RSS Feed MenuThe Obama Administration is visibly gearing up for another go at stimulus roulette. At the very best, this is premature. More time should be allowed to see the effects of the massive spending, tax, and monetary policy moves of the past nine months before gambling more of the taxpayers dollars on another “stimulus” bill.
At worst, it reflects a fundamental misconception that the macroeconomy can be managed – and the unemployment rate targeted – in response to political pressure. Policymakers of both parties tried this repeatedly throughout the 1960s and 1970s to no avail; indeed, to the great detriment of the economy. Its only legacy was poor growth and high inflation.
History, however, is the hobgoblin of the politically tone-deaf, so odds are that the pressure to “do something” will be raised in the near future. If so, some fairly clear principles should govern the effort.
Any new stimulus should be debt neutral. As the non-partisan Congressional Budget Office has documented, the Obama budget places the U.S. on a perilous financial track – trillions of dollars of deficits over the next decade and a costly debt spiral that needs to be reversed. Any new stimulus effort should at worst not contribute to this rising debt.
A first step to doing this would be to pay for a 2nd round of stimulus by repealing some of the costly and inefficient spending programs from the 1st stimulus, especially because years remain before the spending actually takes place. The second step would be to make sure that the stimulus is genuinely temporary. A fundamental misstep the first time around was that the Administration enacted large new tax cuts (“Make Work Pay Tax Credit,” “American Opportunity Tax Credit”, etc.) and radical overhauls of health care, energy, the environment, and education in the guise of stimulus.
In light of this, it is especially puzzling that Obama adviser Laura Tyson is calling for more infrastructure spending. It was widely appreciated in January that the infrastructure approach would take years to implement, would be fraught with waste and inefficiency, and is the most likely for Congress to transform from temporary to permanent. This is exactly the wrong mix.
Any new stimulus should also be crafted with a realistic assessment of the roots of the economic duress. The hallmark of this downturn has been asset market collapses – housing,securitized lending, and stocks. Households should and will likely turn to the task of rebuilding their nest eggs, and not powering a spending boom that triggers recovery. No amount of Keynesian “stimulus” will replace roughly $12 trillion in lost wealth and lead to a sustained consumer recovery.
Instead, stimulus efforts should target other players in the economy. Stronger business spending and overseas sales will be needed for a sustained recovery; why not focus stimulus on jump-starting these activities? Building an effective stimulus would begin by doing no harm – theAdministration should back off its anti-competitive international tax hikes and steer health care reform away from expensive and disruptive employer mandates. It could be combined with a payroll tax holiday that frees up cash flow for investment spending, improves employment incentives, and act right away.
Even with good economic policies, the U.S. unemployment rate is likely to remain elevated for an extended period. As the midterm elections approach an overwhelming temptation will likely overcome the political apparatus and stimulus will be raised again. Given what we know, the best solution is to avoid vain attempts at fiscal fine-tuning. More likely, there will be additional stimulus legislation and the goal should be to reverse the mistaken first attempt and provide a lasting impetus to the economy.
ottovbvs // Jul 7, 2009 at 5:03 pm
“The Obama Administration is visibly gearing up for another go at stimulus roulette. ”
………There’s no evidence of this whatsoever other than some comment on the fly from someone very much on the outer edge of Obama’s economic advisory circle and opeds by the usual suspects like Krugman, Reich and co. If this is the sort of evidence on which Mr Holtz Eakin made economic policy decisions while he was in the Bush admin one can understand why it all ended in tears. If Mr Holtz Eakin can produce something more substantial than this flimsy evidence then someone might believe the administration is gearing up for more stimulus roulette. In the meantime we’ll regard it with the seriousness it deserves. I must say this sort of flim flam doesn’t do much for your reputation Mr Holtz Eakin. I thought you were a serious economist not a bearded version of Larry Kudlow.
barker13 // Jul 8, 2009 at 9:14 am
Doug,
All I can tell you is that I was against the Bush/RINO “stimulus” of Bush’s first year in office, I was against the Bush/Pelosi/Reid “stimulus” of ‘07 (or was it ‘08?), I was against the Obama/Pelosi/Reid “stimulus” of this year… and I’m against further “stimulus.”
Can’t make it any clearer than that.
(*SHRUG*)
BILL
ottovbvs // Jul 8, 2009 at 9:48 am
“Bush/Pelosi/Reid “stimulus” of ‘07 (or was it ‘08?), ”
…….It was 08. The recession started in December of 07 although it wasn’t technically defined as such until later in 08 . But by the spring of 08 it was becoming apparent that the country was facing a downturn, the housing market was tanking and Bear Stearns fell off the cliff, although the severity and extent of the problem wasn’t recognized or maybe acknowledged. Kudlow and all the conservative pundits including Holtz Eakins btw were still invoking Goldilocks. The Bush admin realized they had to prop up demand so they handed out the $250 checks. It wasn’t the most effective stimulus but without it the crash would probably have occurred in the summer rather than the fall. The crash was unavoidable and it was the most serious financial crisis and most serious recession by every measure since the great one. Now the administrations of Bush, Obama and the Fed could have ignored the problem and let the whole financial system to collapse and the entire economy with it or they could rescue the financial system by injecting govt money and maintain aggregate demand by substituting govt spending for consumer spending. No one disputes this is costly but it’s either that or risk a repeat of the thirties. For some reason which seems to be a bizarre compound of ideology, ignorance and stupidity, there are those who seem to think allowing history to repeat itself is a good idea. Masochism, nihilism who can explain it. Now, at least, since we have a new administration their task has been become easier because they can blame the cleaners rather than those that blocked the toilets in the first place.
barker13 // Jul 8, 2009 at 12:44 pm
Re: Ottovbvs // Jul 8, 2009 at 9:48 am –
“But by the spring of 08 it was becoming apparent that the country was facing a downturn, the housing market was tanking and Bear Stearns fell off the cliff, although the severity and extent of the problem wasn’t recognized or maybe acknowledged.”
Otto. We’re actually on the same page with regard to sneering at the “elites” and “experts” who were cheerleading our descent into unsustainable debt. Thing is… for what it’s worth… some of us did see it coming WAY before ‘08… WAY before ‘07.
The patterns were there. The underlying realities were there. (*SHRUG*) And you know what…? They’re STILL there. (Which is why I say we’re doomed.) (*SHRUG*)
“Kudlow and all the conservative pundits including Holtz Eakins btw were still invoking Goldilocks.”
Again… we’re on the same page. Kudlow would drive me NUTS with his bullshit. I mean, here in a nutshell was Kudlow’s day to day spiel:
The markets rose… GREAT NEWS!
The markets fell… GREAT NEWS!
Unemployment is down… GREAT NEWS!
Unemployment is up… GREAT NEWS!
(You get the point. To Kudlow everything was a silver lining, bad news in the short term would be rationalized as actually good news in the long term. Kudlow is a natural born used car salesman; flood damage, what flood damage – the car was recently… er… washed. Yeah… that’s it…)
As to Doug here… except for the pages of NM I’m not a follower of his writings. I’ll take your word, though, that he’s been a “Kudlow type.”
(Doug – feel free to defend yourself.) (*SHRUG*)
“The Bush admin realized they had to prop up demand so they handed out the $250 checks.”
Otto. Economic voodoo is economic voodoo no matter which president is supporting it.
Oh… and you wanna bet on what the Democrat’s reaction to the “Bush” “stimulus” checks was…? I’m guessing if we were to research it, we’d find that the Democrats’ main complaint was that Bush wasn’t sending LARGE enough checks; I doubt they were complaining about the checks in and of themselves as I am complaining about them. (*SHRUG*)
“It wasn’t the most effective stimulus but without it the crash would probably have occurred in the summer rather than the fall.”
Isn’t there a blog called “Hot Air?” Otto. You’re entitled to your… er… assertions… but there’s simply no factual support to them. The only thing we know for sure about government giveaways of monies they have to borrow in the first place before giving it out is that the “stimulus” becomes an unfunded future liability tacked on to existing deficits/debt.
“The crash was unavoidable…”
We agree. What I believe is that we should have let it play out.
“The crash was unavoidable and it was the most serious financial crisis and most serious recession by every measure since the great one.”
(*SMIRK*) Oh, jeez, Otto, give it a rest. You’re older than me for Christ’s sake! We both lived through the Nixon/Ford/Carter years and the year and a half it took Reagan and Volcker to turn things around. Things are nowhere near as bad for the average American now as they were at the height of stagflation.
That’s the GOOD news. The BAD news… we’re heading back to those days – heading there full steam ahead. And this time… there’s no Ronald Reagan waiting in the wings ready to rescue the nation.
“…let the whole financial system to collapse and the entire economy with it or they could rescue the financial system by injecting govt money and maintain aggregate demand…”
BLAH-BLAH-BLAH-BLAH-BLAH!
Folks… it’s that sort of blather – that sort of doomsday rhetoric – that got us in this mess to begin with.
I know on the one hand I’m preaching to the choir and on the other hand I’m talking to the “Otto contingent” (aka: Bush’s policies were terrible when they were Bush’s policies, but now that they’re Obama’s policies they’re the only thing standing between America and Armageddon), but for Christ’s sake… just try to think LOGICALLY about the psychobabble Paulson/Bernanke/Geithner have been spouting and ask yourselves… how’re their theories working out?
“…a bizarre compound of ideology, ignorance and stupidity…”
Don’t be so hard on yourself, Otto; you’re obviously ill… not “bad.” I hear they’re making tremendous strides with pharmacological and one on one and group therapy nowadays! You know what Obama says… “Where there’s HOPE…”
(*WINK*)
“…allowing history to repeat itself…”
Again. Not gonna happen. Unfortunately, there’s no Reagan/Volcker on the horizon. Furthermore, as I’ve noted time and again, America 2009 ain’t America 1982 – we just don’t have the manufacturing infrastructure and relative strengths we did back then.
Bush… the RINOs… and the Democrats have put paid to the American dream. Oh, sure, they’ll be ups as well as downs in the years, the decades, to come, but overall trend… it’s all downhill from here on out.
God help us.
BILL
ottovbvs // Jul 8, 2009 at 1:10 pm
barker13 // Jul 8, 2009 at 12:44 pm
“some of us did see it coming WAY before ‘08… WAY before ‘07.”
………So did I which is why I liquidated all my investments at the end of 2007
“As to Doug here… except for the pages of NM I’m not a follower of his writings”
……..He would sometimes pop up on Kudlows Goldilocks fests and pen optimistic opeds in the WSJ.
” Economic voodoo is economic voodoo no matter which president is supporting it”
……..Voodoo economics, to use Bush pere’s phrase, is supply side economic…..Stimulus checks are Keynesian economic theory
……….I’m sorry barker you’re entitled to your opinion about the seriousness of of the financial crisis but it doesn’t accord with the facts….BLAH BLAH BLAH doesn’t constitute a serious response………Nor did I ever criticize Bush/Paulson for the actions they took when the spaghetti hit the fan….in the main they were entirely appropriate which is more than can be said for most of what occurred in the preceding seven years……And of course it’s now not going to happen because we’ve just spent a couple of trillion averting it
…….I’ll ignore the usual personal insults that are inevitable part of your commentary and just say you know next to nothing about economics or business…..I’m afraid it’s awfully obvious…….the nihilism is amusing to begin with but rapidly begins to pall.
barker13 // Jul 8, 2009 at 2:54 pm
Re: Ottovbvs // Jul 8, 2009 at 1:10 pm –
(*SMILE*)
So… we each think the other’s supposed ignorance is obvious.
(*CRACKING UP*)
Hey… I propose a ceasefire for one round here. Let’s pause for a moment and both agree that these “contributors” of Frum’s who throw out their self-perceived wisdom yet refuse to engage with you, me, or indeed any of us “common folk” are by and large self-evidently… CLOWNS.
Can I get an “amen” on that…?!
(*WINK*)
At least you and I have the balls to call ‘em as we see ‘em and take actual solid “yes or no, pro or con” positions on specifics.
BILL
sinz54 // Jul 9, 2009 at 1:08 pm
ottovbvs sez: “For some reason which seems to be a bizarre compound of ideology, ignorance and stupidity, there are those who seem to think allowing history to repeat itself is a good idea. Masochism, nihilism who can explain it.”
It was nihilism.
What I was hearing from some of the conservatives in the House, and from blogs like Michelle Malkin’s, was that the entire mixed-economy edifice was about to collapse as it should. That it’s senseless to continue to prop up a semi-socialist society. So “let it burn” (their words)–after that we free-market advocates will return to rebuild America!
Some of them referenced “Atlas Shrugged,” in which the free-market proponents return from Galt’s Gulch after America collapses, and they begin to rebuild society along capitalist lines.
barker13: We came within an inch of having the entire global money market sector collapse. Without commercial paper, industries couldn’t be paid, payrolls couldn’t be paid, etc. The network of ATM machines would have failed. The bankruptcy of money market funds would have destroyed Americans’ confidence in Wall Street for many years to come.
To his credit, Bush saw that this was not just another recession or temporary Wall Street correction.
ottovbvs: The Commodity Futures Modernization Act of 2000, which removed SEC oversight from Credit Default Swaps and allowed that Ponzi scheme to eventually dwarf the entire GDP of the U.S., was signed into law by President Clinton.
barker13 // Jul 9, 2009 at 2:21 pm
Re: Sinz54 // Jul 9, 2009 at 1:08 pm –
“Barker13: We came within an inch of having the entire global money market sector collapse.”
(*ROLLING MY EYES*)
So you keep insisting. With NO evidence. With no EXAMPLES.
Hey, Sinz… you know anything about the Recession of 1921?
(*IMAGINING SINZ GOOGLING “RECESSION OF 1921″*)
Oh… here: http://en.wikipedia.org/wiki/1921_recession
(*SMIRK*)
Folks… see… this is why we’re doomed.
Relatively speaking… Sinz is one of our “bright bulbs” here on the kind of site frequented by relatively knowledgable politically and economically interested Americans.
And yet Sinz buys the most ridiculous economic and environmental fearmongering as if it were gospel.
We’re screwed. We’re so frigg’n screwed.
BILL
ottovbvs // Jul 9, 2009 at 3:19 pm
sinz54 // Jul 9, 2009 at 1:08 pm
“It was nihilism.”
……….It is but they are simply too ignorant to understand the consequences….it’s the equivalent of all the keyboard warriors plotting grand strategy in Iraq.
” The Commodity Futures Modernization Act of 2000, which removed SEC oversight from Credit Default Swaps and allowed that Ponzi scheme to eventually dwarf the entire GDP of the U.S., was signed into law by President Clinton.”
……….And it’s principal architect was Phil Gramm and bunch of far right senators who passed it in a Republican controlled congress…..Not that I think it’s awfully material…..it was a factor but not the “deciding” factor……..The SEC was completely asleep at the switch anyway no matter what powers they had (and they had plenty) or didn’t have…..This belongs in the file headed “it was all Barney Frank’s or Acorn’s fault” ……. The crisis has it’s origin in four basic factors in this order: cheap money, lax regulation(in which the commodities act was a minor piece of the jigsaw), reckless banking practices, and deficit spending…..that’s it……Read Judge Posner’s book…..I don’t agree with all the conclusions but it’s a great narrative of what happened……of course Barker says it was all imagined which of course is why govt’s around the world have laid out trillions to put their banking systems on life support which they are just starting to come off.
ottovbvs // Jul 9, 2009 at 3:23 pm
barker13 // Jul 9, 2009 at 2:21 pm
…….Another epistle from Bellevue