Dick Morris Ignores Economists To Claim Spending Led Us Deeper Into Recession
Research ››› ››› CHELSEA RUDMAN
On Fox & Friends, Fox News contributor Dick Morris declared that government spending has led the country "deeper into the recession" and that the only way out is "budget cuts." However, stimulus spending has been credited for averting a worse recession, and numerous economists have argued that cutting spending would be harmful to continued economic recovery.
Morris Falsely Claims "To Get Out Of This Recession," We Must "Cut Government Spending"
Morris: "[T]he More [Congress] Spend[s], The Deeper We've Gone Into This Recession." On the January 7 edition of Fox News' Fox & Friends, Morris claimed that "the more [Congress] spend[s], the deeper we've gone into this recession" and argued that cutting spending was the only way to end the recession. From Fox & Friends:
MORRIS: From the time George Washington became president to Obama, we borrowed $9 trillion. And since Obama has taken office, we've borrowed almost 5 trillion more. So, that makes me want to cry. But I think this is the defining moment for the new Republican majority. They have got to say, we want to roll back discretionary spending, the stuff we can control, nondefense. Back to pre-Obama levels -- to 2008 levels. And we want to do it immediately. And other than -- if you don't do that, no increase in the debt limit. You know, when you see someone who is kind of down on their luck or unemployed and stuff, maybe you pay his rent for a month or two. But then you also make sure that he gets a job and goes to work and gets it together.
GRETCHEN CARLSON (co-host): Right. OK, but Dick, here's -- I'm not good with --
MORRIS: You simply can't allow this spending to continue at this pace.
CARLSON: Yeah, but that's the point of my next question, which is when you have the economic team coming out and calling it a catastrophe if we don't do it, and it's unthinkable what might happen, I mean, aren't -- I'm not good with clichés, but aren't Republicans and Democrats between a rock and a hard place, or whatever that phrase is? I mean, when you use words like that, you kind of feel like you have to vote for it.
MORRIS: Well, great. Cut spending. If Obama feels so strongly about it, hey, be my guest. Say yes. Go ahead with the spending cut, and then the Republicans will give them the debt limit. You can't have it both ways. And the economic team -- if you call it that, what a group of schlemiels around Obama -- they say that the spending is crucial to our economic recovery. And the more they spend, the deeper we've gone into this recession. Now they want to spend more and continue that. It is obvious that the thing you have to do to get out of this recession is cut government spending, so that you can give the private sector room to breathe and expand and grow. And Obama doesn't get this. So the Republicans have got to jam it down his throat. And the way to get him to do that is to take a bill that he knows he has to sign and only give it to him with spending cuts included. And if it's so urgent, sign it. [Fox & Friends, 1/7/11, emphasis added]
Economic Experts Agree Stimulus Prevented Recession From Getting Worse. As Media Matters has previously documented, economists widely agree that the stimulus helped prevent an even worse economic collapse or even a depression. [Media Matters, 9/5/10; 9/8/10; 10/22/10]
CBO: Unemployment Would Be As Much As 1.8 Percentage Points Higher Without The Stimulus. An August 2010 Congressional Budget Office (CBO) report estimated that the stimulus lowered the unemployment rate "by between 0.7 percentage points and 1.8 percentage points" and also "raised real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent." From the report:
CBO estimates that ARRA's policies had the following effects in the second quarter of calendar year 2010:
- They raised real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points,
- Increased the number of people employed by between 1.4 million and 3.3 million, and
- Increased the number of full-time-equivalent jobs by 2.0 million to 4.8 million compared with what would have occurred otherwise (see Table 1). (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers). [Congressional Budget Office, 8/2010]
Blinder And Zandi: Policies "Probably Averted What Could Have Been Called Great Depression 2.0." In July, former Federal Reserve vice chairman Alan Blinder and Moody's Analytics chief economist Mark Zandi issued a report showing that the "multifaceted and bipartisan" response to the financial crisis, including the Troubled Asset Relief Program and the American Recovery and Reinvestment Act, had a "huge" effect on real GDP, jobs, and inflation, and "probably averted what could have been called Great Depression 2.0":
The U.S. government's response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed's consideration of further easing.
In this paper, we use the Moody's Analytics model of the U.S. economy -- adjusted to accommodate some recent financial-market policies -- to simulate the macroeconomic effects of the government's total policy response. We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0. For example, we estimate that, without the government's response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.
The U.S. economy has made enormous progress since the dark days of early 2009. Eighteen months ago, the global financial system was on the brink of collapse and the U.S. was suffering its worst economic downturn since the 1930s. Real GDP was falling at about a 6% annual rate, and monthly job losses averaged close to 750,000. Today, the financial system is operating much more normally, real GDP is advancing at a nearly 3% pace, and job growth has resumed, albeit at an insufficient pace.
From the perspective of early 2009, this rapid snap back was a surprise. Maybe the country and the world were just lucky. But we take another view: The Great Recession gave way to recovery as quickly as it did largely because of the unprecedented responses by monetary and fiscal policymakers.
A stunning range of initiatives was undertaken by the Federal Reserve, the Bush and Obama administrations, and Congress (see Table 1). While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective. If policymakers had not reacted as aggressively or as quickly as they did, the financial system might still be unsettled, the economy might still be shrinking, and the costs to U.S. taxpayers would have been vastly greater. [Economy.com, 7/27/10]
Krugman: Government Intervention Helped Avert "Second Great Depression." In his August 9, 2009, New York Times column, Nobel laureate Paul Krugman wrote that governmental actions kept the U.S. from going into "a second Great Depression":
So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.
Probably the most important aspect of the government's role in this crisis isn't what it has done, but what it hasn't done: unlike the private sector, the federal government hasn't slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.
The point is that this time, unlike in the 1930s, the government didn't take a hands-off attitude while much of the banking system collapsed. And that's another reason we're not living through Great Depression II.
Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan -- a number that will grow over time -- and that the stimulus has played a significant role in pulling the economy out of its free fall.
All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution. [The New York Times, 8/9/10]
U.S. Chamber President: Stimulus Needed Because "We Thought We Were Days Away From A Global Recession." A July 14, 2010, CBSNews.com article quoted Tom Donohue, president of the U.S. Chamber of Commerce, as saying that the Chamber backed the stimulus because "we thought we were days away from a global recession." From the article:
While the Chamber largely opposes most Obama administration policies, it did back the much-disputed stimulus.
The White House's latest report says the Recovery Act has "saved or created" between 2.5 million and 3.6 million jobs. Christina Romer, head of the White House Council of Economic Advisers, said today that the $100 billion in Recovery Act funds will partner with close to $300 billion of other funds, the majority of which are from the private sector, CBS News White House Correspondent Mark Knoller reports.
Donohue said the Chamber backed the stimulus because "we thought we were days away from a global recession."
While the stimulus has not created as many jobs as was hoped for, Donohue said, "Would I do it again at the same time? Hell yes." [CBSNews.com, 7/14/10]
Surveys Of Economists Show Most Say Stimulus Helped Economic Recovery. The Wall Street Journal reported on March 12, 2010, that 70 percent of the economists they surveyed agreed that the stimulus boosted growth and slowed job losses. From the article:
Thirty-eight of the 54 surveyed economists, not all of whom answered every question, said the American Recovery and Reinvestment Act boosted growth and mitigated job losses, while six said the legislation had a net negative effect.
On average, economists estimated that the stimulus added one percentage point to growth in 2009; they forecast gross domestic product would expand 3% this year, compared with 2.2% in the absence of stimulus. They estimated that the February unemployment rate, reported at 9.7% last week, would have been 10.4% without the stimulus. [The Wall Street Journal, 3/12/10]
USA Today similarly reported on January 25, 2010, that its "quarterly survey of 50 economists" found that most of them believed the stimulus package saved jobs and said the government should do more to spur job growth. From the article:
President Obama's stimulus package saved jobs -- but the government still needs to do more to breathe life into the economy, according to USA TODAY's quarterly survey of 50 economists.
Unemployment would have hit 10.8% -- higher than December's 10% rate -- without Obama's $787 billion stimulus program, according to the economists' median estimate. The difference would translate into another 1.2 million lost jobs.
But almost two-thirds of the economists said the government should do more to spur job growth. Suggestions included suspending payroll taxes for Social Security and Medicare, increasing spending on infrastructure, enacting a flat tax on income and extending jobless benefits. [USA Today, 1/25/10]
History Shows Cutting Spending Slows Growth And Hurts Economic Recovery
Economists: Past Efforts To Address Deficits Before Full Recovery Cited For Further Economic Decline. In 2009, many conservative media figures attacked Obama's proposed stimulus spending by denouncing Franklin Roosevelt's New Deal policies as ineffective or damaging. But several prominent economists argued that the unemployment rate rose in 1938 because Roosevelt did not go far enough in pursuing New Deal stimulus policies and because his attempts to balance the budget hindered recovery. [Media Matters, 1/27/10]
Contrary To Right-Wing Media Claims, Japanese Economy Grew After Stimulus, Shrank During Attempts At Deficit Reduction. During the debate proceeding passage of the stimulus, right-wing media often pointed to Japan's "lost decade" of economic growth to claim that stimulus passed by the Japanese government failed to boost the economy. However, experts have agreed that Japan's economic stimulus did help the economy, and that the economy ultimately shrank, in part, because the Japanese government abandoned stimulus spending in an attempt to reduce the deficit. [Media Matters, 12/22/08]
Economist: Japan's "Fiscal Stimulus Did Help To Lift The Economy," But Government Erred In Trying "To Slim Its Budget Deficit" Too Soon. An August 21, 2008, article in The Economist comparing the economies of the U.S. and Japan noted:
Japan also gave its economy a big fiscal boost. The cyclically adjusted budget deficit (which excludes the automatic impact of slower growth on tax revenues) increased by an annual average of 1.8% of GDP in 1992 and 1993 -- similar to America's budget boost this year. Japan's monetary and fiscal stimulus did help to lift the economy. After a recession in 1993-94, GDP was growing at an annual rate of around 2.5% by 1995. But deflation also emerged that year, pushing up real interest rates and increasing the real burden of debt. It was from here on that Japan made its biggest policy mistakes. In 1997 the government raised its consumption tax to try to slim its budget deficit. And with interest rates close to zero, the BoJ insisted that there was nothing more it could do. Only much later did it start to print lots of money. [The Economist, 8/21/08]
Think Tank Director Posen: Japanese Stimulus Led to "Economic Growth," But Government Pursuing "Fiscal Austerity" Led To "Economic Contraction." Adam Posen, deputy director of the Peterson Institute for International Economics, wrote in his September 1998 book, Restoring Japan's Economic Growth, that while the "1995 stimulus package ... did result in solid growth" in Japan, overall the stimulus' small size and government's later reversals caused the economy to shrink:
The actual amount injected into the economy by the Japanese government--through either public spending or tax reductions--was 23 trillion yen, about a third of the total amount announced. This limited quantity of total fiscal stimulus was disbursed in insufficiently sized and inefficiently administered doses, with the exception of the 1995 stimulus package. That package did result in solid growth in 1996, demonstrating that fiscal policy does work when it is tried. As on earlier occasions in the 1990s, however, the positive response to the fiscal stimulus was undercut by fiscal contraction in 1996 and 1997. On net, the Japanese fiscal stance in the 1990s was barely expansionary, and it is the net injection of stimulus into the economy that determines the minimum result. In fact, the repeated reversals of fiscal direction and revelations of gaps between announced and implemented policies make even this near-zero net injection an overstatement.
Future government packages must recognize that when the Japanese government paid for fiscal stimulus in 1995, it got economic growth, and that when it mistakenly pursued fiscal austerity in most of the remainder of the 1992-97 period, it got economic contraction. [Restoring Japan's Economic Growth, Posen, 1998, emphasis in the original]
Krugman: When "Japanese Government Tried To Balance Its Budget," Recession Followed. In a December 1, 2008, column, Krugman wrote, "In 1996-97 the Japanese government tried to balance its budget. ... And again the recession that followed led to a steep fall in private investment." From the article:
The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn't just a hypothetical argument: it's exactly what happened in two important episodes in history.
The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era's deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.
The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.
Just to be clear, I'm not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton's fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.
What made fiscal austerity such a bad idea both in Roosevelt's America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity. [The New York Times, 12/1/08]
Experts Agree More Stimulus Needed
Krugman: "Back In January '09 ... A Number Of Us Said, 'This Is Not Commensurate With The Scale Of The Crisis.'" On the September 5 edition of ABC's This Week, Krugman noted that many economists raised concerns that the stimulus might not be large enough when it was first proposed. Krugman said, "Back in January '09, when Obama was first announcing his plans, a number of us said, 'This is not commensurate with the scale of the crisis.'" Krugman later added, "What we need is more demand." [This Week, 9/5/10, accessed via Nexis]
Morgenson: "The Stimulus Was Not Big Enough... We Need Something Instant." On the September 5 edition of CBS' Face the Nation, New York Times assistant business and financial editor Gretchen Morgenson, who received the Pulitzer Prize in 2002 for coverage of Wall Street, said:
MORGENSON: The stimulus was not big enough. Because you would have seen far greater recovery. The unemployment numbers would be better, I think, if you had, if we wanted to think the stimulus was enough. But again I think that it has to be targeted. I think that what Laura, the point she made earlier is a good one. That is, let's go for things that will have a more immediate impact like, say, a payroll tax cut holiday or a payroll tax holiday. We need something instant, something a little bit quicker." [CBS' Face the Nation, 9/5/10, accessed via Nexis]
Dick Morris Has A History Of Promoting False Claims About The Economy
Morris Falsely Claimed That Letting Bush Tax Cuts Expire Would Increase The Deficit. On the September 8 edition of Fox & Friends, Morris argued that not extending the Bush tax cuts for the wealthiest 2 percent in America "is just a method of increasing the deficit, increasing the debt." As Media Matters haspreviously documented, according to CBO estimates, extending all of the Bush tax cuts will reduce revenue by $2.7 trillion through 2020.
Morris Claimed Earmarks Contributed "In Large Measure" To Bush-Era Budget Deficits. In a November 16 op-ed for The Hill, Morris wrote that "[e]armarks contributed, in large measure, to the budget deficits that piled up during the Bush administration." In fact, as Media Matters has previously documented, according to PolitiFact.com, earmarks constituted about $18 billion, or 10 percent of the deficit, in FY2008. A New York Times interactive calculator shows that eliminating earmarks today would save about $14 billion. [The Hill, 11/16/10; Media Matters, 11/17/10]