10 Reasons to Whack Obama's Stimulus Plan

[alienlovechild 75]

10 Reasons to Whack Obama's Stimulus Plan

January 27, 2009 02:10 PM ET | James Pethokoukis | Permanent Link | Print

Some people are going to oppose President Obama's ginormous stimulus package just because they're on a different political team. But when you look at the economic evidence, it sure seems like an economic recovery package that's heavy on government spending and light on tax cuts is just the opposite of what we should be doing right now. Try this closing argument on for size:

1) A 2005 study by Andrew Mountford and Harald Uhlig "analyzed three types of policy shocks: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes) and a deficit-financed tax cut, in which revenues increase but government spending stays unchanged. We found that a deficit-spending shock stimulates the economy for the first 4 quarters but only weakly compared to that for a deficit-financed tax cut." In other words, FDR vs. Clinton vs. Reagan, Reagan wins.

2) Harvard economist Robert Barro looked at the multiplier effect of World War II military spending -- supposedly the Mother of All Stimulus Plans and found that "wartime production siphoned off resources from other economic uses — there was a dampener, rather than a multiplier." Barro prefers eliminating the corporate income tax to massive government spending.

3) Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago want to adress the fear and confidence issue by creating "the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years."

4) An initial CBO analysis found that a mere $26 billion out of $274 billion in infrastructure spending, just 7 percent, would be delivered into the economy by next fall. An update determined that just 64 percent of the stimulus would reach the economy by 2011.

5) University of Chicago economist and Nobel laureate Gary Becker doubts whether all this stimulus spending will do much to lower unemployment: "For one thing, the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative."

6) Christina Romer, the new head of the Council of Economic Advisers, coauthored a paper in which the following was written about taxes: "Tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects." And former Bush economic adviser Lawrence Lindsey tack on this addendum: "The macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet."

7) Economists Susan Woodward and Robert Hall find that the multiplier effect from infrastructure spending maybe just 1-for-1, less than that 3-to-1 ratio for tax cuts that Romer found: "We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package. We should not count on any inducement of higher consumption from the infrastructure stimulus."

8) Economist John Taylor thinks it better to let the Federal Reserve deal with the short-term problems in the economy, while fiscal policy should attend to long-term issues: "In the current context of the U.S. economy, it seems best to let fiscal policy have its main countercyclical impact through the automatic stabilizer ... It seems hard to improve on this performance with a more active discretionary fiscal policy, and an activist discretionary fiscal policy might even make the job of monetary authorities more difficult. It would be appropriate in the present American context, for discretionary fiscal policy to be saved explicitly for longer-term issues, requiring less frequent changes. Examples of such a longer-term focus include fiscal policy proposals to balance the non-Social Security budget over the next ten years, to reduce marginal tax rates for long run economic efficiency, or even to reform the tax system and Social Security."

9) Massive stimulus didn't work in the Great Depression. As this Heritage Foundation study notes: "After the stock market collapse in 1929, the Hoover Administration increased federal spending by 47 percent over the following three years. As a result, federal spending increased from 3.4 percent of GDP in 1930 to 6.9 percent in 1932 and reached 9.8 percent by 1940. That same year-- 10 years into the Great Depression--America's unemployment rate stood at 14.6 percent." Same goes for Japan and its Great Stagnation of the 1990s.

10) Olivier Blanchard, the chief economist of the International Monetary Fund, coauthored a paper which found "that both increases in taxes and increases in government spending have a strong negative effect on private investment spending."

Bottom line: There is another model out there. One that worked in 2003, 1997 and 1981. But will America use it?

http://www.usnews.com/blogs/capital-commer...mulus-plan.html

[spookyturtle 9,466]

Ok, whack his plan. Anyone got any better ideas?

[MrsCat 6]

Too much reading. I'll consider the argument if its 50 words or less.

[alienlovechild 75]

Ok, whack his plan. Anyone got any better ideas?

You didn't see any alternatives because you didn't read it. There were several suggestions.

[spookyturtle 9,466]

Ok, whack his plan. Anyone got any better ideas?

You didn't see any alternatives because you didn't read it. There were several suggestions.

And why are the alternatives better? Why do they have a better chance of success? Because they are different? Someone has to make a plan and use it. It can be argued for the next ten years what to do. Something has to be done soon. The writing is on the wall. There is no perfedct plan that will make everyone happy. I was not/am not an Obama sheep, but he's the man now, the people have spoekn. Now let him do the job that he fought so hard to get. If he messes up, we can crucify him later.

[EstebanTrabajos 7]

1 reason to avoid reading this thread...

- Looks like a freaking thesis

[almaty 19]

and more bs from the reactionary right

[alienlovechild 75]

And why are the alternatives better? Why do they have a better chance of success? Because they are different?

Read the article Lazyturtle. If the objective of the legislation is to stimulate the economy and there are better ways to do it than they should be considered. We are talking big bucks here of taxpayer money so you'd think people would ask questions and demand answers.

Someone has to make a plan and use it. It can be argued for the next ten years what to do. Something has to be done soon. The writing is on the wall. There is no perfedct plan that will make everyone happy. I was not/am not an Obama sheep, but he's the man now, the people have spoekn. Now let him do the job that he fought so hard to get. If he messes up, we can crucify him later

A do nothing alternative should always be an option. The idea we must vote for something or anything regardless of the consequences is short-sighted. A plan doesn't have please everyone, just more than 50% of Congress. Punishing Obama for screw ups after the fact is entirely possible at the polls but once the money is spent., it's spent.

[spookyturtle 9,466]

And why are the alternatives better? Why do they have a better chance of success? Because they are different?

Read the article Lazyturtle. If the objective of the legislation is to stimulate the economy and there are better ways to do it than they should be considered. We are talking big bucks here of taxpayer money so you'd think people would ask questions and demand answers.

Someone has to make a plan and use it. It can be argued for the next ten years what to do. Something has to be done soon. The writing is on the wall. There is no perfedct plan that will make everyone happy. I was not/am not an Obama sheep, but he's the man now, the people have spoekn. Now let him do the job that he fought so hard to get. If he messes up, we can crucify him later

A do nothing alternative should always be an option. The idea we must vote for something or anything regardless of the consequences is short-sighted. A plan doesn't have please everyone, just more than 50% of Congress. Punishing Obama for screw ups after the fact is entirely possible at the polls but once the money is spent., it's spent.

You are anti Obama, fine. YOU read all the bs and believe what you want. You aren't going to see what happens if nothing is done, because something is going to done soon. And of course you are an expert and have a better plan. Maybe they should consult Bush and get his input?

[almaty 19]

when bush pushed his plan and tried again before he left..the gop voted with the democrats on it..cause it comes from obama now..it is tainted..

[alienlovechild 75]

and more bs from the reactionary right

US News is hardly far right. No indication you read anything of the article. Then again most popular news sources are geared to high school grads so I'm assuming it was over your head.

http://www.impact-information.com/impactin...er/plwork15.htm

Find a high school student to explain the article to you then come back and tell us what you think.

[spookyturtle 9,466]

and more bs from the reactionary right

US News is hardly far right. No indication you read anything of the article. Then again most popular news sources are geared to high school grads so I'm assuming it was over your head.

http://www.impact-information.com/impactin...er/plwork15.htm

Find a high school student to explain the article to you then come back and tell us what you think.

I guess everyone here can't be a genius like you. It must be tough being a legend in your own mind.

[Peikko 1,575]

I thought we had had this discussion already. The stimulus plan is not universally supported as it stands, many people ARE worried about all the add ons. I didn't think much of the Bush rebate plan (are there any figures that show exactly how much the economy was stimulated by that little hand out?) and I don't think much of this stimulus plan either.

However, I would suggest that continuing with failed Bush policies (tax reductions for big business) is not a suitable strategy either as clearly that wasn't working out too well! I do think however that a 'do much less' policy might be a better course of action and I really think that investment in real infrastructure is a good plan and with the emphasis on transparency and the use of internet solutions to track spending we will be able to find out exactly where the money goes, which is a postive change.

Edited January 28, 2009 by Madame Cleo

[Trumplestiltskin 5,791]

If the objective of the legislation is to stimulate the economy and there are better ways to do it than they should be considered. We are talking big bucks here of taxpayer money so you'd think people would ask questions and demand answers.

Devil's advocate here - but how does anyone know that they haven't been?

[Trumplestiltskin 5,791]

and more bs from the reactionary right

US News is hardly far right. No indication you read anything of the article. Then again most popular news sources are geared to high school grads so I'm assuming it was over your head.

http://www.impact-information.com/impactin...er/plwork15.htm

Find a high school student to explain the article to you then come back and tell us what you think.

Now now. Not reading posted articles was your forte, if you remember.

That and the abundance of ego.