Friday, July 10, 2009

Stimulus Update: Another Go-Around

Let's dig into this talk of another 'stimulus' a bit more. Edward P. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow, has a great piece at the Wall Street Journal (excerpts):

In "Brewster's Millions," a comedy starring Richard Pryor, a man is told he can keep $300 million if he manages to spend $30 million in one month. The movie documents -- with a great deal of humor -- his difficulties getting the money spent. The Obama administration is currently facing a similar problem with its "stimulus" spending, only without the humor.

With the economy weak and the labor market continuing to decline, there is now talk of a second stimulus (which is actually the third, counting President Bush's 2008 tax rebates). This would be a mistake. The truth is there hasn't been any stimulus to speak of so far this year. Moreover, what's being called stimulus is just a smoke screen for a permanent expansion of government. Let's start with some facts.

By June 26, about $56 billion was spent on the stimulus from the American Recovery and Reinvestment Act of 2009, passed Feb. 17. A large proportion of that actually reflects mere transfers from the federal government to state governments, so the amount that has gotten into the economy is significantly lower.

But even if we call all of the $56 billion spending, it's still not enough to make a meaningful impact. By this point of the year in 2008, the Bush administration's tax-rebates got out about $80 billion. Most economists believe the rebates had a positive but hardly dramatic effect on the economy.

The Obama stimulus, being significantly smaller, cannot possibly be expected to turn the economy around.

Congress and the Obama administration have used the economic downturn as an excuse to expand the size of government. Calling it a stimulus, they have instead put in place a spending agenda that will unfold over the next two years. Although a little over one-third of the American Recovery and Reinvestment Act of 2009 goes to tax relief, the rest is in the form of spending programs that will be difficult to stop once they are up and running.

Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009.

Some argue that a tax cut is a weaker stimulus than direct government spending. This point is debated among economists. But it is clearly much easier for Treasury to write checks to the public than it is to get agencies to rev up spending programs and do so in a way that does not simply throw away money.

It's a bit odd that the reaction by the Obama administration and some congressional leaders to a policy that has not worked is to consider putting a similar policy in place. One interpretation is that this is yet another opportunity to spend more on programs that Democrats have wanted for years.

It may be the case that the country wants more government, that Americans now believe the European model of big government is best. That is a decision that society must make. But it should do so with no illusions: The current stimulus and calls for a future one are primarily government growth policies, not strategies to shorten the current recession.

If you've read this blog for any length of time, you know the truth about the non-stimulating 'stimulus' and the current state of our economy, as well as the true intentions behind it. To throw another one out there is the worst idea in a string of increasingly awful ideas.

Andre Weisbrod, president & chief executive of Staar Financial Advisors in Pittsburgh, put it
this way:
"I think it's insane, the first stimulus package has not even been spent yet ... [t]hey are creating what I would call the government bubble . . . When that bursts we are in huge trouble."
I'd say 'huge' is putting it mildly.

The ever-entertaining Ace of Spades offers this:

As I argued back then:

For the cost of Obama's $1.2 trillion "stimulus," we could give employers a 2 1/2 year payroll tax holiday. Encouraging them to hire new workers by reducing their actual costs.

Over 2 1/2 years, that's 2.8 million new jobs, based on standard economic assumptions. Nevermind the additional jobs "preserved" (in Obama's weak promise) due to the fact it would now be cheaper to keep staff in place.

If this is all about jobs, jobs, jobs, and we want a sharp sudden impact for our dollars, why not consider this route?

Alternately... To mollify the public (Hey, why are my employers getting a tax cut and I'm not?!!), one could give employers and employees both a half reduction for 2 1/2 years. Or both a full, complete holiday for 1.25 years.

Numbers crunched by Flip.

Instead, we have taken the one bullet in our stimulus gun and fired it futilely into the air. We're out of ammo now.

Democrats own this abortion. There is absolutely no Republican influence here at all, save the Maine Twins' eleventh-hour fussing over a billion here or there. (The other Senatorial turncoat is now an official Democrat... until he loses in November.)

They ignored all advice. They were drunk with power and determined to indulge their nasty little ids and do harmful things just to prove they could do them, like poorly-raised teenagers misbehaving when their parents are called away on business.

"I won," Obama explained.

Yeah, you won. Past tense.

Hit the link for a lot more on all of this madness.

The bottom line
is that we need to stop and ask ourselves: given all that has gone on before, are we really so stupid as to let Obama and Congress do the same thing all over again?

There's my two cents.

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