Fox News' Stuart Varney misleadingly cited the Great Depression to warn that the economy would slip into recession if Congress adopts President Obama's plan to increase taxes on the wealthy. In fact, economists agree that a small tax increase on the wealthy today will have little effect on the economy, and it was drastic spending cuts, which Fox has advocated, that actually caused the second plunge of the Great Depression that Varney cited to bolster his fear mongering.
Stuart Varney Rewrites History To Claim We Risk Another Great Depression If We Raise Taxes Now
Varney: "FDR Raised Taxes Starting 1937 -- Raised Taxes. President Obama? He's Going To Raise Taxes." During the November 27 edition of Fox News' Fox & Friends, Stuart Varney compared economic conditions of 1937 to those of the present, blaming the 1937 crash on tax hikes, "attacking Wall Street as the villain," implementing progressive policies, and "runaway government spending":
VARNEY: The first year of FDR's second term was 1937. It was a terrible year for the economy. The Dow Jones Industrial Average was cut in half. Industrial production dropped by a third. Unemployment 15 percent. It was a depression within the big depression of the 1930s. OK, what's the parallels between then and now? Well, FDR raised taxes starting 1937 -- raised taxes. President Obama? He's going to raise taxes.
Many of the big theme policies of the first term of FDR were implemented in the second term. Same with President Obama. Think Obamacare. Think financial reform.
How about attacking Wall Street as the villain? President Roosevelt did that back in the 1930s, specifically in 1937. Wall Street was the villain. Shades of that exactly now. 2013, President Obama, Wall Street is the villain. And then there's the rearrangement of society. FDR tried to do it in '37. President Obama is doing it right now.
Not to mention runaway government spending. The parallels are there. Let's hope it doesn't work out like it did back then. [Fox News, Fox & Friends, 11/27/12]
Economists Say A Small Tax Increase On The Wealthiest Americans Will Not Hurt The Economy
Congressional Budget Office: Allowing Tax Cuts For Wealthy To Expire Would Increase GDP By 1.3 Percent, Create 1.6 Million Jobs. In a November 2012 report, the non-partisan Congressional Budget Office said that allowing the expiration of the Bush tax rates for higher wage earners while maintaining lower rates for those making $200,000 a year and less would increase GDP by 1.3 percent and create 1.6 million jobs. From CBO:
The budgetary cost of extending the expiring tax provisions would be lower if certain provisions were allowed to expire that otherwise would apply to some high-income households. According to JCT and CBO's estimates, if the AMT was indexed for inflation beginning in 2012 and all of the other expiring tax provisions were extended except for the specific provisions affecting high-income taxpayers (and the payroll tax cut), revenues would be lower and outlays for refundable credits would be higher than $288 billion in fiscal year 2013 and by $382 billion in fiscal year 2014, compared with CBO's baseline projections.
CBO estimates that such changes would increase real GDP by 1.3 percent (by 0.3 percent to 2.3 percent under CBO's full range of assumptions), and increase full-time-equivalent employment by 1.6 million (with a range from 0.5 million to 2.8 million) in the fourth quarter of 2013. [Congressional Budget Office, November 2012]
CBPP: Tax Increases On High-Income Taxpayers "Would Not Hinder -- And Could Even Bolster -- Economic Growth." According to the Center on Budget and Policy Priorities' Off the Charts blog, tax increases on high-income taxpayers "can reduce the deficit or fund investments that support growth" and "would not hinder -- and could even bolster -- economic growth":
This blog series and our new report have shown that tax increases on high-income people of the magnitude under consideration would not change their behavior in ways that would hurt economic growth. Moreover, the revenues from tax increases can reduce the deficit or fund investments that support growth.
Put simply, tax increases on high-income taxpayers of the sort under consideration would not hinder -- and could even bolster -- economic growth. With this in mind, policymakers should aim for a balanced deficit reduction package that shares the load through a mix of tax increases and spending cuts. [Off the Charts, Center on Budget and Policy Priorities, 5/2/12]
Wash. Post: Expiration Of Upper-Income Tax Cuts "Would Do Little Harm" To Economy. The Washington Post's Wonkblog, citing a recent CBO report, explained that the expiration of the Bush-era tax cuts for the wealthy "would do little harm" and would generate "$42 billion in 2013." The graph below accompanied the post:
[Wonkblog, The Washington Post, 11/8/12]
Premature Spending Cuts And Other Austerity Measures Were Responsible For Contractions Beginning In 1937
New York Federal Reserve Blamed Anti-Inflation Measures Taken By The Fed And Other Officials For The 1937 Recession. New York Federal Reserve Bank Assistant Vice President Gauti Eggertsson wrote that an abandonment of New Deal spending in favor of austerity led to economic contractions:
The Mistake of 1937 was a preemptive policy tightening in a fragile economic environment. Specifically, it was a decision to abandon the policy of "reflation" introduced in 1933.
The Mistake of 1937 was to relinquish the benefits of reflation and to set all policy levers in reverse. The Fed and key administration officials hinted at interest rate hikes and endorsed austerity in fiscal policy; the key concern now was containing inflation rather than sustaining recovery. [New York Fed, 6/1/11]
Economist Paul Krugman: In 1937, "Spending Was Cut Back, Monetary Policy Was Tightened -- And The Economy Promptly Plunged Back Into The Depths." Nobel Prize-winning economist Paul Krugman warned in 2010 not to reduce crucial government spending before the economy was fully in recovery and repeat the mistakes of 1937:
Here's what's coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary -- and the calls we're already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we'll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened -- and the economy promptly plunged back into the depths. [The New York Times, 1/3/10]
Economist Christina Romer: "The Fundamental Cause" Of The 1937-38 Recession Was The "Switch To Contractionary Fiscal And Monetary Policy." Former Chairwoman of the President's Council of Economic Advisers Christina Romer wrote in The Economist in 2009 that the 1937-38 contraction was caused primarily by "contractionary fiscal and monetary policy":
The recovery from the Depression is often described as slow because America did not return to full employment until after the outbreak of the second world war. But the truth is the recovery in the four years after Franklin Roosevelt took office in 1933 was incredibly rapid. Annual real GDP growth averaged over 9%. Unemployment fell from 25% to 14%. The second world war aside, the United States has never experienced such sustained, rapid growth.
However, that growth was halted by a second severe downturn in 1937-38, when unemployment surged again to 19%... The fundamental cause of this second recession was an unfortunate, and largely inadvertent, switch to contractionary fiscal and monetary policy.
The 1937 episode provides a cautionary tale. The urge to declare victory and get back to normal policy after an economic crisis is strong. That urge needs to be resisted until the economy is again approaching full employment. Financial crises, in particular, tend to leave scars that make financial institutions, households and firms behave differently. If the government withdraws support too early, a return to economic decline or even panic could follow. [The Economist, 6/18/09]
And Economists Say Austerity Measures Would Also Hurt The Economy Today
IMF: "Fiscal Consolidation Typically Reduces Output And Raises Unemployment In The Short Term." The IMF's 2010 World Economic Outlook explained the short-term danger of austerity measures:
Based on a historical analysis of fiscal consolidation in advanced economies, and on simulations of the IMF's Global Integrated Monetary and Fiscal Model (GIMF), it finds that fiscal consolidation typically reduces output and raises unemployment in the short term. [IMF, World Economic Outlook, October 2010]
Economist Menzie Chinn: "A Front Loaded Fiscal Contraction, Heavy On Spending Cuts" Would Make The "Current US Recovery Worse Than That Of The Great Depression." Comparing the U.S. economy to that of the United Kingdom, University of Wisconsin economist Menzie Chinn wrote on the blog Econbrowser that heavy spending cuts would hurt the economy:
[W]e too can make the current US recovery worse than that of the Great Depression; just implement a front loaded fiscal contraction, heavy on spending cuts. Furthermore, in order to maximize the contractionary impact, harass the monetary authorities to tighten policy by inciting fears of high inflation (à la Rep. Paul Ryan), when year-on-year inflation as measured by the personal consumption expenditure deflator is 2.1%. [Econbrowser, 5/3/12]
Bernanke: Congress Must "Take Care Not To Unnecessarily Impede The Current Economic Recovery." In a February 2 article, The Washington Post reported that Federal Reserve Chairman Ben Bernanke warned Congress that overly drastic spending cuts could hurt the economy:
Federal Reserve Chairman Ben S. Bernanke on Thursday cautioned lawmakers against taking any steps that would hurt economic growth as they work to cut the nation's debt, and he defended the central bank's recent actions to support the economy.
In testimony before the House Budget Committee, Bernanke urged Congress to put a priority on finding a sustainable level of federal spending over coming decades. But, he said, they also must "take care not to unnecessarily impede the current economic recovery." Supporting growth now, he said, "will lead to lower deficits and debt in coming years." [The Washington Post, 2/2/12]
Krugman: European Economic Problems Are "A Failure ... Of The Austerity Doctrine." In a January 29 New York Times column titled "The Austerity Debacle," Nobel Prize-winning economist Paul Krugman noted that "Britain is doing worse this time than it did during the Great Depression" and that "Italy is also doing worse than it did in the 1930s." Krugman attributed both of these situations to the "failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years." [The New York Times, 1/29/12]
Nevertheless, Fox Has Advocated For Spending Cuts And Other Austerity Measures
Varney: The Claim That Cutting Spending Would Hurt Economy Is "The Exact Opposite Of True." During the February 15 edition of Fox & Friends, Varney claimed that Treasury Secretary Timothy Geithner's assertion that cutting spending would hurt the economy was "the exact opposite of true." From the broadcast:
GRETCHEN CARLSON (co-host): Well, Republicans say that the president's spending plan will give America a larger, European-style government, but Treasury Secretary Tim Geithner says making more cuts right now would hurt the economy.
GEITHNER [video clip]: There are some who have suggested that we should cut deeper and faster with more severe austerity now. That approach, though, would damage economic growth. It would reverse the gains we've achieved in getting more Americans back to work and healing the damage caused by the financial crisis. And it would push more Americans into poverty.
CARLSON: Stuart Varney is here with his analysis. All right, let's dissect what the Treasury Secretary just said. When you hear that, what do you think?
VARNEY: I think the exact opposite is true. What -- when Secretary Geithner opens his mouth, out comes Obamanomics. And he is saying the government spends more, you'll get more growth in the economy. [Fox News, Fox & Friends, 2/15/12]
Varney: Election Of Socialist In France Is "Not Good News" And A "Danger Signal For America" Because Voters Said "No More Of This Austerity." On the May 7 edition of Fox & Friends, Varney claimed that Francois Hollande's victory in the France's presidential election is "not good news" because French voters "think they can grow by more government spending even though they've got no money." From Fox & Friends:
GRETCHEN CARLSON (co-host): It seems that French President Nicolas Sarkozy voted out of office in favor of Francois Hollande, a socialist who wants to raise taxes on corporations and the rich. So what does it mean for the United States' economy? Stuart Varney is here to explain. Good morning.
VARNEY: It's not good news. This is, in fact, a danger signal for America. Look, the Europeans are saying, "Hey, no mas. No more of these cuts, please. No more of this austerity." The Greeks say we're finished with this bailout. We can't handle this bailout, and the French, as you just pointed out, they want to tax the rich. They think that they can grow by more government spending even though they've got no money. Even though they have to borrow a ton more money, they think that borrow it and spend it that the government will get them out of trouble. It's exactly the same in America. That's what we think here.
President Obama wants another stimulus program. More government spending to get the economy going. The danger signal is the writing on the wall. We're going the same way as Europe is going. [Fox News, Fox & Friends, 5/7/12]
Fox's Palin: America Will Realize That "Austerity Measures Of Reining In Government Growth Really Will Help Our Nation As A Whole With The Economic Woes That We Face." Fox News contributor Sarah Palin pushed for "austerity measures" during an appearance on Fox News' On the Record with Greta Van Susteren:
VAN SUSTEREN: Your thoughts on tonight's news that Governor Walker is the winner?
PALIN: It is such good and encouraging news, Greta. It's good for the entire country because people are going to recognize through Governor Walker's efforts that austerity measures, responsible austerity measures of reigning in government growth really will help our nation as a whole with the economic woes that we face. This is positive news, and I think that Wisconsin is living up to its state's motto -- that providential motto of "Forward." They're moving forward. They're going to help to lead the charge for the rest of the country -- reining in government growth, allowing the private sector to be the ones to create jobs. [Fox News, On the Record with Greta Van Susteren, 6/5/12]
Fox's Bolling And Gutfeld: At A Certain Point, The G8 Leaders "Have To Embrace Austerity, Everybody Knows That." During a discussion of a meeting of G8 leaders on the May 21 edition of Fox News' The Five, co-hosts Eric Bolling and Greg Gutfeld agreed that the leaders of the major world economies had to "embrace austerity":
GUTFELD: What was his stand on austerity?
DANA PERINO (co-host): That they -- that austerity isn't everything. That they should make sure that you pump money into the economy as well.
GUTFELD: Yeah, but that is kind of like a junkie telling another junkie not to quit doing drugs. At a certain point, they have to embrace austerity. Everybody knows that.
BOLLING: Except them.
GUTFELD: Yeah. [Fox News, The Five, 5/21/12]