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Thursday, January 17, 2008
Steve Chapman :: Townhall.com Columnist
Fiscal Stimulus Folly
by Steve Chapman
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Will the Dems' health care Christmas Present to America be an improvement or detriment to our health care system?


In the best of times, most members of Congress are to fiscal irresponsibility what alcoholics are to the bottle -- unable to resist even though they know they should. So imagine how our leaders will behave once they are told that budgetary indiscipline is no longer a vice but a virtue.

That's the counsel now from some economists and all three major Democratic presidential candidates. With a possible recession looming, they insist the federal government needs to provide a stimulus to the economy by spending or rebating money it doesn't have. That will put more cash in the pockets of consumers, who will then spend it, boosting the fortunes of companies and their employees and staving off a downturn. Or so the thinking goes.

Hillary Clinton has proposed a package that includes money to help homeowners pay mortgages they should not have taken out, as well as funds for "alternative energy investments" that might fail the cost-benefit test on their strict merits, and possibly direct rebates, too. Barack Obama wants to provide immediate tax cuts of $250 per person, while encouraging jobless workers to remain jobless by extending the time they can collect unemployment benefits. John Edwards' plan includes many of the same elements.

But skepticism is in order. Any money that the government lays out, after all, will not drop miraculously from the sky. Since the federal budget is already running a deficit, those funds will have to be obtained the old-fashioned way -- by borrowing. More money would be spent by those who get the help, but less would be spent by those who provide it. So the whole transaction may add up to not much more than zero.

Giving money to people, as Obama urges, is the most direct type of stimulus. Oddly, though, there are only paltry grounds to prove it actually works. In 2001, the Treasury mailed rebates of $300 to $600 to taxpaying households, something the Bush administration later credited for invigorating the economy. In reality, later studies found, people generally declined to go out and spend, preferring to save the money or pay down debt. The booster rocket never left the launch pad.

Back in 1993, by contrast, President Clinton said a fiscal stimulus was essential to revive economic growth. But Congress refused, and the productive sector somehow managed to grope its way, unstimulated, into the longest peacetime expansion in history.

In their more sober moments, economists offer numerous reasons to treat fiscal stimulus as a wasteful charade. William Gale and Samara Potter of the center-left Brookings Institution noted in a 2002 study that tax changes of the sort being contemplated today have "a weak record in stimulating short-term economic activity."

Even if you believe a fiscal stimulus can work, it's unrealistic to think these plans would do the trick. Clinton and Obama envision packages worth $70 billion and $75 billion, respectively. But that amounts to just one-half of 1 percent of our annual output. It's like giving you a dollar every time you spend $200. Would that change your total economic activity? No? Then it probably won't rev up the nation's.

Another problem is that to succeed, a transfusion of federal cash has to be timed just right. That is not easy given that a) the legislative process often moves at the speed of continental drift and b) the president and Congress can't agree on whether the ocean is salty.

Peter Orszag, director of the Congressional Budget Office, told The Wall Street Journal, "Most of the stimulus options under consideration would be difficult to actually get out the door in the first half of 2008." By the time a program spreads its healing balm, we may find the recession has died a natural death -- or was never born.

So we don't know that these efforts to stimulate the economy will have the helpful impact that has been promised. We do know, however, that they will have one regrettable consequence: putting the government -- and thus the taxpaying public -- deeper in debt.

We may never reap the benefits of a fiscal stimulus, if it comes to pass. But rest assured, we'll be paying the price for years to come.

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Steve Chapman is a columnist and editorial writer for the Chicago Tribune.
 
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The reason...
...Clinton didn't embrace giveaways is that his own economic advisors pointed out (correctly) that they, like the one's passed by Bush I, don't work. The whole concept of demand based stimulus behind such giveaways is completely wrongheaded and one-time injections have no long-term effect at all.

RATE cuts provide stimulus because they alter market incentives and, thus, behavior. HANDOUTS - a Democratic (and all too frequently Republican) staple - NEVER provide stimulus.

But, really, you should pay no attention to the man behind the curtain...


More Congressional Stupidlty
We may very well be headed into a recession but the things being touted by the media do not show that. They certainly don’t show that we are currently IN a recession now. All that needs to happen is for the feds to continue loosening up on the money supply by small decreases in the interest rate AND for congress to make the tax cuts permanent and eliminate the AMT.

Note that the Communist(D)’s have already said that those items are “off the table” and any attempt to bring them in will kill the talks. LOL, why is it that with the Lamocrats, any time you want to keep from having a tax increase, it’s OFF the table?

And finally, as Fletch pointed out above, these one time shot in the arm miniscule rebates do absolutely nothing. This one as it is currently being proposed by the Lames is only for “middle and low” incomes. LOL, we all know what that means when used by the Lames. It means only those people who currently pay no taxes at all will get the rebate. It is another welfare program thinly disguised in tax verbiage. Totally worthless socialism at it’s best.

Real conservatives would go along with the Lames and raise the issue of making the tax cuts permanent so that the lousy Communists would collapse the table and walk away, cursing in the background, because the table had barked their election year shins on the way down.

Bush Asks Saudi King to Open Oil Spigots
Is this not how we go into this mess?

ABCNEWS-Perino added, “This is not a situation that’s going to be solved overnight, and that’s why on a parallel track the president has been pursuing aggressively alternative and renewable forms of energy.”

When Bush ran for the White House in 2000, he said that he would “jawbone” America’s Saudi allies to lower the price of oil. The price of oil has hit a record of $100 a barrel, but has slipped to a current price of $91 a barrel on fears that the U.S. economy is headed for a recession.

READ MORE

http://controlcongress.com/uncategorized/bush-asks-saudi-ki ng-to-open-oil-spigots

Extra Extra: New Democrat Bill Published
I have received an advance copy of the new Democrat Bill for economic stimulus. The bill will emphasize two major aspects of the real needs of the people and is based on strategies that have has demonstrated results throughout history.

The bill will provide all citizens with the products of two major corporations in America. They are from the major products from Interstate Brands Corporation and a world renowned corporation made famous by Charlton Heston in 1952. Links are provided below:

http://www.wonderbread.com/index.asp

http://www.ringling.com/explore/history/index.aspx

Mr. Chapman
It is DISINGENOUS to say, that you are a Republican,while spending ALL of your time speaking on Democratic positions.I do not hear any Republicans, saying anything about the economy that makes sense, and that includes you,sir.The stimulus package is "DUMB".But, I've been trying to tell voters for a year,that none of these candidates,"R" or "D" understand this economy.Now you,like most Americans, are running around trying to find answers, to a question you don't understand.Republicans will return to their previous levels of stupidity,which call for "Tax Cuts".This Mr.Chapman will not work out well either!So here we are the Blind leading the Blind.If you have a PHD in economics,you will understand this exercise.If you don't well it is not for YOU.Give me a review of the next 75 years, with your goals stated.This economy must be looked at in this CONTEXT.The recession,that we are presently in, should be allowed to run it's course,just like any other "VIRUS".Sometimes the treatment, is worst than the illness.You have been ADMONISHED!!I could HELP.But why?

THE SUPPLY-SIDE SCAM

George Bush’s $3 trillion dollar tax giveaway to the rich over the past 7 years has been a disaster for average Americans. Supply-side (trickle-down) economics is a bogus theory promoted by those who benefit from it. In a mature capitalist system, supply side never rules, it’s always the demand side of the equation that governs growth and well-being. Think about the 1930s Depression, General Motors had plenty of supply, but demand evaporated.

Previous U.S. economic downturns have been cured with only $200-300 billion in tax cuts targeted to the middle class, because the consumer (the great middle class and 2/3rds of the economy) spends that tax cut and primes the economic pump. But George Bush has raised the debt that our children/grandchildren will have to pay from $6 trillion to $9 trillion for current economic growth (i.e. we all get trickled on, as the rich spend some small fraction of their gains). Unfortunately, this growth is largely without wage gains, and so has shrunk the middle class that makes America strong. Also, this growth has already over ($3 trillion flushed down the toilet and gone!), as the FED has had to cut interest rates because recession is looming. Massive debt has led to a weak dollar, which is now at record lows vs. other major currencies because of FED interest rate cuts. In turn, the record low dollar has produced record oil prices ($100/barrel); and any additional needed FED interest rate cuts could cause a free fall in the value of the dollar, guaranteeing recession or worse, stagflation.

The middle class is slowly being tapped out. Home values (most of their net worth and the credit card of last resort) are falling in price, and a considerable number of homeowners are heading for foreclosure. With the rich-poor divide increasing, we’re headed toward previous shining examples of trickle-down economics: South America of the recent past and feudalism in the Middle Ages. SUPPY-SIDE ECONOMICS IS NEW FEUDALISM AND SERFDOM!

Fletch
Since when is a tax cut a "giveaway?"

That's one of the things that liberals seem to have ingrained into their psychie - i.e. the idioic concept that all money belongs to the government and you are allowed to keep what they say you can keep. If they decide to cut taxes, to liberals, it is a "giveaway.


Blah, blah, blah
We have heard the talking point big lie Lamocrats, Tax cuts for the rich, the rich or getting richer, the poor are getting poorer, two Americas, blah, blah, blah.

What is common about these talking points is that every one of them is a lie. What should be happening is all the tax cuts made permanent (which they would have been if we had had real Republicans in office instead of Democrat(R)s and the AMT repealed. Yes that’s repealed, not “fixed” with a patch.

The dram would be a 10% flat tax but not even Thompson is going for that. Here’s what the WSJ has to say.

http://online.wsj.com/article/SB120053079762196023.html?mod =opinion_main_commentaries


A little late to talk about more debt!!!
Why no mention in this article about how much, GWB, et al, have increased our debt?

Addressing Economic Ignorance - 1
…though the first one IS a fair question.

Bob C,

I am not referring to tax RATE cuts or the untargeted return of taxpayer funds as giveaways. When tax rates are left unchanged, however, and funds are NOT returned to taxpayers but are instead funneled to partisan constituencies, then it is just an example of another handout funded by the greater body of taxpayers – a giveaway.

Oh, and, John, thanks again for another off-topic missive. Don’t know what we’d do withou’cha!

Two other posters have left the Good Ship Reality FAR, FAR behind. Tax cuts are UNIVERSALLY effective as an economic stimulus. There is essentially no stable or growing economic school (which lets out Keynesianism, neo-Keynesianism, etc.) that argues otherwise. The only issue subject to debate is really whether or not tax cuts can pay for themselves, which is not always the case. A sound argument can be made for the complete repeal of capital gains taxes on that basis and for reducing any federal tax rate below about 33% (at 40% and above there was little doubt vindicating those earlier reductions), but the area is simply too gray to be certain among other marginal rates.

So the arguments that tax cuts “do not work” as economic stimulus or that the Bush tax cuts were harmful to American workers are not merely liberal opinions – they are unequivocally factually wrong.

Another key point that should be made is that we are NOT currently in a recession by ANY economic definition. I will not be surprised if one ensues given the Fed’s policy of too much free money (which created the current mortgage crisis) followed by over contraction (the circumstances behind nearly every major economic contraction all the way back to and including the Great Depression), but it is likely to be mild and short-lived by historical standards (particularly if the Fed quickly returns interest rates to the historical cost of liquidity).

Addressing Economic Ignorance - 2
Only the economically uneducated still buy into the entirely bogus argument that depressions (the Great Depression in particular) are caused by failures to the “demand side” and that stimulus must be targeted at those who will spend whatever they get in order to jump start spending. It is compounded by the popular myth that the economy is overwhelmingly (2/3) driven by consumer spending (a misapprehension driven largely by the problematic assumptions used to calculate GDP – which eliminates all intermediary steps of production).

There has NEVER in the history of the US economy (or any other for that matter) been a case in which a recession was “cured” by targeting tax cuts to the “middle class”. General tax rate cuts stimulate the economy by returning funds otherwise used by the public sector to the vastly more efficient and productive private sector. Even targeted RATE cuts DO have a stimulus effect because the same dynamic applies but ultimately economic stimulus is driven by production in anticipation of future demand. As such, while the so-called “supply side” focus is also subject to criticism for being too narrow, it is actually more valid than the “demand side” focus.

Meanwhile the Fed has to cut interest rates NOT because anything that has taken place in either the executive or legislative branches but because it lowered rates too far in the first place and then raised them too far subsequently. The business cycle would vanish if the cost of liquidity were determined by the market (but that prevents the government from deflating your money so don’t hold your breath) and would nearly vanish if the Fed were disbanded and interest rates were simply pegged at about 3%. In fact it isn’t “massive debt” that has weakened the dollar (though the need to finance that debt has certainly contributed) but the unsound policies of the Fed.

Addressing Economic Ignorance - 3
And, at the same time, the steady and substantial rise in oil/gasoline prices over the last few years (though it is now only comparable to the level it had already reached in the early 1980s) while certainly influenced by inflation has to a larger extent (by several orders of magnitude) been driven by increased world demand for a fungible commodity so, again, laying that particular complaint at the feet of the current administration is completely unwarranted. The middle class is, in fact, NOT shrinking, total compensation has continued to climb essentially unabated for each income group and even the rising number of foreclosures is not on par with the last housing crisis.

Liberals simply cannot get their facts straight.

People and money
There are actually people who won't buy lotto tickets when the prize is "only" $2 million.

Dennis Kusinich recently said on the radio that he believed the wealthy in this country earn 61% of the income and pay 4% of the taxes. The truth is something like they make 14% of the income and pay 38% of the taxes.

If a member of Congress can't get it right, how can you expect the poor schlump who believes he's going to win the lottery to get it right?

Fiscal stimulus
gee, I thought it was simply vote buying to maintain job security by the ruling class

Fletch
The "Tax Cuts" that you suggest will do no good,given our present set of Challenges.If your truly understood economics,telling you this would be unnecessary.Assigning economic ignorances to someone can be extremely tricky.Especially when you lack the knowledge required to sustain such a statement.The context of this economy is couched in the next 75 years.Anyone,who uses the word stimulus,simply tells me, that they have not a "CLUE" about this economy.This economy needs a footing and Americans don't have a "CLUE" where to find one.This is not your backyard pool,these are "DEEP WATERS".I suggest, that you stay in the BOAT.

Nutrition, not stimulus
It is. The Clinton "stimulus package" IIRC was basically pork and payoffs for various local political machines for getting Waco Willie elected in 1992.

Many of the economic problems are aggravated if not caused by government. Animosity toward business generally, heavy manufacturing, private property, EARNED wealth/income, & "markets" (i.e. individual choice) is behind much of the official dysfunctionality that discourages prosperity. Class envy dictates much tax policy. We have an entire institutional political party run by people who don't even think other Americans' prosperity IS a value.

Taxes are too high & loaded w/ gimmicky gotchas. The estate tax blows family businesses to bits. AMT, vanishing deductions, & other gimmicks hit the upper middle class who actually drive the economy. Temporary tax cuts & relief aren't very good because investments are made based on expectation. When one expects a near-term automatic tax increase, one will approach an investment decision taking that prospect into account. Long term investment is discouraged.

The bogus 'climate change' dogma promises to be the economic equivalent of nuclear war, without even the small compensation of at least getting rid of all the government parasites & starting over. We need to insist our guys resist & question it, refuse to write blank checks, & demand proof every step.

The economy doesn't need a "stimulus," it needs the basic nutrition of the fruit of its own productivity. It needs 'protein' not 'caffeine.'

killer
Who died and made you the God of Economic Wisdom? I haven't seen any post by you that comes remotely close to equaling what Fletch posted. Your posts have been nothing more than the same talking point cr*p as the Lamocrats except tat is not that clear.

killer
Wow. I've been put in my place. I guess I should just return my economics degree, abandon twenty more than 20 years as a practicing economist, return the literally dozens of economic books that I have in my library and just stop writing on economics issues entirely...

Nah.

Your assessment of the effectiveness of tax cuts (and, apparently, though you have not elaborated, of "our present set of Challenges) is completely wrongheaded. There is no basis whatsoever for the bald assertion that "[t]he context of this economy is couched in the next 75 years." In fact, such a stance is incredibly foolish when considered in perspective. 75 years ago we were in the depths of the great depression, World War II had not been fought (at that point the Depression had yet to facilitate the rise of the Nazi party). Roosevelt had not yet taken office and had, thus, not begun the great sabatoge to the American economy that prolonged the Great Depression for years, inflated our currency and saddled us with an unworkable Ponzi scheme due to bankrupt in the next decade.

The effects of certain governmental policies, including tax policies, social programs, etc. are well understood by economists so your complaint that I simply don't know what I'm talking about while promoting such nebulous concepts as "[t]his economy needs a footing"...

...well, let's just say they don't make ME look ignorant.

KL
the only people who are saying we are in a recession are the Lames and the pundits. It appears that neither one knows what the definition of a recession is.

Stimulating the economy....
by spending money we don't have. Now, why didn't I think of that?

Under that line of reasoning, I can get rich by spending money I don't have. I can spend my way to prosperity. Is that the argument?

If I stand in a bucket and pull up on the handle, will I levitate?

Morons are running the asylum.

KL
I haven't seen GWB or any of his lackeys say that we are in a recession. In fact, I have seen the opposite in their testimony before Congress yesterday.

However, just because we are not in a recession doesn't mean that actions are not warranted. What the testimony to congress was said that they expected slower growth this year. Instead of 4% growth we would have on the order of 2% growth.

They actually made NO recomendations. Bush has said he wants to make the tax cuts permanent, as they should have been in the begining. If we are in a slow down and we have a tax increase that is one sure fire way to put us in a recession. That is not the same thing as a "stimulus".

At any rate, giving everyone in the country who already pays no taxes $250.00 will provide no real stimulus and will increase the deficit for no good reason.

Political / Economic Question
Is it possible that Wall Street and the Political Establishment are manipulating the media and the markets for political purposes?

If it can be done, it will be done.

Bad economic news would favor Establishment candidates Romney and Hillary over their rivals.

Is it possible the election is being controlled once again by the rich and powerful?

Stimulus, Schmimulus
Hillary and Obama don`t know and don`t care anything about economics or the people they profess to help. They have exactly zero knowledge or interest in any of these issues. They get their policies from focus groups and pollsters. Our dear leaders are followers.

What they care awfully about is power, plain and simple. And the same is true of most of the Repubs as well.

Learn to live with it cause without Ron Paul, it`s all we`ve got to choose from.

More votes against the stupid stimulus
See my blog:
http://www.tonyquain.com/blog/index.php

Rich Lowry, Fred Thompson, and Michelle Malkin have all also said negative things about the stimulus bandwagon.
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