Friday, February 6, 2009

The Stimulus

I really should be working, but I just wanted to pass this along. A friend sent me an article written by Mitt Romney, the Great Mormon Hope, for CNN, linked here. You can read it yourself, but the upshot is that tax cuts, not spending, is the answer to our economic woes.

Here is President Obama's argument for spending over tax cuts:

[D]on't come to the table with the same tired arguments and worn ideas that helped to create this crisis. You know, all of us here -- [we're] imperfect. And everything we do and everything I do is subject to improvement. Michelle reminds me every day how imperfect I am. So I welcome this debate. But come on, we're not -- we are not going to get relief by turning back to the very same policies that for the last eight years doubled the national debt and threw our economy into a tailspin.

We can't embrace the losing formula that says only tax cuts will work for every problem we face; that ignores critical challenges like our addiction to foreign oil, or the soaring cost of health care, or falling schools and crumbling bridges and roads and levees. I don't care whether you're driving a hybrid or an SUV -- if you're headed for a cliff, you've got to change direction. That's what the American people called for in November, and that's what we intend to deliver.

So the American people are watching. They did not send us here to get bogged down with the same old delay, the same old distractions, the same talking points, the same cable chatter. You know, aren't you all tired of that stuff?

They did not vote for the false theories of the past, and they didn't vote for phony arguments and petty politics. They didn't vote for the status quo -- they sent us here to bring change. We owe it to them to deliver. This is the moment for leadership that matches the great test of our times. And I know you want to work with me to get there...

This isn't some abstract debate. Last week, we learned that many of America's largest corporations already laid off thousands and are planning to lay off tens of thousands of more workers. Today, we learned that in the previous week, the number of new unemployment claims jumped to 626,000. Tomorrow, we're expecting another dismal jobs report, on top of the half a million jobs that were lost last month, on top of the half a million jobs that were lost the month before that, on top of the 2.6 million jobs that were lost last year.

For you, these aren't just statistics. This is not a game. This is not a contest for who's in power and who's up and who's down. These are your constituents. These are families you know and you care about. I believe that it is important for us to set aside some of the gamesmanship in this town and get something done...

Understand the scale and the scope of this plan is right. And when you start hearing arguments on the cable chatter, just understand a couple of things. Number one, when they say, well, why are we spending $800 billion -- we've got this huge deficit? First of all, I found this deficit when I showed up. Number one. I found this national debt doubled, wrapped in a big bow waiting for me as I stepped into the Oval Office.

Number two, it is expected that we are going to lose about a trillion dollars worth of demand this year, a trillion dollars of demand next year because of the contraction in the economy. So the reason that this has to be big is to try to fill some of that lost demand. And as it is, there are many who think that we should be doing even more. So we are taking prudent steps...

So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? That's the whole point. No, seriously. That's the point.
I'm no economist, and I understand that both positions have merits, but we've been trying the conservative tack for the last eight years and I'm not sure we can afford any more. By spending money, an admittedly mind-boggling amount of money, the hope is to jolt the economy immediately. Once we stop shedding jobs (almost 600,000 in January alone, which is equally mind-boggling) and start adding them, then we can talk about long-term strategies such as corporate tax cuts. The key, it seems, is to act quickly now before it gets any worse, stabilize things (that's Ph.D. economist talk, btw: "stabilize things"), and get people to work right now. From everything I've read by smart people, we cannot underestimate just how bad the economy is right now and just how much worse it can get.


Anonymous said...

You have a good voice for this stuff. You should consider contributing or getting involved with

Josh said...

Jake, I am, for the most part, agreeing with you on this point. However, why is it that these politicians believe giving money to companies (i.e. bank bailouts) is going to help? In truth, we'd be better off with less banks and the point of Capitolism is to let the strong survive. So, why not just give the money back to the people. It is effectively the same as cutting taxes, and I think it has been well demonstrated that it will go right back into the economy.

Here is my stand. The current "stimulus" plan is estimated to add 10 trillion to the national deficit over the next ten years - I didn't do that math so I don't know how accurate it is, but that's not the point. If that is the case, why not just take 10 trillion - it's all monopoly money anyway - and divide it up to all LEGAL adult Americans? Say there are 200 million social-security numbered, legal American citizens over the age of 18. That is $50,000 per. You and Jamie, for instance, would get $100,000. Now, of course, it would be taxed, so it would be more like $70,000 (meaning that the 10 trilion actually turns into 7). Most people have enough common sense, I would think, to apply a good chunk of that, or all of it, to their debt. There, the banks are now effectively bailed out. The way I see it, this is the way it should've been done in the first place. Let Wall Street, the banks, and the auto makers depend on the citizens. If what we had spent to them hadn't bailed them out of their crisis, too bad.

Elle H-T said...

Hmm...Roosevelt's New Deal or Reagan's Trickle Down Economics read history and tell me what worked better?


I'm having a hard time with this debate because the one thing we do know is that jobs are created by demand -- by increased purchasing of products and services. We know that tax cuts to corporations end up as reserves that those corporations hold onto until economic times get better. And while I see Josh's point about giving money back to people, that idea simply doesn't make sense when our nation's infrastructure is crumbling and we have the chance to repair and replace it while creating hundreds of thousands of jobs. How many of us would really use our $50K to rebuild roads, public buildings, etc. and make jobs?

Jacob S. said...

Gee, Elle, I didn't realize that history had come to a definitive decision on that one. It seems to me that intelligent people on both sides argue convincingly for each. I think it is dangerous to just pick one and say it has the entire truth, because clearly neither does.

Again I'm no economist, in fact I'd be embarrassed to admit the last time I even took a math class, but it seems to me that if you can handle the lowest lows (like the Great Depression) in order to achieve the highest highs (like the roaring 20's), a deregulated, supply-side, trickle-down, whatever you want to call it, economy is right for you. If you like things evened out a little, the highs not so high but the lows not so low, a New Deal-type, regulated economy is for you. I may be way off on that, but it seems about right to me. No surprise, I kind of prefer the latter, but this is an issue where I could be persuaded by financially conservative types.

Finally, Josh, I agree, but I think we're talking about two different things. The financial market bailout from last fall was surely shameful and I don't think anyone really felt great about it. If you took that $700 billion that was given to the banks and gave it to citizens, perhaps that would have been smarter, I don't know, but maybe. The current $800 billion is a different creature all together. As the May's said, I think the point of the stimulus bill is to create jobs immediately and kick-start a staggering economy. This may or may not the best way, I'm clearly not smart enough to know, but there is a persuasive argument that the conservative way, including over-emphasis on tax cuts to the wealthy and less regulation, is what caused the problem in the first place. I guess time will tell.

Josh said...

Wow, Jake, study up on the New Deal a little more before you talk about what a good idea it was. It failed my friend. Don't give Roosevelt credit he didn't earn. The bombing of Pearl Harbor ended the Depression, not the invention of Social Security, or any of the other dozens of Social taxes created by way of the New Deal.

Let me say something about unemployment. I saw the other day that we have reached 7% in the nation. I ask this, how much of that 7% is really "necessary" unemployment? In other words how many of those jobless folks are jobless because they won't take a job that is beneath them? I can guarantee that a lot of McDonald's (as a country we are too fat and stupid to allow this fast food giant to go out of business) are still hiring - my local one is - as well as Walmart. The point is that there are jobs available, so, many of those unemployed choose to stay that way, choose to let the government pay them through unemployment every month.

One more thought, and I'll be done. You've all said that the economic break we need is through spending. Correct, but I do not agree that it is through government spending. This is a knock on all government officials, not partisan. The government has proven it's inability to spend wisely, time and again. Give the money to the consumers, let them put it back into the economy. This leads to your question about socialism, Jake. The Socialist way is to let the government do everything, solve every problem. The Capitalist way is to let the market, the consumer, in other words, take care of it's self.

Jacob S. said...

I implied pretty strongly that I was a moderate on this issue, but I am forced to defend FDR. GDP, the most common tool economists use to measure the health of the economy looked like this from year to year:

1929 (start of Great Depression) - 8.813
1930 - 8.054
1931 - 7.537
1932 - 6.557
1933 (FDR takes office in March) - 6.473
1934 - 7.173
1935 - 7.812
1936 - 8.828
1937 - 9.281
1938 - 8.961
1939 - 9.684
1940 - 10.534
1941 (US enters WWII) - 12.337

See any trends? FDR took the oath of office at the lowest point of the Depression and immediately enacted the New Deal. The economy immediately and lastingly responded positively and would do so all the way up until WWII, where it started improving even faster. The only blip came in 1938 when a newly elected Republican Congress cut back New Deal spending. These numbers come from the Dept. of Commerce website.

As for the argument that WWII ended the Depression, not only is it proved wrong above, but the boost it gave the economy proves my point, not yours. WWII increased government spending and put people to work on government projects. The government also fixed prices on most household items (including at the grocery store) and fixed wages in the public and private sectors. The economy took off. The New Deal and WWII both helped the economy and for the exact same reasons.

I'm not saying that sort of thing would work here, but to dismiss government intervention based on a lack of understanding of the New Deal is inappropriate.

Josh said...

Jake, most of the original New Deal policies were ruled unconstutional by the Supreme Court. Where have those remaining, and reformed, New Deal policies lead to today? Social Security for instance?

I'll play along with you a little though. If you want to say that the New Deal worked, I'll say that every government that has ever enacted Socialist measures did so because it seemed like the way to fix a bad economical situation. A socialist government brought Germany out of economic downfall between the wars too, remember. Look at any country that has ever put those Socialist ideals to work. It has never been more than a band-aid. When I said that the bombing of Pearl Harbor saved us from the Depression, I was wrong, I was trying to use a dramatic instance. The beginning of the war in Europe saved us. Although the US was not officially at war yet, the pruducts we were sending to Europe resucitated our factories, and our spirit.

Josh said...

Jake, sir, $30,000,000.00 of government monopoloy money for a mouse? Please explain, now, how government spending is helping "stimulate" the economy.

peter said...

One point that I would like to make is that the current economic crisis can not be laid solely at the feet of the past eight years, George Bush, and the republicans. It was Bill Clinton who mandated that Fannie Mae and Freddy Mac lower lending requirements in an effort to get as many people homes as possible. The crash of these sub-prime mortgages are one of the root causes of the problem.

As for the current stimulus bill that has been passed, I don't have as much of a problem with stimulating the economy with jobs and such, I can see the arguments for it. What I don't understand is why wide-spread social reform has been written into a bill that is about stimulus? Some of the issues (the health care part for example which hits closer to home) should be debated on their own merits instead of being thrown into a stimulus bill that is being ram-rodded through.

It seems that there has to be more efficient ways to stimulate the economy than expanding government programs which are grossly inefficient and subject to an inordinate amount of abuse.

Jacob S. said...

The $30 million for the mouse is a complete fabrication. It simply isn't true. You can read about it here:

That is not to say that this is a perfect bill, obviously it isn't. The way I picture it, you can't sneeze in Congress without some pork attached. I wish it wasn't that way, but it is and we should definitely be putting pressure on our representatives to stop the madness.

This was a bill that the administration desperately wanted passed, though. They wanted money for infrastructure repairs and jobs, to extend unemployment for the hundreds of thousands that are losing their jobs every month, and for states to repair schools and avoid laying off state employees. This bill does that, but on its way through Congress it picked up a lot of useless baggage. It stinks, but I guess that is the game we have to play right now.