But the United States did precisely this during the Great Depression. Whether or not you believe the New Deal contributed to the recovery, World War II most certainly did aid the recovery. The Federal Government ran huge deficits to fund the war effort, driving domestic production way up. This bought the US the time it needed to repair broken balance sheets. The fact that we were exporting goods (weapons) helped as well. I suppose you could say that you don’t really spend your way out a recession, that you merely mitigate some of the negative consequences and buy yourself time for underlying issues to get worked out. But that’s splitting hairs in my view.
These are my concerns as well, and I believe that neither the Obama administration nor Congress has adequately addressed these issues. They are borrowing to spend now (okay…) without having any real long-term plan regarding how to service that borrowing or pay it off (not as okay). What kind of maximum debt loads can the US reasonably sustain before you really have to hit the panic button? What if your numbers are too optimistic as the CBO claims? Where do you come up with the extra money to service the debt during the recessionary period? (Raise taxes? Monetize debt?) When do you plan to start paying down the debt? Does the Obama PAYGO proposal seek to address any of these issues? (especially the issue regarding coming up with the extra debt service payments). Is PAYGO actually an honest attempt at promoting fiscal discipline?
This is simply not true; you absolutely can have non-stimulative spending. If you pay a man to dig a hole and fill it up again, and then he goes off and saves that payment, this is no different than cutting him a tax rebate check or an unemployment check. If you pay a man to build a car nobody wants, you are worse off overall than just cutting him a check. Not only are you still out the money on the fiscal side of things, you have also wasted the raw materials required to build the car. You can build bridges to nowhere. And so on. Spent money does not automatically move at the average velocity of money just by virtue of being spent. To be stimulative, money needs to be put into the hands of folks that are actually willing to spend it. To preempt the argument, no, I’m not advocating trickle-down economics. But the claim that “any spending is stimulative. Period” is not at all accurate. So the question of whether the $787 billion stimulus plan is genuinely stimulative is a valid concern (although it is not directly related to Obama’s PAYGO since his PAYGO only covers mandatory spending, not spending in aggregate, and only a portion of the stimulus plan is mandatory spending).
In your example, it is not at all a given that the worker will pay for his daughter’s Karate lesson. The worker can also shove it in the bank out of fear of losing his job, where it sits and does nothing because the bank cannot find credit-worthy borrowers to lend to. Or he can deleverage by paying down debt. In that case, maybe it really is better to give the worker a check. Maybe he will think about the money differently, consider it “free money”, and spend it (highly unlikely, given the results of the Bush tax rebate checks). Or maybe you can give him a series of small payments, as Obama is trying to do, in the hopes that the steady stream of small payments will alter the worker’s spending behavior. Or maybe there’s just nothing you can do to make the worker spend money, in which case you should avoid giving him stimulus money altogether beyond making sure he has enough money to eat and pay his bills.
Did you read the New York Times article ArchiveGuy linked in post #52?
The NYT used CBO numbers to assess these deficit projections. Notice the chart on the left and hit play. What do you see? A big spike in 2009 with a return by 2012 to current levels.
“Massive perpetual increase in continuous funding of government programs.”
So you believe people are burying their tax refund in the back yard?
IOW, please produce a cite showing that if you save money, it disappears. Or that the US savings rate is too high. Or that the Bush tax cuts caused a recession from 2003-2008.
Wow…you should write a book! Apparently you are the first person to have a handle on what was and what was not good policy during the Great Depression. Heck, it is debated if WWII was what ended the depression or if it just coincided with it. As far as loans go well, we loaned about $31 billion to Great Britain of which they repaid something like $7 billion (including interest) over the course of 50 years. Hardly a money maker that one.
It doesn’t disappear, of course. I thought you would understand that it does in fact however, not stimulate the economy. Which is what we were talking about.
Please do try to keep up, you’re only embarrassing yourself when you go off on unrelated tangents silly nilly.
Fact: The stimulus was designed to keep us from sliding into a full blown depression. It did this by stimulating the economy.
Fact: Spending stimulates the economy.
Fact: Tax cuts stimulate the economy less than spending, for the reasons I mentioned above, that friend Shodan couldn’t be bothered to read.
Fact: Savings is a generally a good thing. But you shouldn’t be encouraging people to save when the economy is near shutting down.
So Shodan, please don’t characterize my posts in a way that is utterly untrue, okay? I didn’t say any of those things and you would know that if you had bothered to read my post.
You say that “we knew that future cuts will be necessary”, but this is not reflected anywhere. Obama never seriously discussed future cuts or tax increases when he proposed the stimulus plan. Logically, sure, you know that you can’t run a deficit indefinitely, so rationally you will either run a surplus at some point in the future or become insolvent. But there were no discussions of “budget cuts” or “tax increases” in the context of his stimulus proposal at the time it was proposed. If I went to the bank and asked for a loan, telling the loan officer I will pay it off “somehow, at some point, we’ll work out the details later”, I would be laughed out of the bank. No, the bank wants to know what repayments I will make, when I will make them, and how I intend to finance those repayments. Obviously, the analogy is very flawed; the economics of the US Government are vastly different than personal economics. But the point remains that there was no serious discussion of how the stimulus package would be funded at the time it was actually proposed. I feel as though the government was yelling “we need stimulus spending now!” in the early part of this year, only to come back several months later, after the spending has been approved, to say “oh, by the way, we’re going to raise taxes and cut mandatory spending in a bit; we’ll keep you posted.” There is a certain level of disingenuousness here.
Yes, I suppose this is where we disagree. I view his actions as committing to spending first and then working out the future after the fact. I argue that “preparing for the future” should occur at the same time the spending is considered, and before the spending is actually approved.
I suppose this is a sore spot for me, coming from California. In my state, we have a habit of spending first and asking questions later. Spending first and then laying a framework for repayment a few months down the road isn’t that terrible, especially since it was likely that some level of spending would need to happen regardless. But I don’t consider it fiscally responsible to spend first and figure out the fiscal impacts at a later time. And focusing on the repayment side really drives home the fact that you’re really going to pay for your borrowing later, so you had best make every last borrowed dollar count on the spending side. That’s a useful mentality, in my view.
Sorry, I did misunderstand your point.
The reason I expect instant budget solvency to be implemented immediately (okay, in the time it takes to draft, debate, and refine a spending framework that results in balanced budgets) is that “live within your means” is a fundamental financial principle and should be held by all elected officials at all times. And you misunderstand me on this point; I absolutely do not agree that a loophole-free PAYGO system would be sudden and cataclysmic; there should be no loopholes or exceptions. To be clear, I am not advocating that every individual year’s budget must be balanced. I am advocating that, in aggregate, a collection of sequential budgets should be balanced. Just spitballing here, but I don’t believe that it would be financially disastrous to immediately implement a policy such as:
“All projected cumulative outlays for the next ten years must be offset by projected cumulative receipts for the next ten years, with receipt and outlay projections to be updated by the CBO on a yearly basis.”
No exceptions for discretionary spending, no loopholes, just a basic “spend only what you take in” policy. Then you can debate it. Maybe it should be a cumulative restriction over 8 years, or 12 years, or 15. Maybe it should break down spending by mandatory versus discretionary spending. Economists can chime in, politicians can all have their say, whatever. But there should be no way to work around the fact that, over a given period of time, the budget in aggregate must be balanced, no exceptions. With Obama’s proposal, you can reasonably work around the requirements of a long-term balanced budget.
I suppose getting into the stimulus bill is a bit off topic, but since it’s sort of been incorporated into the discussion at this point anyway… My issue with the stimulus bill is that it is not stimulative. It is too small. It is not targeted towards stimulative activities. (Why am I and all my coworkers getting a couple of extra bucks on our paychecks each month? Don’t get me wrong, I appreciate the money, but how does that help stimulate anything? Didn’t we learn from the Bush tax rebates?) It should have only included temporary spending, but instead it also targets programs that are longer-term in nature. As a consequence, it is difficult to release the stimulus money into the general economy quickly, dampening the stimulative effects of the Act. Further, investing in longer-term projects makes it more difficult to cut off funding should it become desirable or necessary (what good is half a train, or a partially-built smart grid?).
I bring up Obama’s stimulative spending proposals and budgets only to counter Obama’s claim that he is “committed to returning our Government to a path of fiscal discipline, and PAYGO represents a key step back to the path of shared responsibility.” Is Obama proposing PAYGO at this time because he genuinely cares about fiscal discipline or because he is merely trying to head-off criticisms against his spending practices, now that the criticisms are becoming more intense? Is he trying to throw a bone out so that he can get people off his back and possibly return to his spendy ways? I have no strong viewpoint either way as yet, although obviously I lean somewhat towards the more pessimistic opinion. I have no idea whether or not, in his heart, Obama believes that big government involvement is his default answer to issues. But the motivations behind his proposed PAYGO proposal, whatever they may be, should be explored in light of his recent spending actions that have at least some appearance of being contradictory to his stated goal of fiscal discipline.
As for PAYGO itself, PAYGO in principle is good. Balancing receipts and outlays in principle is good. Obama’s specific proposed implementation of PAYGO, complete with loopholes and exceptions, does not lead to balanced budgets because you can feasibly bypass the spending restrictions to run up long-term deficits. I’m saying Obama’s particular PAYGO proposal should be discarded as a poor base framework for future PAYGO discussions and legislation.
Really? Savings and investment do not stimulate the economy? Do you have a cite on that?
Because I thought the economy did rather nicely from 2003-2008 due to the tax cuts. I also seem to remember a certain successful Presidental candidate who thought an overall tax cut was a fine idea.
I know he has changed his mind, just like he seems to have done with PAYGO, but perhaps he will get a better understanding once he gets a little experience being God.
And your notion that investment is no help for the economy is not necessarily universally held.
Well, see now - there’s a problem with characterizing this as a “fact”. Could you explain briefly how the stimulus package has pulled us back from depression when none of it has been spent yet?
Well, you were directly quoted. If you didn’t write those things, I suggest you investigate who is posting under your name.
But I don’t blame you for denying that you said them- they do sound rather stupid now that they have been given a brief examination.
Because the Iraq war ends then. Those numbers were coming off anyways and Obama is taking credit for it. The deficit increases again through 2019.
It’s a shell game. Obama has been able to be seen as honest by including the Iraq war in the budget, when the real purpose was to be able to take it off when the war was over and say “Aha! The deficit just went down!”
I’m looking at the numbers strictly in 2019 so that we can’t play games with intermediate dips. What financial crisis does Obama forsee in the year 2019 that gives us the need for such deficits?
What I claimed is that tax cuts stimulate the economy less than spending. Please pay attention.
Please try to think before going off. Were we in a dangerous recession in 2003-2008? You’re simply parroting gibberish. Stay on topic, you can do it.
Please focus, you’re flailing around whipping out random inflammatory rubbish because you don’t have anything relevant to say. Keep focused.
Please try to focus on the thread at hand.
Huh, first off, yes it has. Second off, even if it hadn’t, knowing it was coming down the pipe would certainly spur hiring for agencies planning to use it. Third off, we aren’t out of the woods yet. The stimulus is a break and we’re still sliding towards depression. Please, think before posting.
You aren’t responding to what I’m writing, you’re responding to three of four conclusions down the line you’re drawing from my post.
Please respond to what I’m saying, not what you want me to say.
Comon Sho’ you can actually think and form cogent arguments. I’m sure you can do it!
Agreed on the disingenuousness, but disagree on whether it would have been a good thing to come all out and say “Hey, we better spend a trillon dollars now so that it can stimulate the economy. We’ll tax you later to make it up”. That is basically the short version. Do you really expect any politician to say that? Nobody wants to hear about tax increases, even in the future. For any politician to say that is political suicide, even one as popular as Obama. So I dont begrudge his lack of details in that aspect. When the economy rebounds, we can talk about paying it back. Unlike you, I have full confidence that Obama has a plan ready for just that occasion. When the government is the bank, we can absolute say we’ll work out the details later
Given that we were facing a recession of such magnitude, some out-of-the-box thinking was necessary. I’m in California too, and while our situation isn’t ideal, we were the cause of it. Obama was dumped into this job and this bleak economic climate and the only thing he could do was to keep himself from falling before he could think of climbing up
In normal years, that would work. But Obama didn’t start on a neutral playing field. The economy already tanked and was tanking as he took office. One cannot tread water when one is underwater, you must go up first. Just as Obama could not apply a normal year’s budget analysis to one where the economy was failing, he had to do things this year that he normally wouldn’t do. Only those on the fringe right wing would suggest that Obama would spend almost a trillon dollars on stimulus if everything were going well. This was an aberration, not a trend
You say its too small? I thought you were arguing all this time that it was too much! Sorry, but from your criticism I assumed naturally that you would have been against any stimulus.
I believe a good mix of temporary and long-term projects are necessary. We cant create $700 billion worth of hole-digging jobs can we? Short term is necessary for boosts in the short term. Long term is necessary for stabilization once the economy is back on track. At least that’s how I interpret it.
As for the seemingly incomplete nature of the stimulus, I believe you have to go no further than the Republican Congress. Obama tried to work them in. He won, like he said in that meeting with Congressional leaders, but he brought Republicans in for their input in his plan. What was his reward? 0 votes in the House, and like 3 in the Senate. So yeah, I believe Obama was tossing a bone to them, but they took that bone and still bit his hand. And these were the same people who voted for Bush’s stimulus package just a few months before. Believe me, I’m just as mad about it as you are, but I’m mad for different reasons. I feel Obama should have not taken their crap and just strip out all of the non-stimulus parts of the bill. Biggest tax cut in history? Gone! We need a trillion dollars of spending, not more tax cuts. But given his nature, I expect him to continue to try to work with the Republicans. I’m not as forgiving, and if I were you, I’d direct your anger at the nature of the 2 party political system and the Republicans instead.
I was responding to the claim that Obama’s actions have stabilized the economy by pointing out that unemployment is not only worse they claimed it would be with no stimulus, it was worse than they said it would be without the stimulus. Presumably Obama’s staff that produced those projectionsare even more aware of the difficulty of steering the economy than you or I: thus your the supertanker metaphor is off the point. Nobody, including me, expected the thing to stop on a dime; but it is rather alarming to find that it is in fact speeding up on its way to the shoals.
Unless one excludes the very possibility that the stimulus is backfiring, it has to be conceded that this data point (which is admittedly only one, and a trailing indicator at that) does not bode well.
The claim is that it is stimulus. Fair enough, when the economy is down, you stimulate. For the sake of argument, I’ll concede that there was a pressing need to spend a trillion dollars ASAP. That was what those econimists were talking about – actual immediate spending in the face of a crisis.
But every economist I’ve read anywhere has predicted (or at least was predicting 3-4 months ago) that we’d be bottoming out in 2009 or early 2010, and that we’d certainly be well into recovery – perhaps a sluggish one, but a recovery, with falling unemployment and positive GNP growth – by 2011 or 2012 at the latest.
*That’s *why Obama’s spending is so odious. It’s not just how much he wants to spend, but when. He wants to grow government so big that we’ll be running deficits when the economy is good. Just as Bush squandered boom years while he was in office, when we could have been running surpluses, so too does Obama plan on running deficits when the overall economy is in the black.
Or at least he did – as it now appears he wants to raise taxes to pay for all that. I’m sure that’ll do wonders for a weak economy.
As I’ve already pointed out, immediate, temporary, stimulus is/was one thing. I’m not sure that it is/will work, but put it to one side. It’s not what I am/was bitching about – it’s the long-term, as far as the eye can see, growth of government that I, and I think most fiscal conservatives, are cheesed at.
Yes, I do. Not about the stimulus, but about why we need to keep expanding the government long after everyone expects the economy to have rebounded.
Mr Moto
Let me first apology for asking you for a cite. The fact is, I am extremely busy at work right now, and I don’t really have the time to type this post, let alone discuss this in any detail.
I will say this, however. Your cite spoke of what the tax code is (and not in any detail, although in fairness although I wouldn’t have expected that in this venue) but, as I expected, didn’t cite what US ----particularly large US multi-nationals---- actually pay in taxes.
So you know, I am not politically oriented at all, but if I was I would hardly be considered a George Soros Democratic.
But I would like now to see a credible cite that lists what US corporations actually pay in taxes. IIRC, I think it’s somewhere around 2%, although I may be remembering this wrong.
At any rate, your cite sounds alot like the mindless tripe spewing from the mouths of cretins like Limbaugh and Hannity. (and I am not implying you are a cretin, so please understand that, k?)
My objection is simply this: I hear and see so much rhetoric from both the left and right that is selective and highly distorted.
It look to me that traditionally the Democratics want to tax and spend, and the Republicans want to borrow and spend. (And Obama appears to want to do both.)
So…please show me what US multi-nationals actually paid in taxes in, 2007, for example. Take GE as an example…
Disclaimer: not a Democratic or Republican, and have no agenda to support.
It seems to me that any one of us would be cruising right along if we were given an American Express Gold Card and told to spend like a sailor on leave.
Correct me if I’m wrong (and I might be…) but we were 5 trillion in debt when GWB took office and 10 trillion when he left. (and iirc, was deep in his second term before he vetoed his first bill)
If we were doing “rather nicely” from 2003-2008 in was, in part, at the expense of our kids and grand kids.
Somewhere between 5% and 9% of the stimulus has been spent. That’s about it. Its positive effects are yet to be felt.
But its negative effects HAVE been felt. That’s why it’s entirely possible that to date the stimulus has made things worse. Because the negative effects lead the positive. And whether the stimulus as a whole is a net benefit depends wholly on the ratio between the negative effects and the positive.
Let’s step back and look at the big picture. The economy is in steep recession. The argument for a stimulus is this: We should borrow from our future productivity, and use it to shore up the current productivity. The argument says that if the economy plummets too far, real losses of wealth occur as we lose productive capacity that we would be very happy to still have once the economy starts recovering. The argument is that by putting idle resources to work and putting money in their pockets, there will be a multiplier effect as the money is spent and re-spent multiple times. In the end, even including the cost of borrowing, you wind up with a GDP higher overall than you would have had you allowed so much productive capacity to wither.
And that’s all well and good, and there’s certainly some truth in there, At least, if you’re only look at one side of the issue. And that’s where most Democrat’s policy thinking ends. They are not skeptical of this, because they are biased to liking the solution because it is enacted largely through achieving ends they like - more spending on schools, daycare, health care, community organizing, green energy, etc. What’s not to like?
Well, here’s what’s not to like: There are a hell of a lot of potential bad outcomes here. A lot of ways this plan can go awry and turn out to be a disaster. Among them:
[ul]
[li]The borrowing needed to support this crowds out private borrowing and drives up interest rates. Business borrowing, mortgages and auto loans become more expensive, and that lowers economic activity very fast and very directly. [/li][li]Another negative leading effect is the sidelining of planned spending because of the economic uncertainty added by the government’s ill-defined plans to interfere mightily in the market. Why start a road project now and pay 100% of it, when you might get half paid for by the government when the new stimulus money is allocated. If the government offers a plan to start subsidizing personal windmill construction, starting Jan 1 2010, just what do you think happens to windmill sales in 2009?[/li][li]For the ‘multiplier’ to work, the stimulus money has to be targeted at idle resources. If the money instead lands in the hands of the politically powerful and the politically correct instead of the resources that need it, you’ve now borrowed money and used it to crowd out real productive resources. [/li]
In addition, as the stimulus gets increasingly specific about how the money must be spent, it becomes increasingly unlikely to be targeted to the right places. If you spend billions on a new HSR rail system as a ‘stimulus’, the odds of you being able to hire the engineers and designers for that project from the ranks of the unemployed is nil. Again, you’re crowding out resources. Zero multiplier.
[li]The spending may not be timed accurately, in which case the recession gets even worse as the negative leading effects hit at the worst time, and the positive effects show up as the economy is already recovering, when it’s unnecessary and may in fact contribute to the next bubble. In other words, the spending goes in phase with the business cycle instead of out of phase, and makes the peaks and valleys worst and an overall decline in GDP growth.[/li]
There’s evidence that this is happening right now. Almost none of the stimulus money has been spent, but there are signs of recovery. But government borrowing has pushed up interest rates and added uncertainty, so it’s entirely possible that the recovery would be well underway now had the government not stepped into the mix.
[/ul]
And then even if the spending works, and the economy is in fact stimulated to some degree, you then get to the part where you have to pay for it. Growth is lower, debt servicing costs higher, and there’s a real risk of inflation as the economy recovers. So it’s not clear that the stimulus would have been a net positive in the long run even in this case, if the out-year effects cost more than the gains during the recession.
Long term, the stimulus causes a misallocation of resources. For example, states are being forced to build more schools, and it’s not at all clear there’s a need for them, or how they will be maintained when the stimulus money runs out. This causes a long term reduction in GDP.
Eventually, the debt has to be paid back through tax increases. This will cause a reduction in GDP growth, and the deadweight cost of the taxes makes this inefficent and adds an additional cost to the stimulus.
These are not radical theories. Nobel Laureates like Robert Lucas, Gary Becker, and Vernon L. Smith have been making these arguments repeatedly. Over 200 economists, including five or six Nobel Laureates, signed a petition opposing the stimulus package.
Then there are the political objections, which have nothing to do with the economics of the thing. A lot of this money is going to Democratic special interests. The money brings with it new forms of government control and a faster encroachment by the government into the private sector. Many of us do not see this as a good thing, and in fact think it’s very dangerous to the long term health of the countries that do it. California is a microcosm of the result of decades of that sort of of governmental philosophy.
This is direct evidence of a negative effect of the stimulus. The deficit numbers are scaring investors, who are therefore demanding higher risk premums for U.S. debt. This is pushing up debt servicing costs and the cost of long-term borrowing in general. Mortgage rates have gone up nearly half a point in the last week. That is guaranteed to have a negative effect on the housing recovery.
And this could get much worse. The U.S. has only begun to finance its deficit plans, and it’s already running into confidence problems and weak demand for the debt.
