As some of our listeners observed, Jason and I feel rather passionate about the proposed “stimulus” which passed the House earlier today.
This stimulus plan is intended to “stimulate” the economy, yet it is unlikely that such a proposal can have any serious shortterm or longterm economic benefit. Instead, I agree with the New York Times that:
The stimulus bill working its way through Congress is not just a package of spending increases and tax cuts intended to jolt the nation out of recession. For Democrats, it is also a tool for rewriting the social contract with the poor, the uninsured and the unemployed, in ways they have long yearned to do.
So which is it? Is this intended to be an economic stimulus or a vehicle for a Democratic social agenda? Could it be both? I doubt it.
The problem is, the Democrats’ defense of this pork-riddled “stimulus” plan is shamefully hypocritical. Just a few observations:
How many times have you heard Democrats tell you that “tax cuts don’t stimulate the economy?” (Or that was the narrative when it was conveniently George W. Bush making the tax cuts) Well in the Obama stimulus ruse, $275 billion (1/3rd of the stimulus) will come in the form of tax-cuts. And while many will point out that the tax cuts are intended for the “poor,” it is important to note that families earning up to $150,ooo a year will also be entitled to such cuts; hardly part of the “poor” of this country. Okay, so now that the Obama stimulus contains tax cuts, they become a valuable part of our economic recovery, whereas tax cuts by past presidents (Reagan, Bush, etc.) where utterly useless.
Democrats have been enthusiastic critics of George W. Bush for his accelerated spending habits. And predictably, such comments are always followed by the “Clinton balanced the budget” bit (well, that is true if you discount the money that Clinton “owed” to federal entities- social security, if you do factor this in you will see that unlike the myth which has become so commonly accepted, the national debt kept on rising during the Clinton years). Republicans have been attacked constantly for contributing to the rising national debt, nevertheless, in the economic climate which we are facing today, Democrats don’t seem to remember that increasing the national debt is bad. And what a better way to inflate that debt by borrowing hundreds of billions of dollars from China as a “tool for rewriting the social contract with the poor.”
And as much as the Democrats have sought to exploit “Republican pork projects” over the past eight years, this “stimulus,” as Jason himself acknowledged, is practically nothing but pork. From the Wall Street Journal:
“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”
So said White House Chief of Staff Rahm Emanuel in November, and Democrats in Congress are certainly taking his advice to heart. The 647-page, $825 billion House legislation is being sold as an economic “stimulus,” but now that Democrats have finally released the details we understand Rahm’s point much better. This is a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.
We’ve looked it over, and even we can’t quite believe it. There’s $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There’s even $650 million on top of the billions already doled out to pay for digital TV conversion coupons.
Jason was quick to point out that this economic stimulus was most effective because it would “qucikly create lots of jobs.” Yet what still puzzles me is how “lots of jobs” are going to spring from such a weak infrastructure allotment; just about 1/5th of the stimulus will be actually used for infrastructure projects. Just $30 billion (5%) is going for roads and bridges, and slightly more will go for replacing electrical grids; that makes up only a little more than 10% of the stimulus.
How does anyone expect me to believe that a stimulus which only grants about $70 billion for infrastructure (which will create jobs), and yet throws $127 billion “over the next two and a half years to individuals and states for health care alone.” On top of that, nearly a quarter of the money going to state/local governments will be consumed by social programs: food stamps, extending unemployed benefits, and subsidizing health insurance. Medicaid for the unemployed, for example, will be covered 100% by the federal government until 2o10.
And yet, the major argument made by Jason and other Democrats is that this stimulus is going to create lots of jobs, and quickly. I have yet to hear how fueling social programs across the country is creating jobs; infrastructure I could understand, but powering Medicaid?
It is also ironic that more than one Democrat has tried to justify the stimulus plan by using Paul Krugman as a reference. Some of Paul Krugman’s main arguments for the stimulus rest on the infrastructure plans purported, yet again, with just over 10% of the stimulus actually going for infrastructure, how can that argument alone win the stimulus debate? It is also important to mention how hypocritical it is for Dems to hail Paul Krugman while dismissing those economists who disagree with the stimulus as “partisan nut-jobs.” Afterall, isn’t it Paul Krugman who not only touts his experience as an economist but a political voice. But hey, come on, he just claims to be “an unabashed defender of the welfare state,” attributes most of the problems of the world to George W. Bush, and writes the “Conscience of a Liberal” for the New York Times. What does that mean, anyway? Economists who ascribe to free markets are the ones to distrust, for they are the ones with a real political agenda.
And one more problem. Defenders of the stimulus will spend all day citing FDR’s New Deal during the Great Depression as evidence that government-created jobs can pull us out of this mess. Yet as I learned tonight, even the great Paul Krugman doesn’t believe that those times are necessarily relevant to our own. So why is it so important to defend the stimulus by citing the New Deal? Well, mainly because there is little evidence that inflating social programs is going to rescue such a large country from the brink of an economic disaster. Does extending benefits lead to more job creation? Does this stimulus even remotely address the credit crisis? If this stimulus is supposed to give more people money to spend on the economy, is buying food and other necessities going to compensate for the lack of CREDIT in the market needed for making investments, buying homes, cars, etc.?
The New Deal, if it was successful, sure took a long time to solve the problem. Today on the show I expressed the view that the New Deal didn’t pull the US out of the Great Depression, but instead, might have lengthened the Great Depression. I was told that such a view was “ridiculous” and not supported by economists today, and yet a survey was recently taken in which 51% would have disagreed with me and 49% agree; hardly unsupported. In my view, the War pulled the US out of the Depression. Afterall, unemployment “remained in the double digits until the onset of World War II;” at one point, almost a quarter of Americans were unemployed (1932). And possibly the most powerful defense of this view comes from the fact that if Keynesian economics were the reason for why the US recovered from the Great Depression, it would have been expected that after the War ended, the millions of Americans previously employed by the government would have lost their jobs and faced rampant unemployment. Yet as we all know, this wasn’t the case, the private sector accepted these working men and women into its ranks, and virtually no economic decline was noticeable. If anything kept us in the Depression, it was protectionist trade policies like the Hawley-Smoot Tariff, which is almost universally agreed upon to have prolonged the economic hardships. Conveniently enough, however, the “stimulus” plan has its own dirty, little protectionist slant:
The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.
A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.
Proponents of expanding the “Buy American” provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.
This stimulus is a ruse, and conceals much of the impetus behind the plan, which is an agenda to eventually socialize health care and expand other social programs that the Democrats have been itching to inflate.
From Professor Richard Wagner of George Mason:
Any so-called stimulus program is a ruse. The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing, or by inflating the currency, the added spending will be offset by reduced private spending. Furthermore, private spending is generally more efficient than the government spending that would replace it because people act more carefully when they spend their own money than when they spend other people’s money.
If you think that I am just a “conservative nut-job,” I will be willing to bet you that in 2-4 years, this economic crisis will not have abated; if anything it will be worse. And if you actually believe that this is somehow going to “stimulate” the economy, you need to get your head examined.
- Marc
Marc, good job defending your point of view despite the onslaught yesterday. A couple of supporting points-
Right after I listened to your discussion, I read a Walter E Williams column citing a study showing that for every job that the government creates, a job is destroyed in the private sector. Why? Government doesn’t produce. Your point that for long term economic success, PRODUCTIVE jobs must be created is right on.
http://www.gmu.edu/departments/economics/wew/articles/09/ThereIsNoSanta.htm
The analogy that I would use is having a car that won’t run because the fuel line has been disconnected. I can walk up to that car and spray starter fluid into the intake manifold and I can get a few good chugs out of it. But the car won’t run for any sustainable period of time. If I spend all my money on starter fluid I can get lots of chugs but the car will still not take me anywhere. And the fuel line remains unfixed.
You state that the New Deal did not bring us out of the depression but rather WWII. Correct but incomplete. The early 1940′s were a really really big stimulus plan, if you want to look at it that way. Everyone went back to work but there was no prosperity. By the end of the war there was severe rationing. And the late 1940s were severe economic times. What was accomplished was the set up for the 1950s. With the entire world’s production capabilities decimated, the US was set up to dominate. The late 40′s were hard but government shrank back and private industries stepped up to meet the demands of a world with one producer.
Pres Obama said yesterday that business would have to be the solution to the economic problems we face. By Mr Obama’s own admission, we will spend trillions of dollars and still have 10%+ unemployment. And by the way, one of the President’s own ecomomic team has authored papers saying that the New Deal didn’t get us out of the depression. But that is according to Rush so it must be wrong.
There are a lot of things going on with the economy right now that are not well understood including demographic shifts, effects of government interference/non-interference, etc. The ultimate resolution to throwing trillions of dollars into stirring the economic pot will result in high taxes that drag on the economy for generations or the decimation of a generations wealth leaving no inheritance for succeeding generations.
The sad part is that I was very hopeful that infrastructure spending would be the centerpiece of this administration, not mere window dressing. Not only does spending on infrastructure create real jobs, it also gives us something of lasting value and increases overall economic activity. Boo on Obama and Congress for throwing money down the drain.
Right on Marc. I loved it when Jason admitted it was all pork! I also loved the classic “No economists disagree with this,” or the all time classic, “You listen to too much Rush.” The truth is that we need some stimulus, and that all stimulus IS NOT CREATED EQUAL. Targeted stimulus to areas which create HIGHER numbers of job per $ spent is what it should be focused on. Not focused on Democrat welfare, and wealth redistribution schemes which are only focused on promoting political agendas, even if they do create a job or two along the way.
Marc, there is a lot of fallacy in your argument that I don’t have time to get to right now (more later, I promise) but the biggest hole in your logic is that final bit about “keeping in America.” If you think tax cuts will do this, you have seriously been sniffing the glue!
And you begin your argument with the unsubstantiated claim that you cannot promote and agenda and provide and economic stimulus at the same time. What exactly was Bush doing with the tax cuts again?
You’re not being rational about this, and you make a lot of claims without backing them up with either economic data or historical precedent (except for an article from 2008, citing data from 1995? This is the most recent you could find? Here’s a more “recent” recent poll: http://tinyurl.com/bf8xfj). And you couldn’t have picked a worse day to be so wrong! Heh. All snark aside, I’m glad you wrote this, and I’ll get a response up after the show this evening.
UPDATE: I found time to respond after all. This is a great discussion, Marc.
Why don’t you get Dr. Bowles, Head of USU’s Econ Department, on the show???
First off, you’re criticizing a plan, which as far as I can tell is the republican plan to take action, criticize what the democrats are doing. So, you’ve presented your case as to what’s wrong with this stimulus bill, what should we do instead? Also if you could forward that on to all the republicans in the house, that’d save me from having to email them all.
Now to your case, first tax cuts. No, tax cuts to the rich don’t stimulate the economy. Tax cuts to those spending a higher percentage of their income (which, believe it or not, would include those earning up to $150,000 a year) does stimulate the economy. It’s simple, if you cut someone’s taxes and they aren’t already spending all they make, then they are somewhat likely to just save the additional money they get via a tax cut. At the same time if you cut someone’s taxes who is already spending everything they make (and in some cases more) then they are most likely to spend the additional money, which stimulates the economy. Poor vs rich vs middle class has nothing to do with it really, except that the poor and middle class are more likely to spend additional income, which is why they’re the targets of this stimulus tax cuts, not the rich, like in Bush’s (oh hey, how did those Bush tax cuts do in the economy, I can never remember . . . ).
On the national debt, I think you’re forgetting that the republicans are the party of fiscal conservation and small government. Of course they’re going to get more criticism for spending us into debt, everyone knows that’s what democrats are all about, it’s almost expected. The criticism Bush got was more along the lines of him spending a lot of money on a war at the same time he was cutting taxes. He had to of course, because if he’d raise taxes to pay for his war, which would have been the fiscally responsible thing to do, he would have lost public support, so he just didn’t. How conservative, frankly you guys on the right should be mad about that one, he spent like he was a democrat. Oh and that whole Clinton social security debt tangent, could you explain that without linking to a site that goes down that whole T bills are worthless pieces of paper. It may have worked for Bush in 2000, but that doesn’t make it true.
It is pork that creates jobs, that’s the point of a stimulus. Your dear private sector is doing nothing but laying people off lately. And here’s something that may be a new idea for you but a job doesn’t necessarily involve a shovel or a hammer. How many people do you know that are employed in road construction or building cars? Now how many people do you know that are employed? So that means that some people have jobs that don’t necessarily make something. Medical research, STD prevention, people don’t do these things on a volunteer basis, they get paid for it. They also don’t take their paychecks and bury them in the back yard, they spend them. You may have an argument that they don’t create the best kind of jobs, but to really go through that debate you’d have to offer up something to replace these jobs, something the right currently isn’t doing, so instead you get STD prevention money. Something that is socially valuable in the long run, even though you can’t drive on it.
And the New Deal, the reason the new deal gets brought up so much is because there are so many people like you running around saying it didn’t work. Oh and that recent survey, 1995 is recent now? That was news to me, but I digress. Well, it did, the war was basically the new deal on steroids, David pointed that out already, but it’s important to realize. The reason it took a long time to get out of the depression is because one out of every four people in the country didn’t have a job, hence no money to spend, that’s not something that can be fixed overnight. The reason the country didn’t snap back into depression after the war ended is that after few years of war machine employment (on the governments dime) people once again had money to spend, and spend they did.
So in 2-4 years if this crisis isn’t abated it will be because people still aren’t spending money. If you think this bill won’t give people the opportunity to spend money, then you need your head examined, and you are a conservative nut job. If you think there’s a better way to get people to spend money, well, then let’s hear it.
Craig, the republicans did present an alternative bill which was voted down. Here are some of the details:
Cut the lowest two income tax rates for 2009 and 2010, from 15 percent to 10 percent and from 10 percent to 5 percent.
Extend through 2010 a patch to the Alternative Minimum Tax, which was originally designed to ensure that wealthy people pay taxes, but instead would hit millions of middle-income families with higher taxes.
Expand the $7,500 first-time homebuyers tax credit for a principal residence to all homebuyers while limiting it to purchasers who can make a down payment of at least 5 percent of the purchase price.
Provide a tax deduction for small businesses with less than 500 employees equal to 20 percent of their income.
Offer new tax deduction for those who do not receive tax-preferred, employer-sponsored health care coverage. And provide assistance to the unemployed who do not qualify for a COBRA premium subsidy.
Give tax exemption on unemployment benefits and extend temporary federal unemployment benefits through 2009, phasing it out through mid-2010.
Allow companies to write off current losses against previous tax years for up to five years. Companies now can only “carry back” losses for two years. The tax break would not be available to banks and other companies receiving help from the $700 billion bailout package.
Extend through 2009 a break for small businesses that allows them to immediately write off up certain capital expenditures.
Total cost $478 B
The philosophical difference is clear. One puts the faith in the people, the other in the government.
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Actually, Brady, that plan puts faith in tax cuts, not the people. And if tax cuts worked… etc. Could you post a link to the Republican plan you found? I’m unable to find a single reference to it online, even on John Boehner’s or Cantor’s sites.
Brady, I asked the google, and it didn’t know about the bill you’re talking about, could you provide a link so I can take a look at it?
I think this may be what you were looking for from the WSJ:
“WASHINGTON (MarketWatch) — The House decisively rejected a Republican-sponsored alternative to the Democrats’ $825 billion economic stimulus bill. On a largely party-line vote, the House voted against a plan that emphasized tax cuts over than government spending to stimulate economic growth. “The American people need a plan that works,” said House Republican leader John Boehner, R-Ohio. “Fast-acting tax relief is the way to get it done.” The rejection of the Republican alternative paves the way for passage of the Democratic bill later in the day.”
I am surprised you “bloggers living in your parent’s basement” couldn’t find the republican plan: The Economic Recovery and Middle-Class Tax Relief Act of 2009.
http://rsc.price.house.gov/UploadedFiles/Econ_Recovery_Act_Highlights_Jan_14_2009.pdf
LOL jakester.
And I was looking for something with a bit more detail than that, so I passed that one over.
Still, their big plan does indeed seem to be tax cuts, and nothing more.
Jobs created:
Bush – 3 million
Clinton – 21 million
Enough of bogus Republican theories that don’t work in the real world.
Looks like there maybe some “fuzzy math” (and that word is a gift) to the “plan” Republicans tried to kind of sorta offer up as a maybe alternative that could in theory work in some reality somewhere.
Not to belabor the point, but really, Boehner and Cantor throwing out garbage like this is why it’s so difficult to have a productive discussion, and why the word “bipartisan” means little more than “money back guarantee” does these days at Circuit City.
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Jakester – was this the bill you were talking about?