Would Defeat of Obama's Stimulus Plan Be a Good Thing?

I am asking my readers, however many there may be, for their input. I do this blog largely as it drives me to think through what I am reading and develop my own thoughts, which is what I am hoping you do with my articles. But here is my current dilemma.

I like Obama. I want him to succeed. Heck, I want our country to succeed, but I am having increasing questions about any fiscal stimulus plan, and Obama's seems to be getting worse by the day. Not necessarily his fault as it is politics and getting this many idiots to agree to anything is problematic, but I am beginning to wonder if the plan, any plan, being defeated is, perhaps, a good thing.

Here is my two-plus-two logic on this, which has several points:

• If we give the average family $1000 through tax rebates, how is that really going to "stimulate" the economy in any sustained way? We may see a small spike in spending for the few that spend a small percentage of what they are given, but $1000 a family just helps to pay off some debt (I think paying off debt or putting it to savings is how it should be spent but not how the government wants it spent).
• How is giving big tax rebates to companies that have not even been making money going to help?
• The housing and other bubbles for the past decade or so have been built on debt. So exactly how is a stimulus package going to revive the economy when credit - rightly so - has dried up? You spend the minimal fiscal stimulus and then you go back to no credit.
• Why, oh why, would we want consumers to incur more debt? Why would we not want them to become more fiscally prudent? Why would we not want Americans spending less and saving more? All these in the long run are very, very good things, despite the short term pain, which, by the way, seems rather inevitable.
• Why would the U.S. government take on massive debt - that really, really risks a massive devaluation of the U.S. dollar and, more importantly, a shift from the dollar being the currency of default to being one of many, in order to avoid the truly unavoidable?
• Why postpone and perhaps increase the pain?

Finally, why do anything that simply tries to artificially support an unsupportable economy? Our problem is we built this house on debt and no longer have the credit to support the house. So why seek to support it?

Any answers are welcome. Those that agree (or disagree) are welcome to comment. I am thinking of a petition we could sign to Congress on the topic, but I know my late night emails to my Senators on the TARP were largely ignored. All I received, or should have expeceted, were emails and letters written for the (they thougtht) uneducated masses. Time to tell them othewise.

By the way, whoever is calling the plays in this Bowl for Ball State should look for a job with Paulson. He has not called anything right.

Again, this is a necessary adjustment. The pain is inevitable. The government needs to help with those losing jobs and home and relieve the pain there, but the rest of the pain is fool's gold to try to avoid.

Comments

[Anandakos:]

I fear you are correct. When FDR embarked on his counter-cyclical efforts the Treasury was in surplus and there was essentially no debt. Part of the process was a deliberate 30% devaluation in the dollar, in an attempt to reduce the burden of existing debt. But other than running a deficit of about 6% of GDP for three years, all the calamity Republicans scream about was pretty weak beer.

Things are different today. We begin the process of recovery with an accumulated Federal debt of about 65% of GDP and of course a huge tsunami of partially funded (NOT "unfunded"...) liabilities from Medicare and Social Security. We need to worry about the dollar.

I believe that one way we could pay for some of the needed counter-cyclical spending is to place a significant Federal real property tax on estates valued at greater than $5 million for three to five years. Maybe 10% of the assessed valuation per year. We need some way to recapture some of the ill-gotten gains of the looney hedge funders who got us into this mess, and nicking their real property would help.

Jan 07 02:57 AM

[Steven Hansen:]

Craig, does it matter any more? what is a few more trillion?

at this point i think it does. lets make a plan for a cold economic shutdown which would minimize collateral damage.

we should batten down the hatches, and let the economy crash. then we can start again and build a new economy based on lower consumer debt which will not require inflation for growth.

Jan 07 05:28 AM

[investor88:]

Craig has written a clear article better than Nobel economists can. Plain common sense written in a way the average Joe can understand.

So we have to go through the economic pain whether we like it or not. The politicians, there can be no change in their ways unless there is a revolution.

Jan 07 07:56 AM

[secmaven:]

Letting the economy "crash" is not an option if we want to maintain an elected government. If we want a military/police/nation... guard takeover then let her rip.

Jan 07 10:30 AM

[Joyful Alte...:]

According to Naomi Klein's Shock Doctrine, secmaven could be right. I'd rather not risk that outcome.

I trust Obama as much as I trust anybody I don't personally know, but Washington has some nasty pieces of work yearning to bring back feudalism.

Jan 07 11:23 AM

[1RuleNoRules:]

Would Defeat of Obama's Stimulus Plan Be a Good Thing?
Yes and no.
20 years after Ronald Reagan the spin is in. Reagan deficits carried the economy. Have you heard this? My head was spinning. I looked for something to throw at the TV. RR success(tax revenue double) is now from spend happy Democrats(at that time it was the Dems). RR said that revenues would go up after his tax cuts, then as now no one believes it, even after the fact.
I believe that the defeat of Obama stimulus plan would be a good thing but, only if we have learned our lesson. If it succeeds and fails then we may learn something as voters. Namely that government is the problem. Government borrowing is bad. Government spending is bad. Their is no Problem that government cannot make worse through intervention. And everything else Ronald Reagan said.
If Obama's plan passes and succeeds then we will test new spending highs and new deficit lows, and RR will be forever forgotten. Ronald Reagan was of a more a Libertarian than we give him credit for.

Jan 07 12:39 PM

[carey_jim:]

You need to realize that economic solutions can't exist in a vacuum. You need to look at history, sociology, psychology and politics too.

For example, if you analyze the causes for the recent rise of wage inequality in the United States (just to cite an arbitrary example), from a purely economic point of view you get:

1. Fall in union membership
2. Rise in immigration
3. Rise in trade with low wage countries
4. Rise in technical requirements for good jobs
5. Rise in families without fathers
6. Increase in both husband and wife working
7. Decrease in the quality of schools
8. Decrease of the minimum wage
9. Increase in drug use
10. Fill in the next 10 causes yourself.

But all of the above causes have historical, social, psychological and political roots as well as economic ones.

For example, if you confined yourself to looking at economic models to describe the effects of a drop of union membership on wage inequality, then by ignoring psychology, sociology, history and politics you will anger a lot of people (psychology) and make them ignore your analysis (politics) as too one sided.

Jan 07 12:54 PM

[John Lounsbury:]

Craig - - -

The problem is not fiscal stimulus, whether it be tax cuts or increased government spending. (Although there could be a great debate on how government spending is abused.)

The problem is the withdrawal of fiscal stimulus when it is no longer needed. Keynsian theory has been cherry picked by politicians of both parties to take the easy side and avoid the hard side. Our politicians, once they have tasted the punch bowl, can not stop after they get a little tipsy; they keep on stimulating right over the top of the next business cysle and then add more "easy stuff' in the next dip.

Simply stated, Keynes' theory was to spike the punch to get the party going and then replace it with water when the party starts to get rowdy. There have been very limited uses of water in the past 25 years and we have inflated some big party balloons.

Craig, this is a well written article and clearly states an opinion held by many. However, your cold turkey solution would not need to be considered if we had not repeatedly spkied the punch to the point that all at the party became alcoholics.

Jan 07 01:00 PM

[John Lounsbury:]

Sorry for the typos: cycle and spiked

Jan 07 01:02 PM

[Karen Consumer:]

I've been pre-figuring my tax return for 2008 (will have official numbers by end of month) but as a result of receiving my 'stimulus' check last year I will have to pay about $86 this year to Uncle Sam. Not bad, could have been worse.

I would rather that there not be another stimulus package. Period. Yes, I as the beneficiary of such a check am saying KEEP IT.

The government wants to help me, fine. Here's how. Stop helping everyone. Stop TARP. Stop Fannie, Freddie, and Ginnie. Heck, put Sallie in a corner for a while as well.

Let the chips fall where they may. They HAVE TO FALL. If we don't get rid of overleveraged businesses, banks, consumers, everybody, we will never get out of this mess.

Will it hurt? Yes, it will hurt like hell and people will be absolutely miserable for a while. A WHILE, not forever, just a while.

Being anxious about the other shoe dropping is a whole lot worse than knowing it has actually dropped and it won't drop again.

Jan 07 02:45 PM

[troyfer:]

Why does person after person believe the answer is to steal from one person and give to another? The government adds almost no value. They take $1 from one person, take 30% off the top for administration and waste, and then give 70 cents to another person. It really is armed robbery as the government has the guns.

On Jan 07 02:57 AM Anandakos wrote:

>
> I fear you are correct. When FDR embarked on his counter-cyclical
> efforts the Treasury was in surplus and there was essentially no
> debt. Part of the process was a deliberate 30% devaluation in the
> dollar, in an attempt to reduce the burden of existing debt. But
> other than running a deficit of about 6% of GDP for three years,
> all the calamity Republicans scream about was pretty weak beer.
>
>
> Things are different today. We begin the process of recovery with
> an accumulated Federal debt of about 65% of GDP and of course a huge
> tsunami of partially funded (NOT "unfunded"..... liabilities from
> Medicare and Social Security. We need to worry about the dollar.
>
>
> I believe that one way we could pay for some of the needed counter-cyclical
> spending is to place a significant Federal real property tax on estates
> valued at greater than $5 million for three to five years. Maybe
> 10% of the assessed valuation per year. We need some way to recapture
> some of the ill-gotten gains of the looney hedge funders who got
> us into this mess, and nicking their real property would help. <br/>
>

Jan 07 03:45 PM

[Craig Brown:]

John, I am not saying that fiscal stimulus is never the right answer, just that I do not see it as being the answer for the U.S. this time around, and I believe Keynes might agree. Stimulus might have worked for the U.S. quite well in The Great Depression, but that was because we were economically too dependent on our exports then for our economic growth and had insufficient domestic demand. Stimulus supports domestic demand and can help a given country shift away from too much dependence on exports - just as China needs to do today. But today our problem is we spend too much and we have funded a large amount of it with debt. Feeding the addiction is not the answer, in my opinion. We have had way too much stimulus for the past decade and it is time for us to deal with the results of our indiscretion. Building a massive federal deficit to leave to our children is not what I believe we should be doing.

I realize the government will not be able to take the heat on this and will do something to look like they are helping, so some fiscal stimulus is likely to take place, but Obama's remarks about possible trillion dollar deficits for years to come has me quite concerned.


On Jan 07 01:00 PM John Lounsbury wrote:

> Craig - - -
>
> The problem is not fiscal stimulus, whether it be tax cuts or increased
> government spending. (Although there could be a great debate on how
> government spending is abused.)
>
> The problem is the withdrawal of fiscal stimulus when it is no longer
> needed. Keynsian theory has been cherry picked by politicians of
> both parties to take the easy side and avoid the hard side. Our politicians,
> once they have tasted the punch bowl, can not stop after they get
> a little tipsy; they keep on stimulating right over the top of the
> next business cysle and then add more "easy stuff' in the next dip.
>
>
> Simply stated, Keynes' theory was to spike the punch to get the party
> going and then replace it with water when the party starts to get
> rowdy. There have been very limited uses of water in the past 25
> years and we have inflated some big party balloons.
>
> Craig, this is a well written article and clearly states an opinion
> held by many. However, your cold turkey solution would not need to
> be considered if we had not repeatedly spkied the punch to the point
> that all at the party became alcoholics.

Jan 07 04:53 PM