How Congress is harming the economy

February 5, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The views expressed are her own. –

At the very time that the Senate is debating whether to spend $800 billion or $900 billion to stimulate the economy, the government is considering other legislative and regulatory initiatives that would impede economic recovery.

Growing Protectionism

By inserting protectionist provisions that require some goods financed by the stimulus bill to be made in America, Congress is risking a trade war with important trading partners in Europe and Asia. A trade war would reduce exports, potentially destroying millions of American jobs.

Cutting Defense Spending

Although Congress is trying to revive the economy by expanding domestic spending, the Pentagon is reportedly facing budget cuts next year. But with President Obama promising to deploy more troops to Afghanistan, America needs more defense spending, not less.

America needs to purchase more weapons, ordnance, vehicles, and body armor so that our troops have the best equipment possible. Defense supplies are generally made in America, and production employs Americans with a wide range of skills.

If America increases regular forces by 100,000 and hires 100,000 more civilians to support them, these individuals would acquire useful skills when they leave the Defense Department for the private sector. Their presence would enable the Pentagon to bring home reserve and National Guard troops, some of whom have been deployed for over a year.

Individual Emissions Standards for States

Earlier this week auto companies revealed that sales had reached a 27-year low. Yet, under a new directive from President Obama, states such as California would be able to set their own emissions standards, which will be—you guessed it—stricter than federal law. This would complicate engineering and production, raise costs, and send the industry into an even greater decline.

Since California is America’s largest car market, companies would have to make lighter, more fuel-efficient cars that consumers might not want to purchase. Domestic companies would be particularly hard-hit because they make larger cars. It makes no sense for Congress to bail out Detroit with loans and give tax deductions for purchases of new cars and trucks, while at the same time decimating the market of the Big Three. More red ink for the auto industry, and more layoffs across America.

Employee Free Choice Act

This misnamed bill would change the law to allow workplaces to be unionized without secret ballots. A workplace could be unionized if a majority of workers sign an open card in favor of unionization — a process known as “card check,” exposing workers to union intimidation. This bill passed the House in the 110th Congress and will be soon brought up in this congressional session.

One of the bill’s House sponsors was House Committee on Education and Labor Chairman George Miller. In 2001, he and five colleagues wrote to the state arbitration board of Puebla, Mexico, saying, “we feel that the secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise choose.” If Mexicans deserve a secret ballot, so do Americans.

States where employees do not have to join a union in order to work have lower average unemployment rates than other states, so it would not be surprising if increased unionization would raise unemployment rates.

As well as protectionism, cuts in defense spending, unionization by intimidation, and arbitrary environmental standards, the economic stimulus bill would open the floodgates of deficit spending. The ensuing debt would burden Americans far into the future.

The Democrats, who control both the White House and Congress, should know better. No wonder consumers are scared, financial markets are tumbling, and unemployment continues to rise.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

99 comments

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Good to see somebody’s actually thinking in this very serious situation….

I is time our leadership understand and address the real cause of this crisis… private sector debt! If a stimulus package does not address and begin to fix this it will fix nothing…

Posted by R. Johnson | Report as abusive

of course an opinion from the hudson institute founded by the RAND corp would want increased spending on the military and incase she didnt notice the last administration did nothing but deficit spend to the tune of over 5 to 6 trillion dollars.

Posted by gdub | Report as abusive

The critic to the protectionism is the only valid one. Increase WAR spending? right, that’s what we need, another war to make money (obviously only for the same reduced circle of people). There’s enough crazy people fighting over everything, deplying and hiring more americans for stupid wars? I don’t see as part of the solution but the problem PER SE. Now, it would be more cost-efficient in the long term to produce better cars, EVEN if people don’t like it at the beggining, they’ll get used to it and will be greatful, but no, Mrs. Diana would like to keep helping the car makers to produce the same contaminating cars that are killing our own planet, so they can keep making money, instead of using new technologies that already exist to help us save money, and also the planet. I wonder how leveraged she is in OIL and american car companies??? it must be a bug chunk of her stock to say the least. Do i need to say anything else?

Posted by Catherine | Report as abusive

geez Diana, bleach the hair, get more attitude, be the new Ann Coulter, maybe even get on the Rush show. yep, being a right wing naysayer, that’s the ticket.

Posted by nazdagg | Report as abusive

It is exciting to give opinion. there are many individual like to express opinions. The opinions come from intellectual investigation to deliver a proper opinion to prevent or deter or cure a crisis that is call a genius. I feel some disgrace to see that some of us making opinions without understand the core problem of this crisis. The crisis begun when Mr.Bush was taking cash to support the war and the bank was facing huge shortage of cash. So, Paulson thought if quickly he put some cash in the bank the bank will come in the right track but it was too late. By the time the economy was paralyzed. The voters of Bush should pay the consequences not the ordinary citizens.

Interesting point of view yet, I don’t worry about Obama’s policy. It can’t be worst than Bush’s one.
Americ will not accept a too tough protectionism, at least, I hope so.

Posted by Sarkozy François | Report as abusive

Well, it seems obvious this “expert” economist is a globalization junkie and gets payoffs from the US auto manufacturers.

1) Globalization already has shipped millions of US jobs overseas and what for – childrens toys that contain lead banned in the US, dodgy food products that kill our babies and pets.
2) The Big 3 car companies only have themselves to blame, they can make better engines they already do for Europe, e.g. the Lincoln MKZ, the equivalent car in Europe called the Monday now has a diesel engine that gets nearly 50 mpg. She should stop lying for these companies, if they can do it elsewhere they can do it here.

All in all she appears to be peddling the same junk that got the US into the current mess.

Posted by Lee Magee | Report as abusive

It is interesting that everybody talks about collateral expenditure and how this will help economy.

band aids do not work very well as we saw in 1928 depression. All the infusion of money and job creation did not help but what got us out of depression was major catastrophe like world war II. Now question is should we have another war to get us out of depression or maybe we could invade another Galaxie or planet to serve the same purpose. At least it will help the economy to a large extent or may be we could start a war on some barren land for the psychological point of view.

Now the question is will it help or not. At lest we should give it a chance at least it would not hurt.

Posted by vj | Report as abusive

Three things need to happen to get us out of this mess…
(1) Corporate capital investment has to be incented…the most efficient way to achieve this is to cut the corporate tax rate to about 22%..
(2) The consumer has to have confidence reinvigorated. Again, getting people back into shopping centers, buying new homes and new cars can best be accomplished by tax policy. A $15,000 immediate tax credit for the purchase of new homes will at least slow down the decline in housing prices. A $5,000 immediate tax credit for the purchase of new automobiles would salvage more jobs in the auto industry without just handing out cash to the unions and postponing the inevitable collapse of the industry.
(3) Capital has to start flowing again so we must find a way to incent banks to loan the money rather than attempting to repair their balance sheets…maybe the answer to this dilemma would be to let the banks that have acted so foolishly fail…new banks with fresh capital and healthy balance sheets would spring up like wheat in the summer!

Posted by lefty mclawhorn | Report as abusive

It is interestingto read these comments. Ms. Furchtgott-Roth brings up very good points which are proven basic economic factors this country has had for decades. The fact that we spend money on Defense is just that defending the country, which by the way includes jobs. The open union vote is so stupid that it is hard to believe anyone would think it isgood. Just look at the UAW and what they tried to do with the auto bail-out. they said “no we will not open the contracts in new negotiations.” That tells me they would rather put thousands of their workers out of a job rather than work in conjunction with everyone to mae things work. From where I stand a little of something is a lot better than a lot of nothing. To stimulate the economy quickly why doesn’t anyone suggest stopping the Federal income tax for 2 years. The money would be put back into thepockets of the American worker, they would spend it on goods and services, and the economy would move forward…Oh yea, then everyone would see just how much they pay in taxes and Congress would be help accountable…Nah, that won’t work.

Posted by Ed | Report as abusive

The author has strung together such a list of over-simplifications and misleading statements, that it is frightening to think that she was the head economist for the Department of Labor (under Bush, of course). This article is simply an echo of the discredited ideologies of the neocons, which I am coming to believe is a subterfuge for the destabilization that has unwound the world but created some winners who are all the paymasters of the Bush disaster.

Posted by Jonathan Cole | Report as abusive

Obviously it is the fault of unions who demand fair wages and benefits for their members. Clearly Wall Street and the US automakers are not at all at fault and need to be supported by the average American because now they hold toxic assets. This woman is a shill and a propagandist for the criminals who ruined the US.

Posted by JAN | Report as abusive

Employee Free Choice — It is just not fair that the unions have the chance to intimidate the workers without giving the company the same opportunity. That’s right buddy, you don’t work here anymore!

Posted by Neil Tevepaugh | Report as abusive

Diana get your facts straight on the defense budget cuts. There is no cut. The Pentagon budget is increasing, it is a matter of how much. Obama wants an 8% increase, joint chiefs suggested a 16%.

http://blog.wired.com/defense/2009/02/40 -billion-incr.html

Posted by dusty | Report as abusive

Ms. Furchtgott-Roth is basically repeating the neoconservative thesis that what we need is simply greater doses of the medicine that’s already made us sick.

She’s even shilling for throwing more milk and honey at Halliburton and Blackwater. So we’re supposed to recruit more troops, with each new soldier shadowed by someone getting paid five times as much to provide inedible food, dirty drinking water, and electrified showers? Take your broken ideology back to the drawing board, lady!

Posted by Art Marriott, Seattle | Report as abusive

This author is a liar. She will only be happy when the USA is a 3rd world country with no middle class, just a mass of poor willing to work for bread, and a thin layer of rich elites running the country. She undoubtedly also advocates cutting taxes for rich people…so they can show their patriotism and ship more jobs overseas.

Notice how she doesn’t bring up how China manipulates its currency rates to “dump” its cheap products on the USA. China uses protectionism, so does Japan, South Korea, and all of Europe.

The US had protectionist policies since its inception as a nation. Under Reagan, continued under Clinton and the Bushies, these policies were dismantled. Look where it has gotten us. An 8 trillion dollar trade deficit, destruction of manufacturing sector…now tax revenues are so low off this sucky Walmart/McDonalds service economy that there isn’t enough money for schools, roads, and bridges.

We need fair trade, there is no such thing as free trade. No one is going to declare a trade war with the US because they have more to lose than we do. Remember, we are already losing.

Posted by Marc | Report as abusive

the absence of any rational thinking in this column is a devastatingly clear example of the mentality that got us into this mess in the first place.

Posted by kent | Report as abusive

Everyone needs to slow down…there are surely some wild claims, the truth is no one knows. I think that if we look to the past, we can get an idea of what may happen by various responses. However I believe that just need to focus on one thing, and not throw money at everything to see what sticks, I think we need to fix the one thing that went wrong in the first place and that is housing. Fix the housing mess and everything evens out.

Posted by Debra Kerr | Report as abusive

Everything the government is doing is band aids and political garbage.

The problem we are facing is the same as in the 30′s; a lack of demand. The war got us out because it created demand for weapons and supplies. Try offering a huge tax refund for anyone who buys a house this year instead of wasting money on the corporations that got us into this mess and see what happens to demand.

Posted by Craig | Report as abusive

Is there any way we can get the unions and the reactionaries into the SAME party? You’d think there was some kind of law granting equal evil to political parties! Oh, I know! There is no legitimate purpose served by trade unionism that is not better served by birth control, so maybe they can both be against that!

By the way, Boss, I’ll be on strike in Bermuda for the next two weeks.

Posted by Kurve Ball | Report as abusive