Thursday, July 15, 2010

 

Political Mayhem Thursday: The Stimulus


This past Sunday, I had the opportunity to hear economics expert Mike Kamperman talk about the economic stimulus packages employed by the Bush and Obama administrations, which collectively included the bank bailout (TARP), the auto company bail-outs, the printing of new money, the home buyers' tax credit, and the take-over of Fannie Mae and Freddie Mac.

Mike's point was simple-- that the stimulus was not enough. His arguments made sense, though my own opinion has been that it would have been better to let the weaker car companies and banks die of natural causes.

With a bit of perspective now available, was all this necessary? Is the public right to be concerned with the debt incurred?

[Check out some of Lane's thoughts on this over at his blog]

Comments:
All of the stimulus was a mistake. You just should not spend money you do not have and probably cannot get. It's simple, people.

I am also tired of this blog mocking the ideals of the Tea Party. You intellectuals need to wake up and see that we are the majority in this country.
 
YEAH, AND OBAMA IS AN IDIOT SOCIALIST HITLER NAZI COMMUNIST LENIN BABYKILLER. THAT IS TRUE.

Now, if I could be serious for a moment, I would like to point three things out to you, Anonymous.

1) A post that was probably still on the home page when you wrote actually shows Prof. Osler stating that he actually supports some of the ideals of the Tea Party movement. He just disapproves of the crackpots who seem to be running the whole thing.

2) Sadly, something being a majority opinion doesn't mean it's right.

3) If you're going to insult this blog, at least use some sort of pseudonym instead of hiding behind the Anonymous tag. Or at least sign your posts, like I do.

JESUS LOVES EVERYONE, BUT HE LOVES SARAH PALIN MORE THAN OBAMA!

--ALL CAPS GUY
 
I'd rather trust intellectual economists that have some clue what they're talking about.

That said, I hate saying "go to my blog" but I'm on my iPhone and can't copy and paste the infographic link. When you compare the relative sources of a federal deficit, the stimuli and TARP are relatively small contributors. And on a national level, running at a deficit to pump more money into a flagging economy is necessary. But I think that egghead Paul Krugman told me that, and what does he know? That Nobel Prize is just paper, you know.
 
Anon 8:44,

I am a fairly conservative guy and you would be hard pressed to find someone who would agree that I'm an intellectual (a moniker, I am afraid to say, which is undoubtedly overused and often mischaracterized). Still, I am careful not to paint broad generalizations about the American people. For example, I find it difficult to believe that the Tea Party itself represents “the majority in this country”. After all, President Obama was elected less than two years ago by an unusually clear, decisive majority. I will agree with you that the Tea Party should be treated fairly on the intellectual playing field—fairness, however, does not imply that it should be sheltered from criticism.

On the issue of stimulus, I think we have clearly hit the point where Keynesian theory (or any economic theory for that matter) proves itself to be hugely impracticable, and in this case, probably flawed from the start. Economists understand, for example, that unemployment benefits unambiguously extend unemployment. The reason, of course, is that all incentive has been removed from the job finding market—for most of us leisure is superior to work, we only work out of necessity.

Furthermore, the “stimulus funds” were by and large invested in politically appetizing projects which in many cases failed to create even a handful of jobs. This is perhaps exemplified by the fact that unemployment is hovering just below 10%, whereas the administration promised it would not go beyond 8% if the stimulus was implemented. It is interesting to note that the WH has now rebranded its press releases to use the phrase “created or saved jobs” rather than simply created. “Saved” jobs are much harder to measure accurately. On top of all that, the economic premise that prompted the ARRA (stimulus) in the first place demands that funds be immediately injected into the economy. The big government apparatus we live under today so clumsily handled the money that it took months to reach its targets, allowing the recession to establish a strong foothold.

Simply put, while the free market fails miserably to create equity in the economy, it succeeds brilliantly at creating wealth. The government must take limited steps to protect citizens from being abused by the free market, but it should not attempt to inject itself into every facet of economic activity. Laymen and intellectuals alike can agree to that.
 
Anon 8:44,

I am a fairly conservative guy and you would be hard pressed to find someone who would agree that I'm an intellectual (a moniker, I am afraid to say, which is undoubtedly overused and often mischaracterized). Still, I am careful not to paint broad generalizations about the American people. For example, I find it difficult to believe that the Tea Party itself represents “the majority in this country”. After all, President Obama was elected less than two years ago by an unusually clear, decisive majority. I will agree with you that the Tea Party should be treated fairly on the intellectual playing field—fairness, however, does not imply that it should be sheltered from criticism.

On the issue of stimulus, I think we have clearly hit the point where Keynesian theory (or any economic theory for that matter) proves itself to be hugely impracticable, and in this case, probably flawed from the start. Economists understand, for example, that unemployment benefits unambiguously extend unemployment. The reason, of course, is that all incentive has been removed from the job finding market—for most of us leisure is superior to work, we only work out of necessity.

Furthermore, the “stimulus funds” were by and large invested in politically appetizing projects which in many cases failed to create even a handful of jobs. This is perhaps exemplified by the fact that unemployment is hovering just below 10%, whereas the administration promised it would not go beyond 8% if the stimulus was implemented. It is interesting to note that the WH has now rebranded its press releases to use the phrase “created or saved jobs” rather than simply created. “Saved” jobs are much harder to measure accurately. On top of all that, the economic premise that prompted the ARRA (stimulus) in the first place demands that funds be immediately injected into the economy. The big government apparatus we live under today so clumsily handled the money that it took months to reach its targets, allowing the recession to establish a strong foothold.

Simply put, while the free market fails miserably to create equity in the economy, it succeeds brilliantly at creating wealth. The government must take limited steps to protect citizens from being abused by the free market, but it should not attempt to inject itself into every facet of economic activity. Laymen and intellectuals alike can agree to that.
 
Anon. 9:47--

It is interesting you bring that up about unemployment benefits. Kamperman made two point about that. First, he said that right now there just aren't enough jobs out there for the unemployed-- about one job for every five people who need one. So it doesn't make sense to cut unemployment benefits to get them on the market.

Second, he argued that unemployment benefits are a much more efficient stimulus to the economy than tax cuts, because nearly all the money gets spent almost immediately.
 
Kamperman's absolutely right. Brad DeLong and Paul Krugman are excellent economists to read on this subject, and I find their blogs fascinating.

Ezra Klein also has good things to say.

Anon 9:47, I would challenge your assertion that "economists understand" that employment benefits act as a disincentive to finding work. Specifically, you don't get unemployment benefits for doing nothing. You have to show a past history of work, as well as that you are actively seeking a job. If I remember correctly, you must present proof of two job applications per month to continue to receive unemployment. Unemployment benefits do not promote laziness, except in John Kyl's mind. And the Prof. is right: income tax cuts favor those who already have jobs (and therefore pay income tax), and those are not always immediately reinvested in the economy by spending. Unemployment benefits are, as they pay grocery bills, utility bills, rent, etc.

Which is not to say that the stimulus funds were perfectly managed; government by committee is terribly inefficient, and most of the stimulus funds were given directly to states to spend as they will. Some state governments, like Texas', even chose to reject stimulus money as a political ploy, whereas other states (and their federal representatives) turned them into pork-barrel projects.

The size or scope of federal government control (e.g., "big government") versus the ostensible freedom and efficiency of private management (market forces) is the wrong tack to take here. Government functions no more or less efficiently than the market; the market, however, tends to work out in favor of those with greater market power (i.e., more money), leading to the lack of equity you aptly describe. The popular jingo for this is "the rich get richer, the poor get poorer," which is what we saw with the Bush tax cuts. The purpose of each, in this case, is to facilitate the exchange of value, and each can do it well or ill depending on a variety of circumstances.

As I said last week, the dichotomy between "big" and "small" in terms of government, and "free" or "regulated" in terms of markets glosses over many important nuances between the two. The current debate is more in line with what the first Anonymous wrote: whether we should take actions that increase the deficit (in the vulgar, "spend money we don't have") for some longer-term benefit.

As much of an anti-Bush person as I am, I admit his first stimulus was a necessary evil, as was TARP and the $800 billion one passed by the current administration. That influx of money was necessary to stabilize the economy, and we are recovering... just too slowly. Could the Fed be doing more? Absolutely; Bernanke and Geithner have been very slow and far too conservative, and President Obama has not been forceful enough on this issue, preferring to seek a consensus that will never happen with Republicans on the issue. Chalk it up to the faults of a young leader with too much optimism.
 
This comment has been removed by the author.
 
Holy double comments, Batman.
 
From Ezra Klein's blog today:

MORE GRAPHICS.

In short, corporate profits up, but corporate re-investment in the economy in the form of creating jobs is not. Supply-side economics has failed us once again.

I'm not saying you all need to be Marxists or anything, but at least embrace anything but neoclassicism and supply-side economics. They're not just wrong, they're hurtful to the economic well-being of the country. Well, unless you're one of the top 1%. Then they're just gravy. I wondery why rich politicians and wealthy business owners support those policies.
 
And I wonder where RRL is today...
 
My understanding of history is that if you want to stimulate the economy, cut taxes. Let people keep more of their own money, which they frequently will spend.
The stimulus handouts, on the other hand, have to be paid for. How? I have one guess, and it's not by cutting taxes.
I'm excited for the day when we learn from history. I'm simultaneously frightened by the fact that we seem unable or unwilling to do so.

The stimulus packages did not work. America is hemorrhaging cash and it is costing us dearly (no pun intended). The country's credit rating is bound to tumble and we are looking more and more like my hand-to-mouth friend back home who I pity because it's been a result of his own mistakes and poor decisions.

I now look forward to Lane picking up his verbal club and battering me about the head.
 
A gentle tapping is all.

Cutting taxes means cutting revenue. Cutting revenue increases deficits. Cutting spending can offset that, but the legacy of the Bush and Reagan tax cuts was higher deficits overall.

The theory is that cutting capital gains taxes and other high-income taxes will "stimulate" the economy by increasing money at the top. Since those are the people capable of investing and generating new sources of wealth, the theory goes, they *will* do exactly that and more jobs, more wages, etc., will result. The problem with this model is that it assumes that actors in a market are always rational resource-increasing agents. As the linked graphic I provided shows, even when corporate profit margins increased recently, unemployment did as well. This contradicts the "tax cuts = better economy" theory.

In the short term, the economy does better if there is more money pumped into circulation. But you can't just make money out of nowhere; that causes rapid and unstable inflation. You've got to find some way to get an influx of existing money to change positions from where it is at (not in the economy, not doing any good) to in the economy. But consumers won't spend (or spend as much) in lean times, and when interest rates are volatile and economic policy uncertain, investors are loathe to start new ventures.

So if consumers are hesitant, and private capital sees conditions as non-ideal, who is left to stimulate things? The government can; if it does not have the money, it "borrows" against the deficit, thereby increasing it, but hopefully jump-starting the economy. Most economists (neoclassicist conservatives and liberals alike) believe the stimuli were fundamentally sound choices. I even agree with a Bush policy, if that tells you where I stand on them.
 
Is running at a deficit long-term a bad idea? Absolutely; but remember the last time we had a Democrat in office, what happened? We ended up with a surplus as late as 2001-2002. The thinking at the time was that if government had a surplus, what should we do? It seemed like an opportune time to cut taxes, since we would not have to "deficit-finance" those tax cuts like we did in the 1980s.

But that wasn't the historical fact of the 2003-2004 tax cuts. The deficit actually grew because around that time we started a second costly foreign military action that consistently ran over-budget. But the tax cuts, which were a popular move, were continued up until the end of this year (possibly). We continued to build more debt largely because of the economic downturn and Afghanistan and Iraq.

In turn, it's harder to run the government not in a deficit because we have lots of expensive things to fund (like President Bush's wars, President Bush's tax cuts, the two stimulus packages, and recent legislation). If we cut taxes again, we have to deficit-finance them. But the problem is that cutting taxes now, letting employment benefits expire, etc., while it would HELP get the government out of the red, it won't be enough unless we also strip out both wars (a costly process even under the most ideal conditions) and we have to worry about the decrease in government revenues from the economic downturn.

So the options are: cut taxes, allow a greater accumulation of private capital in the hands of the wealthy, and in turn drastically cut governmental aid and spending, including Medicare, Medicaid, social security, national defense, infrastructure repairs, aid to states, aid to foreign allies, federal assistance programs, federal employee salaries, the funding for regulatory agencies, the funding for the DOJ and federal attorneys, etc. If we cut the lion's share of that funding away, we can make the government solvent again while supporting tax cuts.

The problem is that while that will certainly ease the economic burden on the market players in the private sector, it would probably do terrible damage to the citizenry and the national infrastructure.

The other option is to dial back spending in areas that are not critical to infrastructure, like the wars, allow the Bush tax cuts to expire, and run at a smaller deficit for the next few years until the recession ends, at which point governmental revenues will increase again.

But "not cutting taxes" seems to infuriate people that will not see a tax increase at all, because those whose taxes would increase (the top 2% of earners in the country) have monopolized the economic narrative.
 
Is running at a deficit long-term a bad idea? Absolutely; but remember the last time we had a Democrat in office, what happened? We ended up with a surplus as late as 2001-2002. The thinking at the time was that if government had a surplus, what should we do? It seemed like an opportune time to cut taxes, since we would not have to "deficit-finance" those tax cuts like we did in the 1980s.

But that wasn't the historical fact of the 2003-2004 tax cuts. The deficit actually grew because around that time we started a second costly foreign military action that consistently ran over-budget. But the tax cuts, which were a popular move, were continued up until the end of this year (possibly). We continued to build more debt largely because of the economic downturn and Afghanistan and Iraq.

In turn, it's harder to run the government not in a deficit because we have lots of expensive things to fund (like President Bush's wars, President Bush's tax cuts, the two stimulus packages, and recent legislation). If we cut taxes again, we have to deficit-finance them. But the problem is that cutting taxes now, letting employment benefits expire, etc., while it would HELP get the government out of the red, it won't be enough unless we also strip out both wars (a costly process even under the most ideal conditions) and we have to worry about the decrease in government revenues from the economic downturn.

So the options are: cut taxes, allow a greater accumulation of private capital in the hands of the wealthy, and in turn drastically cut governmental aid and spending, including Medicare, Medicaid, social security, national defense, infrastructure repairs, aid to states, aid to foreign allies, federal assistance programs, federal employee salaries, the funding for regulatory agencies, the funding for the DOJ and federal attorneys, etc. If we cut the lion's share of that funding away, we can make the government solvent again while supporting tax cuts.

The problem is that while that will certainly ease the economic burden on the market players in the private sector, it would probably do terrible damage to the citizenry and the national infrastructure.

The other option is to dial back spending in areas that are not critical to infrastructure, like the wars, allow the Bush tax cuts to expire, and run at a smaller deficit for the next few years until the recession ends, at which point governmental revenues will increase again.

But "not cutting taxes" seems to infuriate people that will not see a tax increase at all, because those whose taxes would increase (the top 2% of earners in the country) have monopolized the economic narrative.
 
Here we go, breaking it down old school style.

1.) Lets first talk about the Klein graphic Lane links to. It shows corporate profit growth for two quarters. It also shows that during those two quarters companies didn't start hiring in massive numbers. Boom! Supply-side economics fail! Argument over. Or, here are four completely rational explanations for such a phenomenon. 1) We are talking about two quarters of growth. Hardly a bull market. It would be irresponsible and silly to start massive hiring when the economy still isn't stable, and the economy could turn again. 2) These companies fired people to get back to a stable economic position. If they simply go out and re-hire them now then the profits that we see go away, and businesses exist to make profits. 3) These things take time. Profits in one quarter don't translate into jobs in THAT quarter, or even the next quarter, or maybe even the next four quarters. But, they do translate to jobs eventually. And 4), and this is a good one, companies are facing uncertain futures. New financial regulations. New taxes brought about by the sunset on the Bush tax cuts. This isn't the best time to go about reinvesting when you don't even know what your business model will need to be in order to compete in the new government regulatory scheme. So, Lane and Klein see these numbers and say, "aha, conservatives are dummies." But, seems to me, these numbers simply prove that companies are cautious in the short-term, and that we haven't had sustained growth sufficient to equal a spike in jobs.

2.) Now, lets talk about this tax cuts and revenue business, and the charts from DeLong and Paul "Silly Pants" Krugman, as well as Lane's discussion of Bush's 2003/2004 tax cuts. Again, DeLong, Silly Pants, and Lane would all be right about what those charts say if fiscal policy was a fast working process. The chart on revenues after Reagan tax cuts basically shows that revenues flatlined in 79, dipped in 81-83, and then rose after that. Well, as DeLong points out, then glosses over, after three years of Carter, rampant inflation, high taxes, the US economy went into a recession in 1979. Might that explain lower revenues in the following years? No, that is silly, must be Reagan's tax cuts. Except, the Reagan tax cuts didn't pass until 81, wouldn't have had effect until tax year 82, and therefore couldn't have had any effect on revenues until 83. Which, the chart shows, was roughly when revenues trended back up in taxes. Same thing for the chart Krugman has on the Bush tax cuts. We had a recession in 2000 during the end of the Clinton administration during the internet bubble bursting. Revenues then declined for a couple of years. Bush implemented tax cuts for the 2003 fiscal years. Strangely, the charts again show revenues beginning to rise again at that point. Krugman and DeLong draw an imaginary line to show that revenues weren't meeting pre-tax cut revenue levels, but those imarginary lines are based on the pre-dip levels of revenue, which can be most easily explained by the recession and general health of the economy than the tax cuts.
 
Here we go, breaking it down old school style.

1.) Lets first talk about the Klein graphic Lane links to. It shows corporate profit growth for two quarters. It also shows that during those two quarters companies didn't start hiring in massive numbers. Boom! Supply-side economics fail! Argument over. Or, here are four completely rational explanations for such a phenomenon. 1) We are talking about two quarters of growth. Hardly a bull market. It would be irresponsible and silly to start massive hiring when the economy still isn't stable, and the economy could turn again. 2) These companies fired people to get back to a stable economic position. If they simply go out and re-hire them now then the profits that we see go away, and businesses exist to make profits. 3) These things take time. Profits in one quarter don't translate into jobs in THAT quarter, or even the next quarter, or maybe even the next four quarters. But, they do translate to jobs eventually. And 4), and this is a good one, companies are facing uncertain futures. New financial regulations. New taxes brought about by the sunset on the Bush tax cuts. This isn't the best time to go about reinvesting when you don't even know what your business model will need to be in order to compete in the new government regulatory scheme. So, Lane and Klein see these numbers and say, "aha, conservatives are dummies." But, seems to me, these numbers simply prove that companies are cautious in the short-term, and that we haven't had sustained growth sufficient to equal a spike in jobs.

2.) Now, lets talk about this tax cuts and revenue business, and the charts from DeLong and Paul "Silly Pants" Krugman, as well as Lane's discussion of Bush's 2003/2004 tax cuts. Again, DeLong, Silly Pants, and Lane would all be right about what those charts say if fiscal policy was a fast working process. The chart on revenues after Reagan tax cuts basically shows that revenues flatlined in 79, dipped in 81-83, and then rose after that. Well, as DeLong points out, then glosses over, after three years of Carter, rampant inflation, high taxes, the US economy went into a recession in 1979. Might that explain lower revenues in the following years? No, that is silly, must be Reagan's tax cuts. Except, the Reagan tax cuts didn't pass until 81, wouldn't have had effect until tax year 82, and therefore couldn't have had any effect on revenues until 83. Which, the chart shows, was roughly when revenues trended back up in taxes. Same thing for the chart Krugman has on the Bush tax cuts. We had a recession in 2000 during the end of the Clinton administration during the internet bubble bursting. Revenues then declined for a couple of years. Bush implemented tax cuts for the 2003 fiscal years. Strangely, the charts again show revenues beginning to rise again at that point. Krugman and DeLong draw an imaginary line to show that revenues weren't meeting pre-tax cut revenue levels, but those imarginary lines are based on the pre-dip levels of revenue, which can be most easily explained by the recession and general health of the economy than the tax cuts.
 
Here we go, breaking it down old school style.

1.) Lets first talk about the Klein graphic Lane links to. It shows corporate profit growth for two quarters. It also shows that during those two quarters companies didn't start hiring in massive numbers. Boom! Supply-side economics fail! Argument over. Or, here are four completely rational explanations for such a phenomenon. 1) We are talking about two quarters of growth. Hardly a bull market. It would be irresponsible and silly to start massive hiring when the economy still isn't stable, and the economy could turn again. 2) These companies fired people to get back to a stable economic position. If they simply go out and re-hire them now then the profits that we see go away, and businesses exist to make profits. 3) These things take time. Profits in one quarter don't translate into jobs in THAT quarter, or even the next quarter, or maybe even the next four quarters. But, they do translate to jobs eventually. And 4), and this is a good one, companies are facing uncertain futures. New financial regulations. New taxes brought about by the sunset on the Bush tax cuts. This isn't the best time to go about reinvesting when you don't even know what your business model will need to be in order to compete in the new government regulatory scheme. So, Lane and Klein see these numbers and say, "aha, conservatives are dummies." But, seems to me, these numbers simply prove that companies are cautious in the short-term, and that we haven't had sustained growth sufficient to equal a spike in jobs.

2.) Now, lets talk about this tax cuts and revenue business, and the charts from DeLong and Paul "Silly Pants" Krugman, as well as Lane's discussion of Bush's 2003/2004 tax cuts. Again, DeLong, Silly Pants, and Lane would all be right about what those charts say if fiscal policy was a fast working process. The chart on revenues after Reagan tax cuts basically shows that revenues flatlined in 79, dipped in 81-83, and then rose after that. Well, as DeLong points out, then glosses over, after three years of Carter, rampant inflation, high taxes, the US economy went into a recession in 1979. Might that explain lower revenues in the following years? No, that is silly, must be Reagan's tax cuts. Except, the Reagan tax cuts didn't pass until 81, wouldn't have had effect until tax year 82, and therefore couldn't have had any effect on revenues until 83. Which, the chart shows, was roughly when revenues trended back up in taxes. Same thing for the chart Krugman has on the Bush tax cuts. We had a recession in 2000 during the end of the Clinton administration during the internet bubble bursting. Revenues then declined for a couple of years. Bush implemented tax cuts for the 2003 fiscal years. Strangely, the charts again show revenues beginning to rise again at that point. Krugman and DeLong draw an imaginary line to show that revenues weren't meeting pre-tax cut revenue levels, but those imarginary lines are based on the pre-dip levels of revenue, which can be most easily explained by the recession and general health of the economy than the tax cuts.
 
3.) Lane, Bush's tax cuts were across the board tax cuts, including cuts of around 3%-7% for the bottom 40% of taxpayers, and 12%-25% for what we would call the middle class. If we let Bush's tax cuts expire, those expire too. It wouldn't mean higher taxes for just the top 2% (those evil rich people with their top hats and fancy cigars that live off the tears of poor homeless kids) but for EVERY TAXPAYER IN AMERICA. That is a bad way to stimulate growth. It will do the opposite.

4.) I don't understand Democrats saying that "Bush's war" is the reason deficits are rising. I mean, sure, they are wars started under his tenure. But you could stop them. Today. In fact, Obama kinda promised to do exactly that. So, stop them. Now. Don't just play the hypocrisy card, do something about it. Stop spending on the wars by ending them. Or don't, and then it is on you, since you wanted to be in power, to figure out a way to cut spending otherwise. So, if Obama is unwilling to stop the wars because he wants to drape himself in the flag and be the defender, then he also can't be the great spender and still get to a balanced budget, or even manageable deficits.

5.) Yes, the last Democrat we had in office had a surplus. Of course, lets not forget he accomplished that by being forced to balance the budget by a GOP controlled deficit hawk congress that forced him to submit five different budget proposals in 1995 until he finally met their demand for a balanced budget. And even then, it was mostly the internet boom that balanced the budget and created the surplus, not as the result of any fiscal policy of either Clinton or the GOP congress, but by creating massive short term growth.

Look, I hate taxes. I hate calling tax cuts spending increases because it is misleading and a lie. I hate having to argue that tax cuts increase revenue because that isn't the reason to do them. The reason to do them is because I can spend my money better than the government can, and it is MY money. And that is true whether you're part of the evil top 2% that runs the panopticon, or if you're in the bottom 1/3 of wage earners in this country. So, lets cut taxes. And lets cut spending. Together. And yes, that includes military spending along with social spending. And yes, I think that will work. And no, simply saying, "well that is supply side and we know that doesn't work" isn't a response because we never tried that. EVER. Because GOP tax cuts have almost always been matched by either runaway Progressive social spending or runaway conservative military spending. We're all guilty. But the solution isn't more of the same tried and failed progressive economic follies.
 
And yeah, I know I posted that first part three times, and I don't know how to erase it, so I'm a moron. My bad.
 
Oh, and one final thought on this unemployment benefits stimulate the economy nonsense. Unemployment benefits do get spent. They get spent on food and diapers and things like that. Necessities. They don't pay for mortgages on houses. They don't allow you to buy a new car. They don't allow you to spend on new appliances, electronics, consumer goods. These are the types of purchases, long term consumer purchases, that stimulate growth and circulate wealth around and throughout the economy. Unemployment benefits are short term, non-growth impacting spending.

So, it sounds cute to say that unemployment benefits get spent and therefore, voila, stimulus! But, no matter how hard Silly Pants Krugman and his band of magical stimulus fairies try to sell that nonsense it just isn't true.
 
(1) Klein's point was that if unemployment is high, and profits have increased, why are we not seeing reinvestment in the form of new jobs? I'm not suggesting the government should nationalize all industries and create jobs, but where's the market in this?

(2) When Bush implemented his tax cuts, we had a surplus. Now, I am of the opinion that at a time when government revenues outstrip current operating cost, it is advisable to cut taxes. And I know that Bush's tax cuts were across the board and that their expiration would tax the lower classes as well. But it is (sadly) necessary; even Alan Greenspan thinks so, and no one's going to accuse his pants of being silly and liberal.

That tax and fiscal policy takes time is also not at issue, but certainly you have to admit that the current deficits are (1) not the fault of Bush I or Clinton and (2) therefore, not the fault of the current administration. That places the current economic situation on the back of Bush, whose policy of starting wars, creating new departments and powers for government, and cutting taxes did not work.

That aside, I really do wish Obama were accelerating our withdrawal from Afghanistan and Iraq. I've written all of my representatives at the federal level urging them to press this issue, and I've written to the White House. While I understand the exigency of not just being able to up and leave (itself a costly procedure), I think it is time to end them and Obama is not moving fast enough.

The point is that we need both to stabilize the economy (stimulus spending, mostly) and then begin the plans for longer-term recover and regrowth, which will take some tax restructuring, part of which I think needs to be a reduction in the income tax on the middle and working classes, as well as control of interest rates on loans and mortgages, two of the biggest expenses for those people that are out buying homes and new cars.

So I'm not saying tax cuts are bad, just that the talk of "let's cut taxes!" is misguided, because the government must be funded, and talk of "let's cut spending!" is similarly too broad, because there are some things we can cut and others we cannot. On the flip side, "raising taxes!" and "more stimulus spending!" are likewise too simplistic.

We need: (1) more revenues to make the government not run at such a high deficit, achieved by a combination of spending cuts, letting the current tax cuts expire, and a possible short-term tax increase; (2) a long-term plan to reduce individual tax burdens on income to provide greater consumer spending power; (3) an extension of current unemployment benefits until the jobs situation improves; and (4) immediate influx of money from a stimulus package aimed at speeding up the recovery process.

I just do not trust Obama's current staff of advisers to do this well. They have not done a good job to date, and he needs better people in there than Bernanke and Geithner.
 
I always regret not getting my comments in early before the serious discussions start.

With the disclaimer that I got C's in Econ 101 and 102 as an undergrad, it seems to me that Keynesian theory, while flawed, has some merit. A major problem in the Great Depression (and today) is the lack of credit and money in the economy. Businesses needed capital in the 30's and could not get it. Pouring money stimulates activity.

The problem with The New Deal (and with the Bush and especially the Obama stimuli) was that the much of the spending was not targeted towards programs that would create new investment by businesses... or simply get people back on the job.

As Prof. Osler has pointed out in the past, Defense spending is often a great way to stimulate an economy. For instance the Defense buildup of the 1980's. Or WWII, for that matter.

Trouble is, the Democrats in 1933 and in 2009 after being held back by the Republicans for many years, jumped when they got the keys to the candy store and directed money to a lot of pet projects, many of which were not "shovel ready."

These were not stimulus programs, they were investments in programs with meaning and societal "benefits."

The TARP program, in and of itself, was not so bad. It actually did what it was supposed to do -- it saved banks worth saving and force others to close. There have been a number of banks closed down and wrapped up by the Feds. The "stress tests" helped the regulators figure out which ones to save and which ones to close. Without TARP, this weeding out would have taken longer and been more painful.
 
Here are some graphs from Silly Pants Krugman:

http://krugman.blogs.nytimes.com/2010/07/13/invincible-ignorance/

Whats interesting is that Silly Pants shows these graphs, and then seems to ignore what they show. They show that revenues go down after recessions. SHOCKING! They also show that revenues rose after the Bush tax cuts went into effect in 2003. The same way that DeLong's graphs show that revenues rose after the Reagan tax cuts of 81. So, what the facts show is that when the economy is in bad shape, like now, revenues decrease. Tax cuts are not the major force in that.

And I know what Klein was saying, and I'm saying he is reading the tea leaves in an entirely wrong way. That chart doesn't show that companies don't reinvest because it doesn't take into account any external factors in the market. The market isn't simply a question of profits = jobs, at least not in the short term, and Klein is attempting to play gotcha with this data when if he is honest then he knows full well it doesn't tell the whole story.
 
IPLawguy is so sensible. I wanna be like him when I grow up.
 
I have a few points to make about the deficit. Disclosure: I'm an Obama Democrat.

1. I'm glad that Lane said it first. The stimuli and TARP are a paltry sum compared with the fact that during the Bush administration, we began the appalling practice of funding two wars off the books---that is, not within the budget, but rather funding them by a series of appropriation bills that no politician could really vote against. If they had, they would have incurred the wrath of a political machine that defeated a multi-amputee Senator with the cry of "soft on terrorism!"

2. Let's be honest about the deficit. The last time we had a balanced or surplus budget was under President Clinton.

3. I am a fiscal conservative, and the reason I supported health care reform is because the President is correct---without action, health care costs as a percentage of GDP would bankrupt this country.

4. I applaud President Bush and all responsible Republicans who are now losing their congressional seats for passing TARP. They are patriots and did their best to avert another depression.

5. I have not encountered a single "tea party" claimer who has the foggiest notion about what the constitution says or who has even the most basic grasp of facts. They're surely out there, but these are folks that have been around (and thinking critically, which is not to say I agree with them) for a long time. The johnny and jane come lately's of this movement are obviously transparently, categorically opposed to President Obama in particular, because there was no such movement when President Bush was pursuing the same responsible actions to try to get the economy back on track.
 
Yeah, what RRL said.
That's my boy right there.
 
Guess what? Republicans promise tax cuts, which gets them elected. Then, they keep spending, because that keeps them elected.

I'm sick, SICK, of those who complain about "tax-and-spend Democrats," while ignoring the BORROW-AND-SPEND Republicans!!!
 
I'd love to comment more, but we'll give this one to RRL because I have to go get ready for surgery in the morning.

TIL NEXT WEEK!
 
Surgery? What?

Are you ok?
 
Yes, I have been putting off having my wisdom teeth removed for most of a decade and a half, and now it's become so bad that I can't avoid it. All four of them, out tomorrow. I'm being sedated so it's fasting and whatnot for me tonight. Probably a lot calming breathing and meditation exercises. I am scared of precisely three things: heights, spiders, and needles.
 
Baptistic Sedation Dentistry (BSD) was developed at Baylor.
 
My grandfather was a graduate of the Baylor College of Dentristy. He believed sedation would turn you into a "limp-wristed nancy."

Then again, Pop was a life-long Methodist. He liked to smoke, y'see, and Baptists frowned on that.
 
VICTORY!!! I'll take it any way it
comes!

Lane, good luck in surgery tomorrow.

Other folks, I'm also sick, SICK of
borrow and spend republicans, and
tax and spend democrats. I'm an
Equal opportunity angry dude.

RRL
 
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