Friday, January 23, 2009

Spending Is Stimulative

Last week, House Democrats released an $825 billion economic recovery package, which consists of $550 billion in government spending and $275 billion in tax cuts. Personally I hate this package, because while I believe a stimulus package is necessary, I do not believe the tax cuts should be such a large percentage of the package. Traditionally government spending results in more significant value for the dollars spent than tax cuts do. Still the provisions of the plan were put forward and have been examined and marked up by various congressional committees. The goal of House Democrats was to pass a full stimulus package sometime in mid-February.

Though Republicans at first voiced some support for the stimulus package when President Obama initially laid it out, now they are beginning to snipe and stab.

Conservatives are claiming that they are balking at seeing the size of the bill that emerged from the House. Cry baby, I mean Minority Leader John Boehner made his opposition known by simply saying "Oh. My. God."

Now conservatives are coalescing around "alternative" stimulus proposals like one crafted by the Republican Study Committee (RSC). But as usual in voicing their opposition, conservatives have started to push several lies and myths about the stimulus and its potential effect on the economy.

First and foremost the conservatives on the House Budget Committee released a report stating that the proposal "pours taxpayers' money" into projects, "many of which may be worthy in themselves, but have little to do with 'stimulating' the economy."

Harvard professor Robert Barro derided the plan as "voodoo economics," which is odd since it is actually the exact opposite of the original voodoo economics. Moon bat right-wing pundit Michelle Malkin is claiming that the stimulus will "at most be useless." Why anyone listens to that shrill harpy, I have no idea.

The truth is that an analysis by Moody’s found that government spending results in more significant "bang for the buck." For every dollar invested in specific types of spending, the boost in real GDP is more than $1.30.

According to the analysis the most benefit comes from extending unemployment benefits ($1.64) and increasing food stamps ($1.73), but strong returns result from infrastructure investment ($1.59) and aid to state and local governments ($1.36), as well.

Furthermore, Moody's analysis also notes, "A well-timed, targeted, and temporary stimulus could in fact cost the Treasury less in the long run, since a debilitating recession would severely undermine tax revenues and prompt more government spending for longer."

Mark Zandi, chief economist at Moody's and former adviser to Sen. John McCain's presidential campaign, released his analysis of the House plan on Wednesday, and concluded that it would "provide a vital boost to the flagging economy," without which full employment would not return until 2014.

Minority Leader Boehner is also trying to come out and claim, "When it comes to slow-moving government spending programs, it's clear that it doesn't create the jobs or preserve the jobs that need to happen." Former Massachusetts governor Mitt Romney has said that "even if consumption were to bump up, it would not lead businesses to expand and to add jobs."

Former Secretary of Labor Robert Reich shoots down these talking points. Earlier this week Reich argued that, "The stimulus plan will create jobs repairing and upgrading the nation's roads, bridges, ports, levees, water and sewage system, public-transit systems, electricity grid, and schools."

It stands to reason that investing in infrastructure is going to lead to job creation, as someone needs to be hired to actually complete the various projects. By investing $100 billion in clean energy infrastructure alone, the Center for American Progress has estimated that 2 million jobs can be created in the next two years. Aid to states through bolstering Medicaid also "generates business and gets people into jobs," as a recent report by Families USA showed: "The new dollars pass from one person to another in successive rounds of spending, generating additional business activity, jobs, and wages that would not otherwise be produced."

Council of Economic Advisers Chairman Christina Romer and Vice President Biden aide Jared Bernstein, meanwhile -- by using the "1% of GDP equals 1 million jobs rule of thumb" -- estimated that a stimulus plan will create or save three million jobs. According to their calculations, "30% of the jobs created will be in construction and manufacturing," while "the other two significant sectors that are disproportionately represented in job creation are retail trade and leisure and hospitality."

Republicans and conservatives are again arguing that the answer is tax cuts. The Heritage Foundation, meanwhile, proposed an "alternative" to the House stimulus: "permanent tax reductions such as the ones Congress passed in 2003."

History shows that the tax cuts that conservatives are arguing for as a stimulus for economic growth is "weak at best." An analysis by the Center for American Progress Action Fund shows that every $10 billion spent on this kind of cut would create or save just 10,000 jobs, "versus nearly 60,000 jobs which could be created or saved by extending unemployment benefits and food stamps or investing directly in energy, transportation and education infrastructure." Furthermore, permanent measures will exacerbate the long-term debt much more than temporary measures will.

On a side note the National Republican Congressional Committee has an "issues" page on their website. This website issue page includes, as expected, a page on the "Economy." (Just so you note it's the seventh issue, behind Social Security and Border Security) Why I bring this up is that the web page tells it's readers, "Thanks to Republican economic policies, the U.S. economy is robust and job creation is strong."

Yes you read that right, it actually states that "Thanks to Republican economic policies, the U.S. economy is robust and job creation is strong."

After clicking "read more," we learn all about the NRCC's message on the economy.

According to the NRCC we have Republican economic policies to thank for the state of the economy, which actually I agree with, but they think that the U.S. economy is robust and job creation is strong. According to them the Republican tax cuts are creating jobs and continuing to strengthen the economy. The NRCC's site also explains that if we stray from Republican economic ideas, we will "set back our economy."

Republicans are in another reality.

Lets hope that Democrats wake up and realize that conservatives have no real answers and push forward with a more progressive stimulus package.

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