“The Stimulus Tragedy” * Open Thread [with update]
By SusanUnPC on February 9, 2009 at 2:55 PM in American Consumers, Economic Stimulus, Economy, stimulus tax package
(bumped up)
Update: And now here’s an au contrare, please (!), pro-stimulus op-ed in today’s Washington Post: “Why I Support the Stimulus.” And you won’t believe who wrote this. (The answer is at the end of the post.)
(or, my title: “Blowback from the Democrats’ Mad Hatter Rush”)
Wall Street Journal, February 7, 2009:
So there it is: Mr. Obama is now endorsing a sort of reductionist Keynesianism that argues that any government spending is an economic stimulus. This is so manifestly false that we doubt Mr. Obama really believes it. He has to know that it matters what the government spends the money on, as well as how it is financed. A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP.
But that same dollar can’t be conjured out of thin air. The government has to take that dollar away from someone else — either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.
Some Democrats claim these transfer payments are stimulating because they go mainly to poor people, who immediately spend the money. Tax cuts for business or for incomes across the board won’t work, they add, because those tax cuts go disproportionately to “the rich,” who will save the money. But a saved $1 doesn’t vanish from the economy, unless it is stuffed into a mattress. It enters the financial system, where it is lent to others; or it is invested in the stock market as capital for businesses; or it is invested in entirely new businesses, which are the real drivers of job creation and prosperity.
More below on the silly, faux cuts from the stimulus package that is merely “window dressing”:
At the current moment, amid a capital strike, the latter is the kind of fiscal stimulus we really need. Yet there is virtually none of it in the bills now moving through Congress. Senate moderates may succeed in cutting $100 billion or so in spending from the bill, which is political window dressing. Even they aren’t talking about adding the kind of tax cuts that would really help the economy now. …
No. Let’s not stop there. Here are the concluding two paragraphs, fodder for all of you THINKING READERS:
We should add how different this is from the 1980s or even the 1960s. Democrats added business tax cuts to the Reagan package of 1981, while Jack Kennedy’s chief economist (Walter Heller) promoted marginal rate tax cuts on stimulus grounds in the 1960s. Yet Mr. Obama, on Thursday, dismissed any such tax cuts as “the same tired arguments and worn ideas that helped to create this crisis.” That’s rhetoric for a campaign, not for a President hoping to rally bipartisan support.
The biggest gamble with this stimulus is what it means if the economy doesn’t recover. Monetary policy is already as stimulative as it can safely get, and the Obama Administration is set to announce its big financial fix on Monday. Stocks rallied Friday on expectations of the latter, despite the job loss report, with big bank stocks leading the way. If done right, this will help reduce risk aversion and gradually restore financial confidence.
We hope it does, because the size and waste of the stimulus means we won’t have much ammunition left. The spending will take the U.S. budget deficit up to some 12% of GDP, about double the peak of the 1980s and into uncharted territory. The tragedy of the Obama stimulus is that we are getting so little for all that money.
I hope you agree and disagree.
The point of this exercise? We need to talk more about this, and we need to contact our members of Congress — each of us in our own states and district — and urge them to scrutinize this “gamble” with great care and caution.
The biggest reasons I see that we MUST SPEAK OUT and DIRECTLY TO OUR MEMBERS OF CONGRESS is that this is being let loose by a ignorant President — if ever there were a reason to revive the once-great popularity of the book on the “Peter Principle”, which was all the rage 30 or so years ago — and the stubborn, blindered cause celebres of the all-too-powerful Nancy Pelosi and Barney Frank.
Even though they never heard of the Peter Principle, most likely, every one of our grandparents knew the principles about NOT throwing GOOD MONEY after BAD.
Here’s another homily: “Waste makes haste.”
Then there’s good ol’ Ben: “A penny saved is a penny earned.”
And there’s always my mother’s favorite. “Use some good ol’ C.S.”
Above all, Mr. Obama’s franti protestations aside, we need to stop. And think.
ARLEN SPECTER (!):
By Arlen Specter
Monday, February 9, 2009; Page A17I am supporting the economic stimulus package for one simple reason: The country cannot afford not to take action.
The unemployment figures announced Friday, the latest earnings reports and the continuing crisis in banking make it clear that failure to act will leave the United States facing a far deeper crisis in three or six months. By then the cost of action will be much greater — or it may be too late.
Wave after wave of bad economic news has created its own psychology of fear and lowered expectations. As in the old Movietone News, the eyes and ears of the world are upon the United States. Failure to act would be devastating not just for Wall Street and Main Street but for much of the rest of the world, which is looking to our country for leadership in this crisis.
The legislation known as the “moderates” bill, hammered out over two days by Sens. Susan Collins, Ben Nelson, Joe Lieberman and myself, preserves the job-creating and tax relief goals of President Obama’s stimulus plan while cutting less-essential provisions — many of them worthy in themselves — that are better left to the regular appropriations process.
Our $780 billion bill would save or create up to 4 million jobs, helping to offset the loss of 3.6 million jobs since December 2007. The bill cuts some $110 billion from the $890 billion Senate version, which would actually be $940 billion if floor amendments for tax credits on home and car purchases and money for the National Institutes of Health are retained.
House Speaker Nancy Pelosi says the proposed cuts “do violence to what we are trying to do for the future,” especially on education. Her objections are a warning to conservatives that more cuts would be unlikely to win House approval. They are also an admission of the high price that moderates have been able to extract for their support of stimulus legislation.
If a stimulus bill doesn’t pass, there won’t be any money for Title I education programs. The moderates’ bill provides marginally less money for Title I than the House and Senate bills. But while it’s less than supporters want, this proverbial half a loaf beats no loaf by a mile. … Read it all.
by Ronald Scott
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