Fact Check: Stewart, Buffet, and The United States “Debt Crisis”
I watch the Daily Show religiously. To me, it is probably the one thing I look forward to the most every weekday. It’s sad, but Jon Stewart has become the single most reliable source of news that I get. It is sad because I get better news from a comedian than real journalists. Not surprisingly, a lot of Americans feel the same way.
When asked in a 2007 poll by the Pew Research Center for the People and the Press to name the journalist they most admired, Stewart was 4th behind the likes of Tom Brokaw and Anderson Cooper. Of course, just because he is one of the most admired “journalists” in the United States doesn’t necessarily mean he is worthy of our trust. This morning I was inspired to do a little fact checking after watching an episode in which Stewart made some pretty astounding claims. But before I go into detail about Stewart’s claims, I need to give a little background to set the stage.
In his August 18th, 2011 episode, Stewart decides to use the beginning segment of his show to give his two cents on the so-called United States debt crisis. He starts by referring to Warren Buffet’s recent opinion piece in the New York Times and the resulting reaction, by the mainstream media, to said piece. In his article, titled “Stop Coddling the Super-Rich,” billionaire Warren Buffet explains that times have been good for the American rich.
“My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”
However short his piece may have been, his words held great purpose. While it wasn’t the focus of his opinion piece, his article did address the greatest threat to not only the economy of the United States, but also to the world. So far Congress hasn’t even come close to providing a legitimate plan to solving America’s economic woes; in fact, everything it has done thus far only exacerbates things. I am, of course, talking about the debate over the debt and how to go about reducing it. Congress believes cutting spending is the only responsible way United States should go about reducing debt; revenue increases—not so much.
“We must live within our means!”
These are the main talking points used to shift public opinion away from the important issues, like job creation, towards the ever-increasing national debt. Yes, the United States has a large debt. Last time I checked, the US national debt was around $14.6 trillion according to www.usdebtclock.org. Although I agree that we should cut spending, I couldn’t disagree more about how we should go about doing it. In fact, the debt is the last thing Americans should be concerned about. Any economics 101 student, or any student of history, can explain that in an economic crisis debt is good.
If we look back to almost 80 years ago the United States was in a very similar economic crisis, but instead of being called the Great Recession this period of time was called the Great Depression. Back in 1932 the economy hit rock bottom. Soon after, in 1933, President Franklin D. Roosevelt decided to help jump-start the economy with a stimulus package called the New Deal. Here were the results:
As you can clearly see, in 1934, one year after the New Deal’s passing, GDP went up and the unemployment rate fell. When private citizens were incapable of spending money and creating jobs the Government was the only entity capable of providing the financial investment to stimulate the economy. Taking the hit, and running a higher debt to give the economy the boost it needed, was the fiscally responsible thing to do. Not surprisingly, the same thing happened to jobs in 2009 when Obama passed his stimulus package.
As you can see for yourself, after the stimulus package started pumping money into the economy, private sector employment increased, but so far I have only given enough data to express a positive correlation when it comes to government spending and job creation rather than a direct association. I am about to explain something to you that is going to blow your mind.
With the questions about what the potential impact of the debt ceiling deal will be on everyone’s mind, Bruce Bartlett of the New York Times, a man who has held senior policy roles in both the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul, wrote an insightful piece for the New York Times in mid July. Before the debt ceiling deal was made, Barlett expressed in the article, “Are We About to Repeat the Mistakes of 1937?” that to cut spending would be very irresponsible.
“With the economy in a fragile state, it may not take much to bring on another recession. Even a small amount of fiscal or monetary tightening may be enough to do that… It is starting to look like 1937 all over again.”
It is time for another history lesson.
Today the United States Government is doing the exact same thing it did in 1937. Like many conservatives today, Mr. Morgenthau, Treasury Secretary to FDR, worried obsessively about the debt. He was convinced that balancing the budget would be expansionary. Morgenthau believed recovery, “Depended on the willingness of business to increase investments, and this in turn was a function of business confidence,” adding, “In his view only a balanced budget could sustain that confidence.”
This was enough for Roosevelt. He ordered a very big cut in federal spending in early 1937. In two years there was 17% reduction in spending. The result, as you can see from the first graph, cut the GDP by 3.4% and increased unemployment by 3.3%. This is why it is important to pay attention in history class, so you don’t make the same mistakes twice.
I imagine the question on your mind now: “What is going to happen to the economy and to jobs now that the US has done the same stupid thing twice?” Thanks to the nonpartisan group Economic Policy Institute we have one prediction. According to there numbers, by 2012 the total money that will be cut in governmental spending will be $241B (-1.5% of the GDP) and will eliminate 1,822,000 jobs from the economy.
With no increases in revenue, the reduction in governmental spending will disproportionally affect the poor and middle class of the United States. In other words, the United States Government has made its policy to guarantee subsidies and tax cuts for oil companies and corporate jets, but don’t want to front the bill for grandma’s health care. Politicians are quick to defend their reasons for not increasing taxes on the rich.
“We mustn’t punish the successful!”
“We must protect the job creators!”
The rich don’t need our protection. They are doing just fine as is.
Despite what you may hear about the economy, the stock market is booming. Corporate profits grew 36.8 percent in 2010, the biggest gain since 1950, according to a report from the Bureau of Economic Analysis. In July, corporate giants such as 3M, Caterpillar, Goodyear, Microsoft and Apple reported outstanding results in the second quarter of 2011. This good news also extends to those same companies that we’ve bailed out in 2009.
Goldman Sachs (those same guys who didn’t want any bailouts) made $8.35 billion last year. General Motors, the automotive maker that the American people kept afloat with our tax dollars, made $4.7 billion. And don’t get me started on the oil companies. According to second-quarter earnings reports, ExxonMobil alone made $10.7 billion in three months. That’s a 41% increase over the same period last year and a 161% increase over 2009. Hell, last year they made $149 billion last year alone. Fat cat city has been rebuilt and the people who run it are also doing better then ever
In April, USA today published an article that explained that CEO pay, on average, has increased by 27% in 2010 while the average American’s pay only increase by 2.1% (which is basically nothing when calculated with inflation and the decreasing value of the dollar).
Today the economy is screeching to a halt once again. Unemployment is averaged around 9.2%, but despite how the rest of the country is doing the rich are getting richer and regular people are being told that they have to make sacrifices.
“We’re broke”, says the American Government at the state and federal levels, “we must have shared sacrifices.” When the government says things like this they actually mean that they are cutting spending on thing like teacher’s pay and education. Today school districts everywhere in the US are laying off hundreds of educators, all the while the government is shoveling away the money that it saved by giving it away in the form of billions of dollars in tax breaks to corporations and rich people.
Whenever I turn on the news all I hear about is how we need spending cuts. It is one thing to talk about spending, but there is a deeper truth to all of this punditry. In a previous article that I wrote for Operation Reality I talked about how reality has become trivial; the truth is being drowned in a sea of irrelevancy. The deeper truth to everything that is going on with the debt crisis in America is that these plans being proposed to save the country are not just proposed budget cutting, it is a transfer of wealth; wealth that could have been used to close the budget gap.
I have now set the stage.
Back to Jon Stewart and Warren Buffet.
Not soon after Buffet’s piece was published, the media fired back. In an almost predictable fashion, the media invokes the tried and true, age-old classic talking point: class warfare. They are right about one thing: this is class warfare, but it is being waged by and is currently being won by the rich. Stewart was quick to point out the stupidity of the media’s argument. He noted the distribution of the wealth in America is worse than some third world countries. Using the CIA’s own Gini Index, a measurement of the distribution of family income in a country—where a value of 0 expresses total equality and a value of 1 equals maximal inequality, the United States placed 64th in Income Equality with a value of 45. That is worst than Cameroon and the Ivory Coast.
How do we fix this inequality? There is a lot our government can do. Here are just two of my favorites:
We could close the tax loopholes that make our government pay certain corporations just for the pleasure of existing. From the office of Bernie Sanders: “Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings. Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion. Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS. Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009. Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.”
Possibly the greatest solution to all our financial woes was best stated by Jon Stewart on April 12, 2011. In this episode of the Daily Show, Stewart spent the first segment of his show highlighting the flaws of the Paul Ryan budget plan: the so-called Path to Prosperity plan. When the episode broadcasted, Congressman Ryan had only recently released his video explanation of the debt crisis. In the video Ryan explains his plan on how he proposed to solve the American budget crisis. Using Ryan’s own styling, Jon invoked a most brilliant satire. Not only does the Stewart plan eliminate American debt, but also does it in a way that doesn’t disproportionally affect the average American. “What if we also attack our deficit by getting rid of the Bush Tax Cuts… the same damn thing [elimination of the debt]”.
Here are some links to where I got my facts:
For those who have not seen it yet here’s a short clip from the Aug 18, 2011 Daily Show segment I was briefly referring to.