider as well the value of lost jobs, personal income and tax revenue if the Obama administration were to rely on the advice of those who argue it should do little or nothing. That cost would be far, far greater.
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