Category Archives: Stimulus

Power, Always Power

Tonight I picked up a book that has been sitting on my shelf for some time, taunting me: Peter Heather’s The Fall of the Roman Empire. Heather has a crisp, easy to read prose style, lightened by occasional flashes of dry wit. The subject matter is of interest, at least to this old history major. Good book.

There’s a sentence early on (p. 19) that made my mind wander to the stimulus package currently before our own Senate.

Disclaimer: I have a dim view of the stimulus. But I don’t see it as an existential threat to society. Thousands of years from now, when some future historian writes The Fall of the American Empire, I doubt that the word “stimulus” will appear in its pages.

All Congress and the President are doing is slowing down the economy temporarily. A bad thing, yes. The decline of our civilization? No.

Why the connection to Rome’s decline, then? Heather speaks to something that doesn’t change a whole lot across time or space: human decency. His simple, profound sentence reads, “Ancient Roman society held that you should not attempt to control others until you could control yourself.”

Ignore that “Ancient Roman society” part. It doesn’t much matter. The bit about control does. At heart, the stimulus is an assertion of control. That’s why it came to mind so readily. Congress is saying, “we know how to run the economy better than the people do. Therefore we will.”

Yet Congress cannot control itself. President Obama’s hopes for a clean bill have proven futile. Billions of dollars in pork projects are making the stimulus even worse for the economy than a clean version.

Congress really must learn to control itself before it attempts to control others. Decency demands it.

Least Objectionable Legislator Awards: Bipartisan Edition

CEI’s Wayne Crews occasionally bestows “Least Objectionable Legislator” awards when Congress critters do good things. I have two nominations of my own, one Democratic and one Republican.

The Democrat is Rep. Jim Cooper of Tennessee. At a previous job I had the opportunity to occasionally work with him and his staff. I found him to be more open-minded than most partisans, and more willing to buck his party leadership when he thinks they are in the wrong.

He gets his award for his recent remarks about the stimulus. President Obama wants a “clean” bill, meaning free of earmarks and other trickery; the House version of the stimulus is decidedly unclean.

Rep. Cooper has publicly taken Obama’s side, and voted against the bill. Leadership is furious. He is sticking to his guns, possibly at great professional cost. Well done, Rep. Cooper.

The Republican nominee is Sen. Tom Coburn of Oklahoma. He has been a thorn in the side of both parties for years. Not only is he adamantly anti-pork, he is crafty enough to use Senate rules to make his point as irksomely as possible.

Sen. Coburn also co-sponsored the bi-partisan Federal Funding Accountability and Transparency Act of 2006 with then-Sen. Obama. It created USAspending.gov, which attempts to make it easier for the public to track where federal taxpayer dollars are spent.

The stimulus contains the largest earmark ever: $2 billion for FutureGen Industrial Alliance, Inc, of Illinois. Recall that the “Bridge to Nowhere” earmark that led to the end of Sen. Ted Stevens’ career cost barely one tenth that.

Sen. Coburn has offered an amendment to eliminate this earmark from the bill. But that’s not all. Another Coburn amendment “would prohibit any funding provided by the stimulus bill to be spent on casinos, museums, golf courses, stadiums, parks, or highway beautification projects.” The stimulus is supposed to create jobs; such projects don’t.

Coburn’s amendments usually fail. I expect the same fate of these latest Coburn amendments. But at least he’s trying; most members couldn’t be bothered.

Congratulations, Rep. Cooper and Sen. Coburn. Keep up the good work.

2010 Election: Can Everyone Lose?

The House stimulus vote did not contain a single Republican “yes” vote. Andy Roth thinks that “Democrats now ‘own’ this massive spending bill.”

Maybe the public will see it that way. If they do, that would be a coup for Republicans, akin to the Clinton health care debacle in 1994. If they succeed in labeling Democrats as the bigger-spending party, they’ll probably gain seats in 2010.

All this political maneuvering got me thinking. The Republicans’ main selling point is that Democrats are unfit to govern. They’re right.

The Democrats’ main selling point is that Republicans are unfit to govern. They’re right, too.

Sometimes I think it’s a real shame that elections have to have a winner.

Stimulus and Taxes, Part Two

When taxes are cut and spending isn’t, future taxes go up. It’s the only way to pay off the resulting debt. That’s why the stimulus plan’s tax cut isn’t really a tax cut.

CBO just came out with a number for this future tax increase: $347 billion. (Hat tip to Katherine Mangu-Ward)

Wait, hold on a minute. I missed something. Actually, that’s just the interest payments on the debt from the stimulus package.

Just the interest payments. $347 billion.

Wow.

That’s going to be a pretty big drag on the economy. Maybe this stimulus isn’t such a good idea.

Tax Effects of the Stimulus Package

Christina Romer and Jared Bernstein’s January 9 report on “The Job Impact of the American Recovery and Reinvestment Plan” marshals an impressive array of theory and data in support of President Obama’s stimulus package.

Some of their tax analysis seems suspect, though. On page 5 they write, “tax cuts only have effects [on employment] when people go out and spend money.” Sounds reasonable enough. If people don’t spend money, they save it. And people save most of their tax cut windfalls.

But the only way for saved money to have no effect on the economy is to keep it under a mattress. And very few people do that.

Most people save their money in a bank. Or they invest it. The banks spend the money by lending to businesses and homebuyers. They in turn spend the money on their own projects. Companies receiving investment funds spend the money on salaries, capital, and so on. Saved money is still spent, you see. Just by different people.

There is no reason for saved money to create fewer jobs than spent money. Different jobs, certainly. But more or fewer? No compelling theory points in either direction. It depends on what it’s spent on.

The long-run effects of tax cuts are a little trickier. The stimulus package will increase spending. Deficits, too. So really, the tax cut… isn’t. Deficits have to be paid back. That requires higher future taxes. Lower taxes now mean higher taxes later.

Higher government debt also crowds out private investment. Every dollar that investors put in government bonds is a dollar not invested in the private sector. Hard to tell what the net employment effects are. Depends on what the investment opportunities are.

Maybe the stimulus package is a good idea. Maybe it isn’t; I have a strong hunch it isn’t. As regards tax policy, Romer and Bernstein’s report sheds little light.

The Economist as Sisyphus

President Obama is now claiming that unemployment could climb above 10% without his stimulus program.

This is a weird claim. For every job the stimulus creates, some other job disappears. Suppose one of those jobs pays $50,000 per year. That is $50,000 that taxpayers now do not have to spend. The less they spend, the fewer jobs that their spending can create.

By its very nature, the stimulus cannot create anything, at least on net. It has opportunity costs at least equal to any benefit it has. Add in transaction costs, and the economy stands to worsen from the stimulus. That’s why Obama’s claim is such an strange one.

All this has been said a million times, here and elsewhere. But according to polls, 56% of Americans still don’t get it.

Is it the economist’s job to repeat himself until that figure improves? Or is that a Sisyphean task? Opportunity cost ignorance goes back to at least the Roman Empire. There is no compelling reason to be believe it will ever go away.

Stimulus Package: Maybe It’ll Work This Time?

The Hill says to expect an economic stimulus package after the inauguration.

Two quick thoughts. One: it won’t work. Any money the government injects into the economy must first be taken out of it. Congress can’t “stimulate” anything, no matter how hard they try. They simply can’t create new wealth. All they can do is redistribute wealth that already exists.

Two: media coverage. When President Bush tried a Keynesian stimulus package, it was widely panned. Left and Right came together to say that Bush was wrong. And he was.

Today, a different man wants to do the same thing. He is just as wrong now as Bush was then. But unlike last time, the media isn’t calling out Obama’s mistake. They’re cheering for him. It seems the only people expressing skepticism are economists and right-wing partisans.

The partisans can — and should — be dismissed. But I’m beginning to think some of them may have a point when they grumble about the media’s kid-glove treatment of President Obama. Politicians are to be treated with skepticism; President Bush’s approval ratings are a good thing.

The country will eventually find out that President Obama is a politician like any other. My fear is that we will learn the hard way. Here’s to hoping the Obama honeymoon is a short one.

Three Million Jobs?

President-elect Obama is now promising to create three million jobs. He had earlier promised 2.5 million.

If successful, Obama would become the first president in U.S. history to create even a single job.

He forgets that his plan has opportunity costs. It can redirect wealth. But it won’t be creating wealth. Every worker screwing in energy-efficient light bulbs is a worker that can’t be doing something else. The money used to pay these workers’ salaries must be taken out of the economy before it can be put back into it.

These jobs will be touted in press releases and the evening news, of course. But don’t expect very many people to point out that they will not actually be new jobs. Just different jobs.

Much of the necessary spending will be financed by debt. Every dollar lent by investors to the government is a dollar that now cannot be used for private investment. Obama’s program cannot create new opportunities on net. It will crowd out other opportunities.

There is plenty that Obama can do to make it easier for others to create jobs. Regulatory compliance costs are now higher than Canada’s entire 2004 GDP, for example. Identifying regulations that hurt more than they help — and repealing them — could do a world of good. But no president can create a job. By the very nature of government, the president must taketh away before he can giveth.

The Cost of Regulation

Wayne Crews and I have a piece in today’s Investor’s Business Daily about the extent and cost of regulation.