- The Washington Times - Sunday, October 31, 2010

The two political parties are deeply divided over how to deal with the economy’s lackluster performance, and the divide promises to get only more cavernous after Tuesday with the likely takeover of the House by a rejuvenated conservative Republican majority.

The challenge came into a full view with the latest snapshot of the economy released by the Commerce Department on Friday, revealing a tepid 2 percent growth rate during the summer quarter that was half a result of temporary factors such as businesses adding to lean inventories as well as a belated kick from stimulus spending by the federal government.

All sides agree that such anemic growth will not suffice to bring the unemployment rate down from its perch near 10 percent, and that something more needs to be done to spark a healthier pace of growth. But agreement begins and ends there.

Democrats, led by President Obama and driven by a liberal wing that championed last year’s $814 billion stimulus bill, are calling for further government spending on infrastructure, combined with targeted tax cuts for small firms to hire and expand their businesses.

Realizing that the House is likely to be taken over by Republicans on Tuesday, Mr. Obama on Friday stressed that he crafted his proposal to let small businesses write off the full expenses of investments to appeal to people from both parties.

“Republicans have actually offered this idea in the past. It’s a simple proposal that will make a serious difference,” he said during a visit to a sheet-metal plant in Beltsville, Md.

“I know we’re at the height of political season,” he said. But he reminded Republicans that the “political season is going to be over soon. And when it does, all of us are going to have a responsibility, Democrats and Republicans, to work together wherever we can to promote jobs and growth.”

The Democratic remedies for the economy are supported by Nobel Prize winners Paul Krugman, Joseph Stiglitz and other eminent economists, some of whom are urging the president to even go further. Democrats on the left say the problem with the economy is that Congress did not enact a big enough stimulus bill last year and should have put even more generous spending programs into place.

But Republicans are prescribing exactly the opposite medicine for the economy. They want to slash government spending — starting with what’s unspent from last year’s stimulus and bank bailout bills — while pressing for broadly lower taxes even for wealthier people and investors through extension of all of President George W. Bush’s tax cuts.

“Our economy continues to struggle under the weight of Washington Democrats’ out-of-control spending binge and failed stimulus policies,” said House Minority Leader John A. Boehner, the Ohio Republican who could become House speaker next year if Republicans, as expected, win big on Tuesday.

“Make no mistake, our economy will ultimately recover, but it will do so because of the hard work and entrepreneurship of the American people, not more of the same wasteful Washington spending and job-killing tax hikes and mandates.”

Some Republicans on the right — including many “tea party” candidates — want to go even further than Mr. Boehner and are calling for immediate cuts of nearly $1 trillion in spending. They say such budget austerity — while removing what has been an important prop for growth in the past year — would inspire confidence among businesses and consumers and generate offsetting growth in the private sector.

These conservative candidates receive backing from Peter Schiff, an economist at Euro Pacific Capital. They see no reason to compromise with Mr. Obama and congressional Democrats.

Bill Wilson, president of Americans for Limited Government, said Republicans should do whatever it takes to railroad a drastic $900 billion cut in spending through Congress next year, and then “hand deliver” it to the president as a take-it-or-leave-it proposition.

“Let him veto it. Let him be the one to threaten to shut the government down,” he said, in a threat reminiscent of the do-or-die tactics Republicans tried in 1995 during their budget wars with President Clinton.

Mr. Wilson warned Republican leaders that if they stop short of taking drastic action to cut spending, they, too, will pay a price by losing the support of grass-roots conservatives and losing the next election.

“More than anything on Tuesday, the American people will be voting to rein in this massive, unaffordable, out-of-control government,” he said. “The GOP can ill afford to disappoint them.”

Mr. Wilson’s stance illustrates how the election is serving to harden the most extreme views in each party. Conservative “tea party”-backed candidates in the primaries defeated leading moderate Republicans known for bipartisan cooperation such as Rep. Michael N. Castle of Delaware and Sen. Robert F. Bennett of Utah. Some of them will beef up the ranks of conservatives in Congress next year.

Meanwhile, Democrats from only the most liberal districts have been considered safe, while many of their more moderate or conservative brethren are prime targets to get ousted on Tuesday, leaving behind a more liberal Democratic caucus.

The result is little obvious meeting ground between the two parties when it comes to the ailing economy. Such great chasms weren’t always the case in the past, when the two parties rarely had trouble coming together and finding middle ground in times of economic emergency.

Roya Wolverson, an analyst at the Council on Foreign Relations, said the extreme divergence this year is a result of rising public concern about budget deficits exceeding $1 trillion, which is second only to the economy in the public’s mind. Ironically, the huge deficits are largely the result of higher spending and lower tax revenue caused by the recession, and would come down considerably with better growth.

“Traditional proposals to tame unemployment — more government spending or tax cuts — are hard sells for U.S. voters worried about the country’s ballooning public debt, which is expected to rise to 62 percent” of economic output this year, she said.

A Rasmussen poll conducted in September found that 61 percent of U.S. voters said cutting government spending and deficits would do more to create jobs than the president’s $50 billion infrastructure spending plan — even though that runs against the advice of hundreds of economists.

Since there’s little meeting ground between the two party extremes, observers predict that political gridlock will return with a vengeance.

Brian Gardner, a Washington analyst at Keefe, Bruyette & Woods, said he foresees an “unprecedented level” of gridlock but remains hopeful that some small deals can be made to aid the economy.

Mr. Gardner is particularly hopeful that Republicans will use their government-paring mandate to “restore sanity” to the budget, but he cautioned against “overreaching.”

“Republicans should seek meaningful, yet realistic, cuts in government programs,” he said. “Creating a pathway to smaller deficits will be rewarded by the markets and the voters.”

But too much fervor proved to be the GOP’s undoing in 1995, when the public blamed Republicans for unpopular government shutdowns, he said.

“The public might be willing to be more understanding of hardball political tactics in budget battles next year, but repeating that game of chicken is fraught with peril,” he said.

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