Stimulus Follies – 16feb2009

George Rebane

The Recovery and Reinvestment Act of 2009 aka the $787B stimulus package will reverberate through our wallets for a very long time to come.  In discussing its impact on the country and our lives, I will refer to it simply as SP787 to distinguish it from TARP and the various SPxxx monstrosities that are sure to follow.  Note, dear Reader, that I have included only three xs in that otherwise generalized label in hopes that the follow on stimulus packages don’t individually reach into the trillions, but should the need arise … .

SP787 will be theatrically signed into law in Denver tomorrow, and it needs all the theater the Democrats can muster.  We must never waver in the inculcated belief that this "reinvestment" will indeed lead to a "recovery".  Nay, SP787 will be absolutely necessary in order to avoid another Great Depression or some other ‘fate vois dan death’ (Yiddish accent understood).  The Big O’s gloom and doom admonitions are becoming a celebrated legend in their own time (here).

And very cleverly, the Democrats have this program to stimulate the expansion of government down cold.  All outcomes will support the wisdom of SP787, and its future siblings, as the absolute correct thing to do.  With the help of millions of ‘invisible hands’, the economy has several built-in self-righting mechanisms.   Government, of course, can hinder these, but sooner or later we can expect things to get better.  The progressives will then sing the ‘See, We Told You’ chorus (set to Handel's ‘Hallelujah’), and come out smelling like a rose in the eyes of those forever facing Washington for solutions and sustenance.

Should the recession drag on or deepen, not to worry, they have that covered with ‘we were handed a much worse situation by Republicans than anyone could anticipate, and it’s going to take much more stimulus to get the economy rolling again.’  This will be followed by more SPs in various denominations, until the triumphant chorus can finally be cued up.

The careful reader will already have come to the conclusion that this will be the basis for the 'Democrats Forever' strategy, and the various SPs will be seen as the enabling legislation making it all possible.  The final outcome of this is can be gleened from Norman Thomas, the perennial socialist presidential candidate of the last century, who said during WW2 -

"The American people will never knowingly adopt socialism. But, under the name of 'liberalism,' they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened. … I no longer need to run as a presidential candidate for the Socialist Party. The Democratic Party has adopted our platform."

But getting back to SP787.  The most trustworthy testimony to the claim that governments pilfer, waste, and misuse our tax dollars comes from the insiders, from people with deep knowledge of how the game is really played.  Today’s best example is that city majors are now contacting the feds directly for their share of the bailout funds.  All of them have overspent and are suffering from deficits seen and unseen (e.g. unfunded liabilities).  They want the stimulus bucks to come directly into their eager little hands, bypassing those colleagues of doubtful parentage in the state houses.

Over the weekend CNN aired Exhibit A of this when it interviewed Mayor Villaraigosa of Los Angeles.  Hizzoner made it very plain that LA is big, has a lot of money problems, and knows exactly where to inject the stimulus.  He does not trust The Arnold to get it right for California, and the last thing he wants to do is strap on his knee-pads and beg for bucks in Sacramento.  So he is appealing that the feds cut out the middle man who just adds shipping and handling charges.  Good thinking, especially when considered on a grander scale.

 

Comments

[Russ]

Yes, lets think much grander. If LA can cutout the State middle man, how about applying that strategy for all of us. I am no different than the LA Mayor, I do not trust Arnold and I know exactly where the stimulus needs to go. So lets cut out all the middle men an just send the stimulus checks directly the citizens. They can put it in the bank and when the stimulus tax bill comes due just send it back.

[Mikey McD]

BO = modern day Robin Hood (steal from the rich...keep the rest...and give the impression of giving to the poor).

[George Rebane]

On the ultimate grander scale - let's see now. $787,000,000,000 divided by 304,000,000 is about $2,589 for each and every one of us. If they're going to print it, I'd rather take it and put it to much better use than those government yokels. Watch the economy recover when all of us get that much money shoved in our shorts.

[Wade]

Man, 700 billion is a LOT of money. Sounds like "generational theft." Eisenhower must be spinning.

http://www.armscontrolcenter.org/policy/securityspending/articles/defense_spending_since_2001/

[Wade]

George -

Incidentally, I have been researching the "100% crowding out" theory of government stimulus outlined in the Heritage Foundation article you referenced. It turns out that this theory is known as the "Treasury View," having first been set forth by some members of the British Exchequer or Treasury during the 1920s, and more recently enjoying a mini revival drawn mostly from the writings of Amity Shlaes, i.e. "The Forgotten Man, A *New* History of the Great Depression" (emphasis mine) wherein she reportedly goes to great lengths to wield anecdotal tidbits against the successes of the New Deal.

For some of my favorite economists' view on said "Treasury View":

http://delong.typepad.com/sdj/2009/02/on-the-treasury-view.html

http://delong.typepad.com/sdj/2009/02/more-treasury-view-blogging.html

http://delong.typepad.com/sdj/2009/02/on-the-treasury-view.html

http://econospeak.blogspot.com/2009/02/cato-and-national-review-adopt-treasury.html

http://delong.typepad.com/sdj/2009/02/defenders-of-the-treasury-view-part-cxiv-david-harvey-speaks-and-claims-to-know-more-about-keynesian-economics-than-joan.html

[George Rebane]

[Dr. James Catterall is Professor of Urban Schooling in the Graduate School of Education & Information Studies at the University of Californina, Los Angeles. He has published extensively and is a nationally recognized expert on education policy, and has also done pioneering work in the integration of the arts into the overall educational experience. He asked me to post this comment since TypePad was going through one of its recent post-menopausal difficulties. James is also a longtime friend and one of my treasured liberal intellectual combatants who still manages to overlook my calloused knuckles. I am blessed. gjr]

George, I think you feel better about naysaying what the feds are up to than the feds do about seeking and implementing solutions. Allow me a few stray thoughts.

An administration you supported ballooned the federal budget between 2000 and 2008, giving to rich and richer friends along the way, spending unprecedented sums of taxpayer money, going off-budget for a costly and damaging war, and not getting economic, social, diplomatic, military, spiritual, linguistic, or entertainment returns in the process, John Stewart notwithstanding. How about negatives on all counts save entertainment here.

The Bush regulatory environment contributed heavily to our current economic problems, surely through pushing and allowing mortgage lending to anyone half-alive and to propped-up phantom homeowners, and in promoting a $60 trillion market for exotic and inscrutable debt instruments, most of which are upside down. The administration's final public acts focused on buying up some of the financial crap they had squeezed from their loins from investment houses at more than their true values -- if any investment houses sold this stuff back to the feds at true value, it would not have helped their capitalization a shred.

I generally stand with economist Paul Krugman -- the main ways to move forward from where we are now include getting credit moving -- by recapitalizing banks through various means, including rescuing some mortgages likely to become worthless in the next couple of years and through loans and preferred stock purchases that can return money to the treasury once things turn around. And whatever one has come to think of Keynes since 1960, spending does beget spending which begets spending, all of which returns taxes to the treasury and helps shrink the deficits created by the spending in the first place.

The congressional debates over what stimulates and what does not are vacuous. You can build a bridge in Louisiana or pay for artists in Des Moines -- it all gets the economy moving and all money thus injected leads to Keynes' multiplier effect, in some degree. The dancer or bridge builder can equally turn around and buy a car or get a tooth fixed. Fiscal strategies were not lost on FDR, nor the Japanese in the 1990s, nor on Sweden 15 years ago where public acquisition of financial instruments and assets met with re-privatization in the out years.

The plea for tax cuts? A tax cut is less likely to be spent than a dollar of business or personal income generated through government spending. Bush had his day with his brand of tax cuts which did exactly what critics forecasted: the rich got richer, and the federal deficit grew by leaps and bounds.

Now, the Feds doing just about nothing (which is your main recommendation, right?), has only one main advantage that I can see. It requires no government outlays. I would guess that no matter what things might look like 10 years down the road, considerable collateral damage would be involved: a deeper, longer economic slide of who knows what magnitude, continued and deeper buffeting of just about everyone who has been buffeted in the past 18 months, more collapses of less capitalized businesses. A few of the nation’s citizens would be held harmless in this, but precious few. Few have escaped losses as the economy has tanked. Erosion of the nation’s public assets would impact us all.

But you are saying that in the long run things will be fine. I think you’re right. But how do we account for the casualties along the way. Economists like to say "in the long run." The truly truth-saying economists have been known to say, "In the long run, we're all dead."

The long term trade-offs (benefits versus costs, if you will) between doing nothing and doing much through the Federal Government in the coming months and years are easy to speculate about and impossible to know. Opinion lines up mainly on philosophies of government, the state, the public good, and the like. And certainly not according to reliable estimates forecasting accuracy. Hell, the best in the business can’t forecast job growth or job loss or corporate income in the short run – what can we know about 2012? We can’t forecast the Dow Jones average a day in advance!!

Yes, there are a variety of "self-correcting" mechanisms that would come into play in a do-nothing scenario, over what period of time and with what effects we don't know. I can’t shed my belief that do-nothing would prolong and deepen our economic slump and toss people and institutions aside as the reaper's blade slices through the nation. Doing lots would likely reduce the total damage. How much? Are the costs worth the result? Who knows?

Politics? As you say, when at any time down the road things look bleak, the Dems can always say "Oh what a mess Bush left us." Well, after all he did leave us with many bags of manure -- our understanding of its reach and stench grow daily. The Dems should and will use this explanation. Or when things turn better, of course it was the bailout strategy that did it. As things ever have been.

If you think this all adds up to 16-24 years of Democratic presidents and dread the prospect, there's not much to do except thank George W. Bush and tend to your CDs.

james