Those paying close attention to the 2010 midterms likely have heard the common narrative among journalists that goes something like this: Obama and the Democrats reached too far to the left in their expansive and unprecedented economic policies, and were punished by prudent and “moderate” voters who sought to force them to “return back to the center.”  Running parallel to this narrative is the Tea Party refrain (expressed by a number of people I’ve spoken with) arguing that Obama’s “dangerous,” Keynesian, “reckless” deficit spending not only threatens future generations with unsustainable debt, but has also had no effect on the economy, while threatening future growth with potentially crippling inflation.

A few recent examples drive these points home in greater detail:

–          The editors of the Washington Post signaled that the midterm losses offered Obama “a chance to right himself” and a “fresh opportunity” to move to the center from the alleged left in which he resided: “The Republican Party won the midterms by moving to the right.  That leaves the rest of the spectrum wide open.  If Obama can settle his differences with moderate voters and seize ownership of the middle ground, he will find a lot of the electorate waiting patiently for him.” 

–          The editors at the New York Times celebrated Obama’s bi-partisan debt (a.k.a. “cat food”) commission, which is committed to cutting Medicare and Social Security spending in the name of the moderate sounding-rhetoric of promoting “balanced budgets.”  Times editors celebrated the committee for promoting “a welcome antidote to the low-minded debate that dominated the midterm elections, in which politicians all vowed to reduce the deficit but offered no credible plans.”  The debt commission, the editors argued, “frankly acknowledges what most politicians are too cowardly to admit — that deficit reduction will require shared sacrifice” in the form of plans to “reduce benefits to most future retirees” who are reliant on Social Security, and imposing medical malpractice caps for those awarded damages due to the negligent or incompetent behavior of doctors.

–          Along similar lines was the pre-election reporting of Business Week, which reported conservative claims that the U.S. deficit, “forecast to reach a record $1.6 trillion this year – is a rallying point for Republicans.  They are demanding lower spending and complaining that future generations will pay for today’s profligacy with higher taxes.”

–          Accompanying this claim was reporting from Business Week and Time – repeating
Republican warnings about the Obama stimulus – that “Keyne’s critics often complain that inflation comes with stimulus spending,” and amidst Tea Partiers’ warnings that “the country may have an upcoming massive bout of inflation.”  “Bailouts and massive stimulus,” Time warned, are precisely the kind of policies that are “generally thought to produce inflation.” 

–          In the same vein, right wing, Tea Party-allied activists groups such as the Media Research Center countered some economists’ warnings that the imposition of further budget cuts could lead to runaway inflation with its own prediction that “massive, unprecedented deficit spending” – as reflected in the stimulus, will be the primary “cause [of] inflation.”  

In a sane world political economists such as myself wouldn’t have to bother addressing the blatant fear mongering and propaganda expressed in the statements above.  Sadly, we don’t live in that world, which makes taking on neoliberal propaganda all the more essential.

First, the claim that the stimulus has done nothing to help the economy.  Such a claim can only be made by those so ignorant that they either don’t bother to read newspapers, or by those with a vested interest in lying and obscuring the widely reported and real effects of the stimulus.  Available empirical evidence suggests that the stimulus didn’t have the effect of promoting strong economic growth, not because it was ineffective, but because it wasn’t big enough.  This conclusion was shared by the non-partisan Congressional Budget Office, which found that “The Democrats' stimulus raised economic growth by as much as 4.5 percent in the last quarter and may have increased the number of people with jobs by more than 3 million” (as reported by The Hill magazine).  The stimulus would likely have been far more effective in helping jump start the economy, however, 1. If it was larger in size, and 2. If states hadn’t responded to receiving stimulus funds by imposing draconian budget cuts, mass layoffs, and by refusing to raise taxes (thereby ensuring mass layoffs, service cuts, and a decline in aggregate consumer demand).

Second, the claim that the stimulus and deficit spending cause runaway inflation, depressed economic growth, and “unprecedented,” unsustainable debt.  These claims, again, are factually challenged upon closer inspection.  The claim that current debt levels are “unprecedented” is little more than a vile fiction presented by those intent on either manipulating the public or who are too ignorant to know they are being manipulated.  An examination of U.S. public debt as a percent of GDP finds that current debt levels are far lower than public debt was at its height, as seen during the period immediately following World War II.  Debt at the end of World War II stood at 109 percent of GDP, while debt in the third quarter of 2010 stood far lower at 62 percent of GDP. 

Furthermore, claims that there exists a simple causational relationship between growing debt and depressed economic performance are also without merit.  Figures from the Bureau of Economic Analysis show that the GDP growth rate stood at a staggering 12.6 percent (on average) per year from 1942 to 1946 (during U.S. involvement in World War II), when the U.S. debt-to-GDP ratio was at its highest.  In contrast, the GDP growth averaged 4.8 percent per year from 1994 (the year after Clinton took office) through 2001 (the year after he left office), despite his Republican-esque commitment to “balanced budgets” and reducing the deficit and debt.  Simply put, there is no simple relationship between reducing deficit spending and ensuring economic growth (except during times of crisis, when reducing such spending actually exacerbates economic decline).  Keynesian economists (long the dominant thinkers in economics) have long understood that running deficits and ensuring the government’s role as the spender of last resort is necessary during times of economic crisis, in order to promote growth at a time when the private sector is cutting jobs, seeking to reduce costs, and hoarding cash rather than investing it in productive, growth-oriented activities.

What about the dire prediction that Keynesian deficit spending will radically increase inflation?  This conclusion is also without merit, and not based on any rational consultation with available empirical data.  An analysis of inflation data collected by the Bureau of Economic Analysis finds that the inflation rate from 2009 through the first three quarters of 2010 averaged .715 percent, with inflation at 1.77 percent for 2010 alone.  These figures are far below the national inflation level seen from the depression onward, which averaged (from 1930 to 2009) 3.28 percent.  Of course, the rational observer may point out that one-and-three-quarters years of data is insufficient for making broad-based conclusions about whether deficit spending causes greater inflation.  I don’t dispute this claim, but would add that an additional analysis of depression-era deficit spending during the New Deal also finds no evidence of runaway inflation.  During the period spanning from 1933 (the year after the New Deal began) through 1937 (the year after it ended), one sees that the average inflation rate stood at a miniscule 1.15 percent, compared to the 3.28 percent national average (from 1930 to 2009).  Of course, other periods of massive deficit spending were accompanied by high inflation, as occurred during World War II.  From 1942 (the year after the U.S. entered the war) to 1946 (the year after the end of the war), inflation averaged 5.9 percent.  Such inflation in the name of war, however, has never been attacked by Republicans or conservatives in their campaign to promote “fiscal discipline.”  Similarly, inflation averaged 2.84 percent a year from 2002 to 2008, at a time when Bush pursued massive deficit spending.  Even though the inflation level under Bush was significantly larger than that seen during Obama’s short time in office (and was more than twice as large as the inflation rate seen during the New Deal), conservatives were conspicuously silent in their non-criticisms of the Bush administration for engaging in reckless spending that would cripple future generations and cause runaway inflation. 

Also complicating the conservative inflation narrative (independent of what one thinks of the merits of World War II), is the finding that the relatively high levels of inflation seen during that war were not accompanied by compromised economic vitality, as GDP growth during this period (1942-1946) averaged (as already mentioned) 12.6 percent.  In short, even periods of relatively high inflation are not necessarily tied to weak economic growth and decline, as suggested in simplistic conservative and Tea Party narratives.

The shame in the victory for the conservative narrative during this midterm elections season is the likelihood that this narrative will further convince Americans of the need to make “shared sacrifices” during this great economic crisis.  Such claims are highly cynical and unconscionable because they never get around to suggesting what “sacrifices” will be made by a corporate community that benefitted enormously from massive tax cuts under the Bush administration and a taxpayer subsidized bailout, and has seen a return to pre-recession levels of profitability at a time when unemployment and underemployment remain rampant and working Americans are being asked to accept major cuts in Medicare and Social Security, and to accept massive state budget cuts that will inevitably make the economic crisis even worse by further reducing demand and spending in the economy.  Progressives have a real chance to fight such narratives at a time when victories for working class people will matter most.  If there is one shining light to emerge from this election it is the revelation (at least for those who have suffered under the Obama glow) that the Democratic Party’s politics-as-usual approach has miserably failed working Americans.  We desperately need a real working class party in this country.

Anthony DiMaggio has taught U.S. and Global Politics at Illinois State University, and is the author of three books: Mass Media, Mass Propaganda (Lexington, 2008), When Media Goes to War (Monthly Review, 2010), and Crashing the Tea Party (co-authored with Paul Street, Spring 2011).  He is also currently finishing another book on the propaganda model as applied to American domestic politics and the Tea party.  He can be reached at: [email protected]

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