This item by TDS Contributor Robert Creamer, author of Stand Up Straight: How Progressives Can Win, is cross-posted from Huffington Post.
Yesterday, ABC News leaked a confidential report from investment bank Goldman Sachs warning that the spending cuts proposed by the Republicans to take effect this year would slow the economy by 2 percent of Gross Domestic Product. It also found that even compromise cuts of $25 billion would cut growth by 1 percent.
This report would not be surprising if it came from the progressive Economic Policy Institute (EPI) — or even someone at the Brookings Institution. Instead it comes from Wall Street — which is, after all — the principal base of the GOP.
Of course, their conclusions are not surprising. Virtually everyone with an ounce of economic literacy understands that cutting federal spending right now — just as the economy is clawing its way out of the worst recession in 60 years — will cost hundreds of thousands of jobs.
Right now, the government projects about a 2.7 percent rate of growth in the economy this year. So according to Goldman Sachs, if the Republicans have their way, most of that growth would be wiped out and we would be perilously close to a double-dip recession.
It’s time to stop treating proposals for immediate cuts in spending as “reasonable” policy alternatives. These proposals are dangerous to the economy and the welfare of everyday Americans.
You have to ask yourself, why would the Republicans propose a policy that even Wall Street thinks would be suicidal for the economy? Here are two options:
Reason 1: To Damage the Economy for Political Purposes
Mitch McConnell — the Republican Senate Leader — made it very clear at the end of last year that their major goal for this session of Congress is to defeat Barack Obama in 2012 and take over both Houses of Congress. And there is no question that the most important key to President Obama’s reelection is an improving economy.
The Republicans have absolutely no political interest in the creation of jobs in the American economy. The more unemployed Americans there are next November, the better for them. The more incomes have stagnated, the better for them.
As much as they blather on about how they will create jobs in the private sector by cutting government spending, even most Republicans understand that as you recover from a recession, that is simply not true.
As much as they wish it were not so, recessions are never caused by too much government spending, they are caused by an deficit of demand in the economy for goods and services that could be produced if the economy were operating at full capacity. The virtuous cycle that is behind economic growth requires that demand be jumpstarted by government — that enough people be put back to work with incomes to buy new products, that the private sector is enticed to invest and hire.
Right now private corporations are sitting on almost two trillion dollars in cash. The fact that they are not hiring or investing heavily in new plant and equipment has nothing to do with a need for more tax breaks or a shortage of capital. It has everything to do (as they will tell you) with the fact that they aren’t confident there will be enough demand in the economy — enough people with money to buy their products and services.
The time to cut deficits is not as you are recovering from a recession, but in periods of long-term economic growth — in the same way that President Clinton did during the 1990’s. Some people act like the deficit is an intractable problem of many generations. It was just over 10 years ago that we had no deficit. The way to deal with the deficit in the future is essentially the way it was eliminated in the 1990’s — tax increases on the wealthiest taxpayers and robust economic growth.
If you cut $61 billion of spending out of the economy over the next six months, you make the “demand deficit” larger, not smaller. In the process you destroy jobs. It’s that simple. Or as Republican Leader John Boehner might say, “So be it.”
Most thoughtful Republicans actually understand that. But one reason they continue to support these cuts is that by hurting the economy, it will benefit them politically.
Reason 2: Because the Inmates Have Taken Over the Asylum
A second reason that the Republicans are supporting these damaging policies is that the crazy relatives they used to try to keep out of sight have burst into the living room.
For many years, the interests of Wall Street and the biggest corporations have completely dominated the economic policymaking of the Republican Party. While this wing of the party pays appropriate tribute to “restraining spending” and “smaller government,” their ideology is not really about principle. They adhere to only one core ideological premise: They favor whatever is in their own economic interest.
Wall Street and big corporations are generally advocates of “smaller government” because they want to cut their taxes and reduce government regulations that prevent them from injuring consumers, fouling the air or engaging in the kind of reckless speculation that sunk the economy in 2008 and cost 8 million Americans their jobs.
But the Wall Street crowd is perfectly capable of abandoning any talk of “small government” when it comes to huge government contracts. And you don’t hear much about the deficit when it comes time to ask for tax breaks for the rich or oil company subsidies. Remember it was former Vice President Dick Cheney who famously said: “deficits don’t matter” — a view that he used to justify the fact that he and President Bush rolled up more deficits in their eight years than all of the previous presidents in American history combined.
However, there is another wing of the Republican Party that has traditionally talked a lot, but didn’t have a lot of power. They are the libertarian ideologues who actually believe that the economy would be better off with a tiny government. This gang mainly has appeal to the “non-Wall Street” base of the Republican Party — the Republican “foot soldiers.”
The “foot-soldier” wing has traditionally been concerned more with social issues and has been heavily populated with right-wing religious activists. But the Wall Street-induced economic disaster — and overall decline of the American middle class — has made this group a prime target for libertarian economic narratives that include a conviction that government spending is the root of all economic evil.
Libertarian economic nostrums infused the Tea Party Movement, and that helped propel many new Republicans into Congress last fall. Suddenly this wing of the party is no longer relegated to the role of campaign season political fodder. They actually have some power in the Republican Caucus.

The conflict between the Wall Street/corporate wing of the Republican Party and the libertarian wing of the party may play out even more starkly when Congress needs to raise the debt limit to avoid defaulting on the country’s obligations. That would be the absolute last thing Wall Street is interested in, since it would cause a worldwide economic catastrophe and almost certainly send the country back into a major recession. But the Libertarian wing sees it as a bargaining chip to achieve their ideological goal of “smaller government.”
The battle over the fiscal 2012 budget — and the current level of spending for the balance of this year — will have major economic consequences for the well-being of average Americans.
Whether you believe that the Republicans’ plan is intended to hurt the economy for political reasons, or because they must satisfy ideological extremists that have taken seats of power — or both — it would be a disaster for middle class Americans who expect our government to focus on one thing: creating new jobs.
For Democrats, good politics and good government go hand in hand. We must do everything in our power to prevent the Republicans from passing these job-killing policies. The better we can do at that, the better the economy will be in 2012 — and the more likely we are to achieve political success.