Why a Spending Bill Just Won't Cut It 21 comments
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Last night, I had to chuckle and cry at the same time as I watched Rachel Maddow's "Bull Puckey" speech.
Rachel's declarations about the job-creating values of spending are about as insightful as Janeane Garofalo's outburst on the radio in 2005, paraphrased thus: "... those free-market wackos with their 'invisible hand' mumbo jumbo."
Both ladies' understanding of the workings of the market typify the overconfidence of those who jump to conclusions without looking at the whole story.
Rachel claims that spending in and of itself is sufficient to create jobs and get the country out of a recession. Obama has embarrassed himself by making the same point. They have both overlooked that the statistical link between government spending and long-term job creation doesn't exist. To illustrate:
Spending:
Let's take an extreme and therefore abstract example. We can hire 15 million workers (10% workforce unemployed) to dig holes and fill them up. Cost: $800,000,000,000. 100% job creation. After the job is done, they go back on unemployment. Job creation for one year: 15 million. Job creation after one year and a half: Zero. Capital available for permanent job creation: X minus $800 billion. And don't give me the argument that the government intends to do more than just dig holes and fill them up. Building bridges and roads that we can't pay for is just as bad.
Permanent Job creation:
At the other extreme, let's say we do nothing, and therefore the government does not sap the marketplace of $800 billion. Cost: Zero. The money is thus available to businesses, small and large, to rev up their engines as this recession starts its uptick. Jobs created during one year: Admittedly, perhaps zero. Jobs created after one year and a half, or sometime thereafter: 7 million, year after year, as unemployment falls back to around 4% or less. These jobs are permanent.
The lenders of the $800 billion know this, as we will soon find out when the U.S. government finds it harder and harder to finance its debt. Why isn't this difference clear to the President and to his supportive progressives? Because these people are short-sighted, and they grasp at whatever supports their political culture instead of looking at all the facts.
Rachel quotes Moody's statistics. Example: "Most Stimulative Spending: Non-refundable tax rebates: $1.00 = $1.02/ economic activity. Infrastructure: $1.00 = $1.59/economic activity." These stats make no mention of the duration of job creation in each instance, what kind of jobs are created, and what money was used to do it. Statistics can be the best liars when you don't tell the whole story.
More twisted logic:
- Who will be employed on the construction sites of the Spending Package's bridges, railroads, and roads? Will the government try to pick and choose among the unemployed? Can legislators get the most expensive unemployed (Wall Street workers, lawyers, and others like them) onto the dirt? Does the construction industry worker deserve a job more than an investment banker or lawyer?
- Rachel says that people on unemployment don't spend. Isn't she forgetting that they receive unemployment benefits that are paid out of future income from existing tax structures and not borrowed 100% from the world's capital pool? Then she turns around and almost makes the argument that we should all go on Food Stamps. This is strange thinking.
- We are all (including me) complaining about the big bonuses and the Las Vegas junkets, but isn't this also spending a la Rachel? Aren't we forgetting that jets are made by American workers, that pilots fly those jets, and that lots of people work in Las Vegas? We are also forgetting that the rich spend a portion of those bonuses and invest the rest in things like the stock market, i.e. in the very same instruments that are in all of our 401[k]s, which could use a little help right now. (Don't get me wrong, those bonuses give me goose bumps; but I believe their size was determined by excessive money and credit supply and by the competitive marketplace, not only by individual greed. See this post, for example.)
- We want to put American manufacturing back on track by recommending we all "buy American." Aren't we forgetting that if we refuse to buy foreign products, foreigners will refuse to buy ours? And that this type of thinking is what ultimately repressed the world economy in the 1930s?
- We want China to allow their currency to rise in value, but aren't we forgetting that for this to happen, China has to stop buying our debt? Do we really want that?
Much illogic should be examined here.
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Now, given that this "sugar water" approach is going to last longer than one year, who among us would not agree that people who are working, albeit on road construction, wind tower construction, etc, do not buy more color TV's from Wal-Mart than those who are sitting on their duff, collecting unemployment? Does not the purchase of LazyBoy recliners, and Coffeemakers contribute to the overall economy? Where do these things come from?
And, if the folks are lucky, they can even check out the Bayliner store!
No, I do not agree with the article.
On Feb 08 09:40 AM oeagleo wrote:
> The problem here that I see, is that we've already tried the "Give
> the businesses a tax break, it will be good for the economy" trip.
> It's failed. Miserably. The last TARP giveaway proved that businesses,
> (banks in particular) don't really care about helping the country
> out of it's problem, they care about themselves. Trickle Down Economics
> would work, if businesses would trickle down, and not out.
Examples to refute her lack of education are Erie Canal, Interstate Highway system, and the Computer revolution. All were govt. funded enterprises initially that paid off with huge gains in both govt. revenues and private enterprise piggy backing on govt. investment.
Congress should let us worry about that and let them worry about where to go on vacation this year.
Here's another idea:
Year One - we do nothing.
Year Two - there won't be a year two
o.k. if i hold federal office tax evasion is an oversight instead of a crime. also i get to commit perjury in court under oath. i wonder what other laws only apply to the public but not the federalis.
why are the citizens of one state forced by federal taxation to bailout another state that has behaved foolishly. oh yeah these are big voting blocks just as the banksters are huge political donaters.
i enjoyed your article.
i think infrastructure spending is great when we can afford it. perhaps a more prudent approach would see more support. just throwing money out there will see gigantic waste which is the nature of govt well intentioned spending. if you get a grant you must spend it all to get the next grant of equal or greater value. if someone borrowed $10,000 from me and came back with $3,000 early because they trimmed expenses i would be more likely to loan to them in the future not less.
- Tax cuts with fractional/marginal trickle down benefits,
- Total dependence on private businesses to support the social fabric of the country (what an oxymoron!),
- myopic planning (exemplified by quarterly earnings)
- expecting everything to be done by states (why our water grids, electricity grids, scientific research are lagging so far behind),
- utter disregard for non-business/non-finan... rewards that result in treating people with liberal and fine arts backgrounds as second rate citizens
has what has brought us to this pathetic state of affairs. Time to try something new.
Really, can this approach by Washington be the best they can do? Is this the best thing our entire nation can come up with? When faced with bankruptcy, take out another credit card and go on a shopping spree? WTF? I agree that it's time to try something new, starting with a tax protest this year. I'm sick of being involuntarily made into a debt slave for those jackasses even when I'm trying to save and be responsible.
On Feb 08 01:03 PM Manifestor wrote:
> The logic in this article is naivety at its best. Perhaps exemplifies
> the tax cut /trickle down camps' thinking at its core. Their teachings,
>
> - Tax cuts with fractional/marginal trickle down benefits,
> - Total dependence on private businesses to support the social fabric
> of the country (what an oxymoron!),
> - myopic planning (exemplified by quarterly earnings)
> - expecting everything to be done by states (why our water grids,
> electricity grids, scientific research are lagging so far behind),
>
> - utter disregard for non-business/non-finan... rewards that result
> in treating people with liberal and fine arts backgrounds as second
> rate citizens
>
> has what has brought us to this pathetic state of affairs. Time to
> try something new.
OK, so where in your article are the "statistics" that supposedly back your opinion? There are none. Instead, your argument illustrates some equally illogical thinking...positing of some bizarre "extreme" circumstances, the results of which you ASSUME based on no statistical evidence whatsoever, but rather with tired, discredited tickle-down economic theories:
"At the other extreme, let's say we do nothing, and therefore the government does not sap the marketplace of $800 billion. Cost: Zero. The money is thus available to businesses, small and large, to rev up their engines as this recession starts its uptick."
Uh, to whom are these businesses going to sell their products and services (after they magically "rev up" for the assumed recovery)?
"Jobs created after one year and a half, or sometime thereafter: 7 million, year after year, as unemployment falls back to around 4% or less. These jobs are permanent."
Again, I ask, from where did these mythical jobs appear? And how did you arrive at the figure of 7 million? How do you know that unemployment will fall back to 4% or less? If the government does nothing, wouldn't it be more likely that we would stay at the level that we're at now?
"Will the government try to pick and choose among the unemployed? Can legislators get the most expensive unemployed (Wall Street workers, lawyers, and others like them) onto the dirt? Does the construction industry worker deserve a job more than an investment banker or lawyer?"
Since when was there an unemployment crisis among lawyers? If only we were so lucky. However, after what we've been through in the past six months, I would have to say that my answer to your third question is YES (and I don't think I'm alone in that opinion).
"We are also forgetting that the rich spend a portion of those bonuses and invest the rest in things like the stock market, i.e. in the very same instruments that are in all of our 401[k]s, which could use a little help right now."
Seems to me that the stock market crash that we just experienced in Oct-Dec was a result of the rich (via their poorly managed and over-leveraged hedge funds) taking their money OUT of the stock market. Why do you assume that they'll just plow their "bonus checks" back into "things like the stock market."
Now, ordinarily, I wouldn't waste my time commenting on such poorly argued drivel (there's so much of it to be found on the internet, I'd never get any of my own work done). But sometimes the self-righteous tone of an article like this really gets to me.
"Obama has embarrassed himself by making the same point."
"Why isn't this difference clear to the President and to his supportive progressives? Because these people are short-sighted, and they grasp at whatever supports their political culture instead of looking at all the facts."
Hmmm, makes me wonder why Obama would foolishly consult with the likes of Larry Summers, Ben Bernanke and Paul Volcker, when he really should be paying attention to astute economic scholars like...Katy Delay. Go figure.
Seriously, judging from the author's profile, she has no credentials that would suggest that she knows anything about economics...other than being the daughter of an obscure economist that no one's ever heard of. Anyone doing more than a cursory reading of this article would have to conclude that she has only a weak grasp of logic and argumentation as well.
Pathetic, really.
We have to many lawyers and political scientists in Washington. what we need is more businessmen and economics. Our political represenatives are trying to give away the farm just so the sheep will re elect them. these people have become the new royal elite among us and they are sick with the power their office brings.
Our economy is built on consumption. If people dont spend money the economy dries up. if the government spends money it drives prices up and the people cant afford to buy.
We have trouble in the auto industry because the government backed the unions and the auto was forced to pay more than an honest days work was actually worth and the sweetheart deals made for the unemployed and retired workers made prices too high to afford.
Similar problems ocurred in the construction industry with a few builders reaping hugh profits for overbuilding and pricing up homes to where they became un afordable and the bogus mortgages started falling out.
it's going to take a mansmarter than Gaitner to figure this thing out.
Nearly 700 pages. Original written by the Democrats in the House with Nancy Pelosi saying, "We won the election, we will write the bill". Not one Republicans voting for the House version and although I'm not a Democrat or Republican but Non-Partisan I have to believe that this side thinks this will do it and that side thinks it won't. I don't see these people as good vs. evil but rather many people that really don't have the expertise to deal with the economy unless they listen to someone that thinks they know... maybe from a partisan view i.e. political.
Now we have a bill with maybe a few more changes to come. Why changes? If this doesn't work it is a Democrat Bill signed by a Democrat President. I have no doubt at all... we will need more stimulus plans. The people have spoken and they don't like what's going on so... imagine if this doesn't work. Where will support be when the next "catastrophe stopping" bill comes up? The President is roughly at 65% yay with the people now. What about then?
Katy is right. I say:
Pay off the states deficits and let them know with that clean slate... NO MORE.
Yes I'm sorry but shore up our financial institutions because we need them to survive.
Give the American Worker a year off from payroll tax.
Give the in trouble home owners one year off from mortgage payments and tack it on at the end of the mortgage.
If you want to use the word "spend"? Spend on job creation for jobs that will produce and last beyond the handout. Each and every dollar.
OH AND... maybe some strict oversight? Ok, Ok... check in now and then.
Good article. Most of the spending bill is timed out to help
obamas constituents retain office in two years. Even obama doesn't
believe this spending will work. He'd love to spend four trillion.
The whole culture needs to be changed
The bubble markets are part and parcel of the distorted keynesian and inflationist hogwash that has been foisted on our economics students for decades.
Katy-- From an economic point of view something worked as the economy returned to full employment.
Get real-- the only issue is weather or not the government's stimulus is large enough and sustained enough to get us through the very real trouble that lies ahead.
Therefore Govt needs to step in to fill the void. Simple really.