Saturday, March 14, 2009

'Fiscally Responsible’ Blue Dog Democrats

The Democratic Congressional Campaign Committee was successful in recruiting conservative Democrats to run and win in Republican districts in 2006 and 2008. Now Democratic Congressional leaders in the House and Senate are finding it increasingly difficult to get many of those Blue Dog conservative Democrats to vote for Democratic legislation.

The Blue Dogs are particularly complaining of heartburn over what they consider to be President Obama's "big spending" plans, but most also oppose national health care reform and the Employee Free Choice Act. These self-proclaimed ‘fiscally responsible’ Blue Dog Democrats are pressuring President Obama and Democratic leaders in Congress toward the Conservative Republican position that congress should pull back from economic stimulus spending, cut federal spending and pay down the national debt. The conservative drive to immediately balance the budget as the economy grinds to a halt would likely push America in a deeper cycle of economic crisis.

The Hill reports that up to 60 Blue Dogs [,or what the media calls "moderates,"] are banding together in the House and Roll Call reports that a group of 15-20 “Blue Dog” Senate Democrats — boosted by their success in “paring down the more than $900 billion economic stimulus bill to $787 billion” — plan to “formally align as a loose coalition or working group focused on deficit reduction and fiscal responsibility”:
Led by Sens. Evan Bayh (D-Ind.), Tom Carper (D-Del.) and Blanche Lincoln (D-Ark.), members said early press reports of their meetings were mis-characterized as an opposition group to President Barack Obama’s agenda and budget. But they acknowledge that they are seeking to restrain the influence of party liberals in the White House and on Capitol Hill. […]

[Nebraska Sen. Ben] Nelson said the moderate bloc is modeled after the Blue Dogs, but that the realities of the Senate prevent them from being as organized or unified as the House group, which regularly wins concessions from House Democratic leaders.
Bayh issued a press release detailing the group and its 15 inaugural members. The press release explains that the group “will meet every other Tuesday before the Democratic Caucus lunch to discuss legislative strategies and ideas”:
The Moderate Dems are joined by a shared commitment to pursue pragmatic, fiscally sustainable policies across a range of issues, such as deficit containment, health care reform, the housing crisis, educational reform, energy policy and climate change.
In addition to Bayh, Sens. Tom Carper (D-DE) and Blanche Lincoln (D-AR) will lead the group. Other members include: Sens. Mark Udall (D-CO), Michael Bennet (D-CO), Mark Begich (D-AK), Kay Hagan (D-NC), Herb Kohl (D-WI), Mary Landrieu (D-LA), Joe Lieberman (I-CT), Claire McCaskill (D-MO), Ben Nelson (D-NE), Bill Nelson (D-FL), Jeanne Shaheen (D-NH), and Mark Warner (D-VA).

Deficit reduction and fiscal responsibility are important issues that President Obama himself has said are on his priority list. The problem is that federal discretionary spending rose a whopping 75% under Bush and his Republican controlled congresses, according to the conservative Heritage Foundation. (Discretionary spending fell throughout President Clinton's administration who left office with budget surpluses.)

George Bush and his conservative Republican Congresses added trillions to the national debt by turning Clinton’s last annual $155 billion surplus into the current annual $1.2 trillion deficit. Conservative Republicans in congress and George Bush more than doubled the national debt from $5.73 trillion when he took office to $10.66 trillion at the end of 2008, according to Treasury Department data. During fiscal year 2008 alone, which ended Sept. 30, the national debt increased by more than $1 trillion, breaking the previous single fiscal year record of more than $600 billion.

Even after Democrats gained control of the Senate by a single seat after the 2006 mid-term election, Republicans filibustered every attempt Democrats made to regain some measure of fiscal responsibility, including attempts to let some air out of the already ballooning mortgage bubble. President Obama, who inherited a massive debt and an economy in crisis, is now forced into drastic measures to head off complete economic collapse because for the last eight years conservatives all but ignored deficit reduction and fiscal responsibility.

As the economy grinds to a halt the question is whether our current economic situation is best resolved by government pressing harder on the spending brakes to reduce deficit spending or Obama's Keynesian approach to step on the gas to accelerate stimulative spending. Once the economy regains it footing, deficit reduction should be pursued vigorously.

During the first Great Depression, President Franklin Roosevelt pushed deficit spending in 1934, '35 and '36 and the economy responded with brisk growth during those years. In 1937 Roosevelt, a fiscal conservative himself, was convinced to end the stimulative deficit spending and focus on deficit reduction through spending cuts. (The FDR Failed Myth)

Those deficit reducing spending cuts in 1937 pushed the economy into recession. When the economy contracted sharply in late 1937 and early 1938, FDR quickly reversed course on his "balanced budget" spending cuts and economic growth rapidly returned.

It took the massive deficit spending of WWII to permanently pull the U.S. economy out of its Great Depression and into an overdrive speed that lasted long after the war ended. In the graph above note the run-up in war debt starting in 1942. WWII deficit spending is equivalent to $10 trillion in today's dollars.

Following the war, the U.S. paid off the national debt for 35 years, while the economy remained generally quite prosperous. It was not until President Reagan took office, starting a 28 year injection of conservative ideology into government fiscal policy, that deficits, as a percent of GDP, began to again increase. President Clinton reversed the deficit growth trend, started by Reagan and continued by G.H.W. Bush, until he left office. Deficit growth returned under President G.W.Bush. (see zfacts National Debt graph above)

When President Obama went to Capitol Hill to meet with House Republicans shortly after his Inauguration, conservative Republicans hit him with a barrage of questions implying that his Economic Recovery and Stimulus plan would add to already out of control deficit government spending [inherited from the Republican congressional and Bush years of fiscal irresponsibility].

According to Republicans in the room, Obama's response hearkens back to the Great Depression as he raised the specter of 1937. 1937 is the year President Franklin Roosevelt succumbed to conservative pressure to cut deficit spending, leading to another cycle of recession.

When Huffington Post asked Democratic congressional members about FDR's 1937 decision to cut spending House Speaker Nancy Pelosi said, "We're not going to let it happen again. In the middle '30s -- '36, etc. -- they were concerned about what was happening so they tightened their belts in terms of spending," she said, "and that caused a recession within the Depression, instead of keeping the momentum going."

And, Energy and Commerce Committee Chairman Henry Waxman told the Huffington Post that Democrats will be vigilant about cutting spending too soon. "The Keynesian view of the Depression and the way to deal with it is to make up for the lack of private spending by bringing in public spending. And whenever you try to balance the budget, you withdraw public spending. So there are people that speculated the downturn in 1937" was a result of cutbacks, said Waxman.

Yet, 15-20 “Blue Dog” Senate Democrats focused on "deficit reduction and fiscal responsibility" could "short circuit" President Obama's Keynesian strategy to restart the economy by voting against any further stimulative spending. Just as in 1937, stopping the stimulus too soon now would likely push America in a second wave of economic crisis that could rival the The Great Depression.

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