The Obama Plan

[mraynrand]

I asked/challenged you to state WHY you think there is a difference between tax cut generated/supply side stimulus and spending generated/demand side stimulus.

The spending/demand comes from printed money. That will devalue the currency/buying power of the money. Tax cuts lower the burden on producers and that has been proven over and over to stimulate growth. I can't think of an example where printing money and handing it out has stimulated sustained growth. Give me one example.

[texaspackerbacker]

Aynrand, you are wrong and your logic is flawed in more ways than I can count.

The second sentence of your post simply does not follow. Assuming there is any truth at all to the premise of money borrowed from China, how can you say that leads to people buying Chinese products instead of American? There's no connection at all.

Ever hear about the trade deficit that we have with China? Where the hell do you think people are buying their shit? Look it up. Look at the "made in" labels on everything you buy. Sheesh.

True as that might be, it has no connection to stimulating the economy and deficit spending--whether the borrowing is from China or whoever. Why would that have any effect whatsoever on which goods and services people buy?

I will be interested in reading your response to the rest of the post.

Sigh. would you lend money to someone deep in credit card debt - who had demonstrated outrageous spending practices - just so they could purchase your stuff?

That depends on ability to pay--where I thought I'd see the money I loaned again. Anyway, I reject the premise that America is that "someone".

[texaspackerbacker]

The housing industry "collapsed" was actually just a correction from super high real estate prices, and only that in certain areas where the prices went the highest. It will recover--as real estate always does.

It collapsed because a huge amount of false demand was created and subsidized in the form of low interest ARM loans. Inflated prices led to massive borrowing as second mortgages. Not to mention packaging all those worthless loans as valuable securities. And you basically are supporting the government in taking out a second mortgage on the country.

You still have never defined what you mean by false demand. Either there is demand or there isn't; "False demand" just doesn't compute. If there was any chicanery at all in this, it was the policy of making lending easier for minorities and other under-qualified buyers for social reasons--kind of a de-facto affirmative action thing.

There simply were NOT enough foreclosures, however, for the mortgage securities crisis to be real. It had to be contrived by somebody to bilk the government, and THAT is a political and/or criminal thing, NOT an economic thing.

[texaspackerbacker]

I asked/challenged you to state WHY you think there is a difference between tax cut generated/supply side stimulus and spending generated/demand side stimulus.

The spending/demand comes from printed money. That will devalue the currency/buying power of the money. Tax cuts lower the burden on producers and that has been proven over and over to stimulate growth. I can't think of an example where printing money and handing it out has stimulated sustained growth. Give me one example.

As I said, I am a firm believer in supply side too. The scenario you describe, however, would make supply LEAD demand--producers reacting to money available to increase production based on PROJECTED demand. That is not necessarily a bad thing, but it is less of a sure thing IMO than having demand lead production--which is the case with demand side stimulation. Do you disagree with that?

[mraynrand]

I asked/challenged you to state WHY you think there is a difference between tax cut generated/supply side stimulus and spending generated/demand side stimulus.

The spending/demand comes from printed money. That will devalue the currency/buying power of the money. Tax cuts lower the burden on producers and that has been proven over and over to stimulate growth. I can't think of an example where printing money and handing it out has stimulated sustained growth. Give me one example.

As I said, I am a firm believer in supply side too. The scenario you describe, however, would make supply LEAD demand--producers reacting to money available to increase production based on PROJECTED demand. That is not necessarily a bad thing, but it is less of a sure thing IMO than having demand lead production--which is the case with demand side stimulation. Do you disagree with that?

I disagree with printing money to create demand. If that's a good thing, then counterfeiting should be lauded as well. And I don't think it's wise to let the fuckers in DC decide what should be in demand by how they hand out money - printed or borrowed. And I think it's a terrible idea to hand out money borrowed from the same places where most people will spend it - e.g. China, Japan, and Korea.

[texaspackerbacker]

I asked/challenged you to state WHY you think there is a difference between tax cut generated/supply side stimulus and spending generated/demand side stimulus.

The spending/demand comes from printed money. That will devalue the currency/buying power of the money. Tax cuts lower the burden on producers and that has been proven over and over to stimulate growth. I can't think of an example where printing money and handing it out has stimulated sustained growth. Give me one example.

As I said, I am a firm believer in supply side too. The scenario you describe, however, would make supply LEAD demand--producers reacting to money available to increase production based on PROJECTED demand. That is not necessarily a bad thing, but it is less of a sure thing IMO than having demand lead production--which is the case with demand side stimulation. Do you disagree with that?

I disagree with printing money to create demand. If that's a good thing, then counterfeiting should be lauded as well. And I don't think it's wise to let the fuckers in DC decide what should be in demand by how they hand out money - printed or borrowed. And I think it's a terrible idea to hand out money borrowed from the same places where most people will spend it - e.g. China, Japan, and Korea.

If nothing was relevant except economics, then indeed, counterfeiting WOULD be a good thing. It, of course, is criminal, and it would direct all of the money to criminal elements, probably financing who knows what forms of evil. Economically, though, it would do no harm, and in fact, be a plus.

[Tyrone Bigguns]

Rand I've tried every angle under the sun including the ones you just did. He doesn't get it and never will.

Yep.

Thank god he is playing for your team. Kinda like watching the second of the Jet's season and Favre.

So now you're echoing the three elitist stooges, Tyrone? And after I help you libs out by explaining how your boy's big stimulus plan actually ain't so bad--if you just hold your nose and overlook some of the crap he wants to spend it on. Kick me in the ass for being fair and balanced.

Nope. I am echoing sound economics/math. Something that you a completely lacking in. You never produce any evidence nor do you post any math regarding your analysis...both are pretty much de riguer when it comes to econ.

Speaking of elitism. Do you not see the irony of your statement when you write things like, "I help you libs out by explaining how your boy's big stimulus plan actually ain't so bad"?

[Tyrone Bigguns]

Rand I've tried every angle under the sun including the ones you just did. He doesn't get it and never will.

Yep.

Thank god he is playing for your team. Kinda like watching the second of the Jet's season and Favre.

So now you're echoing the three elitist stooges, Tyrone? And after I help you libs out by explaining how your boy's big stimulus plan actually ain't so bad--if you just hold your nose and overlook some of the crap he wants to spend it on. Kick me in the ass for being fair and balanced.

Yes Ty, allow us to try and tackle Leon before he gets to the endzone, you just stand and watch.

I was thinking Jim Marshall.

[texaspackerbacker]

I don't recall the last time I've even seen any comments from you on economics or anything else worthy of being countered. Maybe it's a lack of intellect, but more likely, you just don't have the balls to stand up for your cause and get shot down.

Math? Like you'd understand it anyway? I've cited solid recent real world examples which have not been countered and cannot be countered to prove the effectiveness of Keynesian economics (this is more for aynrand's benefit than yours, Tyrone). If you think there's any math or anything else to effectively dispute that, bring it on--but of course, there isn't, thus you can't/won't.

Elitist? Looking down on you liberals doesn't count when because you are so consistently down there to look at. Try writing something deserving of respect sometime, and maybe I'll afford you the respect I have for aynrand, Bobblehead, and Howard.

[mraynrand]

I've cited solid recent real world examples which have not been countered and cannot be countered to prove the effectiveness of Keynesian economics (this is more for aynrand's benefit than yours, Tyrone)..

You can't separate the tax cuts from the deficit spending and get sustainable growth. When spending by the government in the form of 'printing money' (any form of handouts actually - whether it be food stamps, healthcare, 0% ARMs, etc) occurs without a supply side stimulus, the results are disastrous. They were for FDR and they are/will be for the Bush/Obama stimulus plans. Every other growth was caused from the supply side. Why? manufactured (fake) demand is not sustainable. If Keynsian economics is reducing the burden of government on producers, then yes, Keynsian economics works. If Keynsian economics is lending money to people with some reasonable down payment and some collateral who are good risks to pay the loan off, then yes Keynsian economics work to expland the economy. If Keynsian economics is the government counterfeiting money then, no it doesn't work. If Keynsian economics is giving counterfeited money to the very entities in the economy that have already demonstrated a track record of failure, then Keynsian economics doesn't work.

And no economy will last long that has a collection of 'Czars' who choose who will be the winners and who will be the losers based on political calculation. We may as well invite Jim Taggart, Cuffy Meigs, and Wesley Mouch to run our economy.

[texaspackerbacker]

You can't separate the tax cuts from the deficit spending and get sustainable growth.

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This is exactly what I've said consistently. BOTH the tax cutting and the spending, even with deficits, even "printing money" stimulate the economy. We clearly had BOTH in the Reagan years and in the GW Bush years.

The disastrous results you speak of came in the LBJ through Carter years when they deviated from the formula and raised taxes. THAT--not the spending--was responsible for the debacle of the 70s I don't honestly remember if FDR raised taxes, but I'm pretty sure he didn't cut them, hence, the relative ineffectiveness of his New Deal. And many think the drastic tax increase--even though it was a tariff--Smoot/Hawley--during Hoover's term triggered the Depression.

Do you dispute the success of the Reagan and Bush II years? I doubt it.

Do you dispute the dual force of tax cutting AND deficit spending--whether by design or not--during those periods? How could you?

Do you dispute that after Kennedy, the Dems, etc. went to "paying for" spending with tax increases? I hope not; It's a matter of history.

Do you dispute the linkage between those tax increases with the disaster of the Carter years? I doubt it.

Then putting that altogether, how could you possibly dispute the POSITIVE effect of deficit spending combined with tax cutting?

[mraynrand]

You can't separate the tax cuts from the deficit spending and get sustainable growth.

-------------------------------------------------------------------------------------

This is exactly what I've said consistently. BOTH the tax cutting and the spending, even with deficits, even "printing money" stimulate the economy. We clearly had BOTH in the Reagan years and in the GW Bush years.

The disastrous results you speak of came in the LBJ through Carter years when they deviated from the formula and raised taxes. THAT--not the spending--was responsible for the debacle of the 70s I don't honestly remember if FDR raised taxes, but I'm pretty sure he didn't cut them, hence, the relative ineffectiveness of his New Deal. And many think the drastic tax increase--even though it was a tariff--Smoot/Hawley--during Hoover's term triggered the Depression.

Do you dispute the success of the Reagan and Bush II years? I doubt it.

Do you dispute the dual force of tax cutting AND deficit spending--whether by design or not--during those periods? How could you?

Do you dispute that after Kennedy, the Dems, etc. went to "paying for" spending with tax increases? I hope not; It's a matter of history.

Do you dispute the linkage between those tax increases with the disaster of the Carter years? I doubt it.

Then putting that altogether, how could you possibly dispute the POSITIVE effect of deficit spending combined with tax cutting?

All the points you make are correct, except that I can't find a single example of where printing money (etc.) and handing it out did anything but harm the economy. Sure, when this type of spending is coupled with tax cuts and massive supply side growth, the effect can be muted; conversely, the effect is exacerbated by tax increases. But on it's own, printing money and handing it out with no strings attached is a disaster.

[texaspackerbacker]

The items you yourself defined as "printing money"--food stamps, government health care (Medicare/Medicaid), and subsidized mortgages even if not all the way to 0%, unless you meant 0% down)--have been going on for more than a generation. Are you honestly going to say these things seriously harmed our economy? I mean, we've all been living pretty well through most of that time period--except when the specter of "paying for it" with tax increases messed things up.

Arguably, we have been just "printing money" ever since we went to having our currency backed by nothing other than government debt instruments--about a half century ago. Has that seriously harmed the economy? I would suggest it removed restrictions to the massive economic growth and progress we have made in that time frame.

[mraynrand]

The items you yourself defined as "printing money"--food stamps, government health care (Medicare/Medicaid), and subsidized mortgages even if not all the way to 0%, unless you meant 0% down)--have been going on for more than a generation. Are you honestly going to say these things seriously harmed our economy? I mean, we've all been living pretty well through most of that time period--except when the specter of "paying for it" with tax increases messed things up.

Arguably, we have been just "printing money" ever since we went to having our currency backed by nothing other than government debt instruments--about a half century ago. Has that seriously harmed the economy? I would suggest it removed restrictions to the massive economic growth and progress we have made in that time frame.

Handouts without condition hurt the economy, hurt those receiving them who don't actually need them, but the damage to the economy is only readily apparent when there are growth killing tax or trade (or other) policies along with them. When Reagan and Bush and Kennedy cut taxes and promoted economic growth by supporting business, excessive spending from the government can be overcome. But the train wreck of spending that is coming, coupled with most likely bad business policy will reveal the foolishness of massive debt spending and money printing - especially if deficit spending goes from the historical average of under 3% of GDP to 10% or more.

[mraynrand]

The Fiscal Stimulus: What Will Work?
Bruce Bartlett 01.09.09, 12:01 AM ET

Last year at this time, Congress and the White House were so concerned about an economic downturn that they agreed in record time to a $152 billion stimulus bill that sent $300 rebate checks to every taxpayer.

The theory was that people would immediately run out and buy $300 worth of stuff; this added spending was expected to give the economy such a boost that a recession would be avoided.

During debate on the legislation, however, several polls showed that only about 20% of people planned to spend the rebate, with close to 80% saying they would save it or use it to pay bills. As we now know, not only did consumption not increase because of the rebate, it actually fell 2.75% in the third quarter at an annual rate. This was the primary reason why overall gross domestic product growth turned negative--all other GDP components were positive.

Back in 1957, economist Milton Friedman explained why rebates don't work in A Theory of the Consumption Function. He found that people generally don't change their spending in response to transitory changes in their income. Windfalls are mostly saved or used to pay down debt and short-term losses are covered by borrowing or drawing down saving. Friedman concluded that people spend largely on the basis of what they view as their "permanent income."

In the years since we have had many tests of Friedman's hypothesis. In 1968, the federal government imposed a temporary income tax surcharge. The idea was to reduce spending in order to dampen inflation. But according to economist William Springer, spending never fell because everyone knew that the surcharge would only be in effect for one year, although it was later extended by a year. Additionally, economist Robert Eisner found that the higher taxes stimulated federal spending, thus frustrating the purpose of the surcharge, which was to reduce aggregate spending in the economy.

In 1975, the government first tried rebates to stimulate growth. Checks for up to $200 per taxpayer were paid out--almost $800 in today's dollars. Economists Franco Modigliani and Charles Steindel later found that less than a fourth of the money was spent in the three quarters after receipt. The rebate only had 38% as much impact as a permanent tax cut of similar magnitude because such a tax cut would have raised peoples' permanent (after-tax) income, according to economist Alan Blinder.

Despite this evidence, George W. Bush decided to send out another rebate in 2001. Treasury Secretary Paul O'Neill, an Office of Management and Budget official when the earlier rebate was implemented, said publicly that another rebate would work no better. Said O'Neill in a March 27, 2001, speech, "Some suggest we send a rebate to taxpayers now and stop there. That's not good enough. I was here when we tried that in 1975, and it just didn't work."

According to journalist Ron Suskind, Bush's top White House economist also opposed the rebate because of its proven ineffectiveness. But Bush dismissed his concerns without explanation.

As was the case 26 years earlier, the 2001 rebate was underwhelming in its impact. Economists Matthew Shapiro and Joel Slemrod concluded that less than a fourth was spent. Even the president's Council of Economic Advisers estimated that only about a third of the money was spent. The most positive analysis of the rebate found that at most 40% of the money was spent in the quarter in which it was received, meaning that 60% effectively was wasted, providing no macroeconomic stimulus.

Thankfully, Barack Obama has rejected the idea of yet another rebate. Instead, he plans to adjust withholding tables to reflect a proposed $500 tax credit ($1,000 for families) that up to 150 million Americans will qualify for. The idea is that people might be more willing to increase their spending when they see an increase in their disposable income on a regular weekly basis than they would if they got a one-shot rebate.

To be effective, however, people must view the new tax credit as a permanent feature of the tax code. As Federal Reserve Bank of New York economist Charles Steindel explains, "consumers will be much more likely to alter their spending behavior if they perceive a tax change to be lasting." The experience of the 1968 surtax shows that temporary tax changes are not effective even when reflected in withholding tables. This fact is also proven by the experience in 1992, when the George H.W. Bush Administration temporarily reduced withholding to give the economy a boost.

Unfortunately, Obama also plans another tax scheme with a very dubious record: a $3,000 tax credit for businesses for each new job created.

A similar program was enacted in 1978, but a report from the Department of Labor's Inspector General during the Clinton Administration urged Congress to discontinue it because 92% of those hired under the program would have been hired anyway. An academic study found that 70% of the credits were payments for workers that would have been hired without them. Despite many efforts to reform the credit, it was eventually abolished in 2006.

In reality, it's very difficult to determine what a "new" job is. And it's hard to prevent businesses from gaming the system--laying off workers, rehiring them later and claiming a credit for job creation. Of course, the government will try as hard as it can to prevent this from happening, but in practice it is almost impossible to do. The primary beneficiaries will necessarily be firms that happen to be hiring for unrelated reasons.

It the near term, it's possible that the prospect of a tax credit for employment will encourage businesses to lay off workers now and postpone hiring. No business wants to hire a worker and find out that if it had just waited a little bit longer to do so it would have saved $3,000 in taxes.

In addition, Obama is planning to extend a tax provision enacted by George W. Bush that allows businesses to depreciate investments more rapidly. However, the effectiveness of bonus depreciation is very much open to question. An analysis by two Federal Reserve economists cites a number of business surveys showing that only about 10% of businesses increased their capital spending as a consequence. The rest were rewarded for investments they were going to make anyway. A Treasury Department study found that a substantial number of firms qualifying for bonus depreciation didn't even bother to claim it.

Of course, Obama isn't only relying on tax policy to stimulate growth; he has plans to increase spending on public works as well. But this may not do much to create jobs this year. Despite claims by the Conference of Mayors and the transportation lobby that there is as much as $96 billion in construction "ready to go," the fact is that it takes a long time before meaningful numbers of workers can be hired for such projects.

As a recent Congressional Budget Office study explains, "Practically speaking ... public works involve long start-up lags. ... Even those that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy."

The prospects for unconventional projects such as alternative energy sources are even worse. The CBO calls them "totally impractical for counter-cyclical policy" because they take even longer to come online.

In any case, the employment impact of public works construction is not as high as generally thought. It is not very labor-intensive, the unemployed don't generally have the required skills, and construction projects don't necessarily exist in places where unemployment is high. The Federal Highway Administration estimates that only 9,536 direct jobs are created for each $1 billion of road construction. Another 4,324 jobs are estimated to be created in supporting industries, and 13,962 jobs from the multiplier effect on other businesses.

It's important to remember that these estimates assume that the public works spending doesn't displace spending that otherwise would occur. As Congressional Research Service economist Linda Levine explains, "Unless there is an increase in total spending ... the number of jobs in the labor market would remain largely unchanged." She also says that induced jobs resulting from a multiplier effect are considered "tenuous."

Finally, the impact of increased public works spending on state and local governments cannot be ignored. Most federal transportation spending goes for projects initiated by them. When they think there is a chance that the federal government will increase its funding, they tend to cut back on their own spending in hopes that the feds will foot the bill. A study by economist Edward Gramlich found that the $2 billion appropriated by the Local Public Works Act of 1976 postponed $22 billion in total spending as state and local governments competed for federal funds and actually reduced GDP by $30 billion ($225 billion today).

There are reports that California and other states are halting highway, school and bridge construction already underway. While it may be that they are simply reacting to a shortfall in tax revenue, it would be naive to think that the prospect of stimulus spending from Washington isn't a factor as well. As The New York Times recently reported, states "are clearly holding out hope that President-elect Barack Obama will pump some federal money into the stalled infrastructure projects, and some may even be delaying work until they have a chance to make the case for federal spending."

In the end, it's harder to stimulate the economy in the short-run than the public and policymakers believe. As economist Paul Krugman has noted, "By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past--and the fiscal stimulus arrives just when it is least needed." I couldn't have put it better myself.

Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. Last week, he began a weekly column for Forbes.com.