The stimulus plan will not work

By Richard Leonetti,
Oregon Tax News, Article link

The stimulus package being discussed, now, I believe is too much. Spending beyond just the “safety net” (unemployment, health payments) is not going to be cost effective. Great politics but lousy economics.

Tax rebates will be saved, not spent, just as they were with the earlier stimulus. No one will hire for a tax credit: they either have jobs available or not. In fact lower wages would take long periods to show up in lower prices and more hiring. Infrastructure spending given to states etc., are usually very slow to happen and then only with high costs from the states overhead and Davis Bacon requirements. Generally poor investments compared to what private sector entities would make if funds are not taxed away from them.

Protect the unemployed workers, but don’t try and spend to create jobs. IT HAS NEVER WORKED in a cost effective manor.

And lastly, keep in mind the increased debt service costs that all this increased spending would cause. Those amounts are significant and would crowd out other needed spending for years to come.

  • John Fairplay

    One guarantee: Our great-great-grandchildren will be paying for the mistakes of the Obama Administration.

  • Rupert in Springfield

    What would be an interesting point is to calculate the point of no return on this nonsense.

    In the case of a jet, once it passes a certain distance from its departure point, it doesn’t have enough fuel to return to that point and must continue to its destination.

    With the foolishness in Washington, at some point we will have spent so much money that should it not effect the economy as hoped for, our country will be unable to pay the debt charge, much less the principle, and thus will collapse.

    It would be an interesting calculation to see. Prior to all of this interest on the debt was something like 20% of the federal budget. When that interest rises to 100% the country is over and I suppose at that point we simply get used Beijing being the seat of government and DC and the various state capitols being turned into parking lots or something.

    Frankly I think that point might come sooner than 100%. Should interest grow to 70% of the federal budget, you now have no funds for entitlements and welfare. This would result in tremendous social upheaval. Above 70% you start eating into your defense budget. We would have zero resources to defend ourselves and its a safe bet we would soon see foreign troop carriers off our shores.

    The economic geniuses have proven wrong so far and the continued decline in the markets is all the evidence one needs to assess the peoples confidence in spending our way out of this. Nevertheless Obama is going to spend more on public works projects, a solution we know doesn’t work from Roosevelt’s past experience. I don’t think we have reached the point of no return in terms of money, but we are close. Unless we have some change in thinking in Washington, we might very well have reached the point of no return in terms of ideas.

  • dean

    John F writes: “One guarantee: Our great-great-grandchildren will be paying for the mistakes of the Obama Administration.”

    I think you meant BUSH administration John? After all, he managed to double the accumulated national debt in his 8 years, and I’m not sure if that counts un-budgeted war spending. And it clearly does not count the medical care our vets will get for decades.

    Rupert…in the 08 budget 9% of spending is on interest for the national debt, not 20%. I’m not sure if that 9% is for the entire accumulated debt, but that appears to be the case.

    Most of the money being borrowed right now, and in the near future, will be at 0 or near 0 percent interest. Apparently investors think the dollar is the safest thing out there, not a bad calculation when the stock market has lost 40% of its value in 12 months.

    The calculation being made, and its not just by Obama and liberal econonmists but also by many if not most conservative economists, is that the danger of sliding into a long term deflationary cycle is greater than the danger of inflation or dollar value loss from over borrowing. When you have a lot of able-bodied and minded people out of work (mostly laid off by the private sector) you have a lot of slack in the productive capacity of the economy. Tacking up that slack with government spending is classic Keynsian economics and is not inflationary. The larger danger is Obama is being too cautious and is not going to spend enough fast enough to stop the slide.

    We know massive government spending DOES work because that is what World War 2 proved. Roosevelt never spent enough prior to the war, and when he tried to balance the budget in 37 he eneded up creating a recession within the depression. Look it up.

    Longer term…a return to balanced budget, last experienced under Clinton, is going to be needed.

    • Anonymous

      Dont you just love how Dean is now 100% for deficit spending now that it’s Obama doing it?

      Dean, you are such tool.

      • Rupert in Springfield

        Yes, I kind of noticed that as well. Who’d have thunk it? Deficit spending under Bush, bad, Deficit spending under Obama good? surprise surprise surprise.

        However it does look like I was wrong with the 20% figure, which is now quite out of date. As near as I can find servicing the debt is between 7 and 13% of the Federal budget depending on what one counts as interest on the debt.

        Anyway, the one thing of note is apparently there is still one person out there who still believes in Keynesian economic theory.

        Good Ol John Maynard’s theories sure didn’t work during the depression, we had seven long years of New Deal nonsense to test them and we all know how that panned out. But what the hell, I guess some people still stick with him.

        Oh well, things were going good until we hit the recession. Hmm, when did that start again? Oh right, when the Democrats took over congress. Gee, weird.

        Anyhoo… none of this does a lot to answer the question at what point we will reach the point of no return. 0% interest merely delays that point, that is unless you think when the bill comes due the government will be able to pay off all those 0% principles. Ha Ha Ha Ha!

  • Anonymous

    Add bonds, the great depression and WWII to the limitless list of things Dean knows nothing about.

  • d

    In 1936, unemployment was 16.9 percent, By 1942 it was 4.7 percent, strongly indicating that it was war spending that made the difference. Few if any economists disagree.

  • Jerry

    Of course it won’t work. This guy doesn’t know the first thing about free market economics.
    Massive spending DOES NOT work and it NEVER has. Some future generation always paid the price.

    • dean

      Jerry…I guess most economists don’t know anything about the free market either because they support the stimulous.

      Is it your opinion that the massive spending by the government on borrowed money in the 1940s did not end the depression of the 1930s?

      • Rupert in Springfield

        Most economists support the stimulus?

        Uh oh, what is that statement based upon?

        I sure don’t see the economists in the stock market supporting it, where’s the rally? I mean if they were all into the stimulus, you would sure see stock prices rising. Wouldn’t faith in the stimulus have led to a rally? Oh no, wait, the stock market plunged right after round one was passed.

        Hmm, where else can we look?

        Well, I sure don’t see too many economists with major corporations having a lot of faith in the stimulus. Anyone out there seeing many big companies hiring? I mean they would be if they thought the stimulus was going to work right?

        Ok, so not a lot of faith in the stimulus there.

        Anyway, let me get out my crystal ball.

        I can predict certain things you know, and unlike certain computer models I am 100% right, every single time on some of these predictions.

        I am saying here and now, and I will take all comers on the following predication ( the minimum bet is $100 by the way )

        Rupert’s Prediction:

        Outcome one – The economy rallies and we are all sitting pretty in short order.

        Stimulus advocates response – See, Keynesian government spending works!

        Outcome two – The economy does not rally and we are now heavily in debt.

        Stimulus advocates response – See, Keynesian government spending works, it was just not fully funded, we needed to spend more!

        This prediction with liberal behaviour works with everything except defense spending. To a liberal, there is no such thing as a fully funded program, outside of the defense department. Thus any time a program fails, “not fully funded” can always be used as a culprit.

        Try it, it works every time!

        • dean

          Calls for $1 Trillion Stimulus Package Grow as Economy Tumbles
          By Rich Miller and Matt Benjamin

          Dec. 4 (Bloomberg) — The one thing that isn’t shrinking in the U.S. economy these days is the size of the stimulus package that *financial experts say* is needed to turn it around.

          With automobile sales dropping, payrolls plunging and manufacturing contracting, *economists from across the political spectrum* are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.

          Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size.

          “They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.

          Stock market traders are not economists Rupert. They are…traders. If they think they can make money tomorrow they buy stocks today. if not they sell them. What they think or don’t think about the stimulus will be known to us after something actually passes, not before.

          Also I will point out you just morphed “most” into “all.” Considering your weeks long obsession with claiming I had done the same thing, you should be more careful.

          Major corporatins are lined up like hogs to the trough to get the stimulus shaped their way. Car companies (old hat) home builders, steel manufacturers, highway contractors….you think they are AGAINST this? You are not paying attention. They can’t sell stuff to unemployed or verge of being unemployed people, and they can’t make money unless they sell stuff.

          What can safely be predicted:
          1) A stimulus bill will pass, and right soon after January 21
          2) The economy will remain crappy for the next 12-18 months
          3) The accumulated debt will go up by another 1-2 trillion, adding to the $6-7 trillion added under Bush’s 8 years of happiness.
          4) A lot of public stuff will get built and/or repaired. Some of that stuff will be next to useless, but most will be useful.
          5) A lot of people who otherwise would have been unemployed will be thus working.
          6) Conservatives will whine about all of the above, the media’s reporting on it, and then some, regardless of how this all comes out. If it comes out well, they will take credit or say the stimulus was never needed in the first place since capitalism always corercts its excesses.
          7) They will also say we need a tax cut to reign in biggubment.

          • CHris McMullen

            Hell, if Bloomberg publishes it, it must be true.

            News flash Marxist: Bush is a big government president.

          • Rupert in Springfield

            >Stock market traders are not economists Rupert. They are…traders.

            Mutual funds, index funds etc. do not have economists in their employ? I’m quite surprised.

            My point is sure, most notable economists do seem to support the stimulous. However the economists that matter, those that run corporations mutual funds etc. or trade on wall street sure dont seem to endorse them if their actions are any guide.

            >Also I will point out you just morphed “most” into “all.” Considering your weeks long obsession with claiming I had done the same thing, you should be more careful.

            Well, if you are going to point it out you might want to actually do so.

            where did I morph “most” into “all”?

            And by the way, it is not a weeks long obsession, its simply a statement about an argument style of yours when I observed you d basing an entire argument on the idea that the word “all” meant the same as “several”. Basically you attempt to counter an argument with the assumption that if someone subscribes to some things, he subscribes to them all. Its never worked, but you do have to admit you attempt it fairly regularly.

            Anyway, where did I do the morph?

            >you think they are AGAINST this? You are not paying attention.

            Nope, I never claimed corporations were against the stimulus. I’m not sure where this popped into your head from.

            Are you trying another diversion you sly boots you?

            >1) A stimulus bill will pass, and right soon after January 21

            I agree totally.

            >2) The economy will remain crappy for the next 12-18 months


            >4) A lot of public stuff will get built and/or repaired. Some of that stuff will be next to useless, but most will be useful.

            And all will be overpriced, thank you Davis Bacon!

            >5) A lot of people who otherwise would have been unemployed will be thus working.

            And a lot of people will be unemployed due to tax increases to pay the bloated Davis Bacon wages of these make work projects.

            >6) Conservatives will whine about all of the above, the media’s reporting on it, and then some, regardless of how this all comes out.

            Hmm, maybe. One thing is certain, if it doesn’t turn out well, you will be the first in line with the “not fully funded”.

            I think most like to whine about politics, its the nature of the beast. Look at how the Democrats whined and whined about the deficit, they sure sing a different tune now.

            >7) They will also say we need a tax cut to reign in biggubment.

            Uh Oh – Danger Will Robinson…. Alert Alert…… Even BO is calling for tax cuts, or at least not rescinding the Bush tax cuts. Are you disagreeing with Fearless Leader? Or are you just disagreeing with tax cuts specifically to reign in big government?

          • dean

            Earlier you wrote:

            *Most* economists support the stimulus?

            Followed quickly by:

            “I sure don’t see the economists in the stock market supporting it, where’s the rally? I mean if *they were all* into the stimulus, you would sure see stock prices rising.”

            Most thus became all. Its ok. We all err now and then.

            Tax cuts…deficit spending….big or little gubmint. You seem to view these as absolutes. One is either for or against them based on politics or ideology. I view them all as needing to wax or wane depending on circumstances. When Bush first took office there was a recession building and he was right to run a deficit. When the economy recovered he should have re-balanced the budget. But he viewed his tax cuts ideologically rather than as a pragmatic economic management tool. That was his error, and remains the error of many conservatives to this day. They, and perhaps yourself, have been under an illusion that cutting taxes would “starve the beast” in Grover Norquist’s words. Cut the intake and the outgo must drop. Not.

            Balanced budgets are important from time to time, as are tax cuts, as are tax raises, interest rates rising and falling, infrastructure spending ramped up or tamped down. Its not ideology. Its pragmatism. Obama is proposing, and most economists of note are supporting, fairly massive deficit spending because that is about the only tool left in the ole toolbox to right a floundering ship of state.

            Deficit spending at times is stupid, and at other times is necessary. Its not about whether a Republican or Democrat happens to be occupying the oval office. If the economy recovers in 2 or 4 years and Obama is still spending like a drunken sailor and NOT raising someone’s taxes, I’ll be among those criticizing him.

            As for Roosevelt and Keynes. The *General Theory of Employment, Interest and Money* was not published until 1936, 4 years after Roosevelt was elected. Keynes theories were not initially embraced, and it was only in 1938 that Roosevelt tried them out…feebly until WW2 broke out at which time massive spending and deficits were done out of necessity….and the depression was over very quickly. In Roosevelt’s early years, he did a lot to help get people off the streets and into work, he stopped bank runs, he created SSI and unemployment insurance, and he did other things to keep people whole. But he did not try out Keynes theories, which were not yet published.

            I know…I know…you hate history lessons. Nevertheless.

            BO called for tax cuts throughout the campaign. What is new is the urgency of their implementation, which he wants to speed up. And yes, he now wants to delay rescinding the Bush tax cuts on the upper 5 pecent of earners. He is being advised that the only immediate goal is to print and distribute money…the more the better until things stabalize. So why would he want to raise any taxes? Just to make a point?

            If things go badly…I might say what he did was inadequate. I also might say the problem is greater than he or anyone else can solve. We may simply have overshot our resources and have the piper to pay with a broadly reduced standard of living. I hope that is not the case, but I fear it may well be. We live in interesting times.

          • Anonymous

            “I sure don’t see the economists in the stock market supporting it, where’s the rally? I mean if they were *all into* the stimulus, you would sure see stock prices rising.”

            Simply a matter of misinterpretation – dean’s.

            More deanish dyspepsia – FDR didn’t know about Keynes ideas until his book was published in 1936.


            I know…I know…you hate history lessons. Nevertheless.

          • Rupert in Springfield

            >>”I sure don’t see the economists in the stock market supporting it, where’s the rally? I mean if they were all into the stimulus, you would sure see stock prices rising.”

            >Most thus became all. Its ok.

            Ahh, ok, I can see how you might have read it that way.

            To clarify:

            I did not mean if they were all into it as in if every single one were into it. I meant if they were all into it as in “The school was all worked up about the big game” or “Dean if your all gung ho about it, go ahead” In other words all was used as a modifier which it can be in either the plural ( the school ) or the singular ( Dean ). I hope this provides illumination, all though it is not meant to be all encompassing on use of the word all.

            >We all err now and then.

            Yes, we do and I usually admit it pretty forthrightly when I am wrong. See my post above in re interest as a percentage of the budget.

            >If things go badly…I might say what he did was inadequate.

            Of course you will say that. I know it, you know it and I predicted you would say it in thebet thing above.

            That was my point, when liberal programs fail, as they are wont to do, it is always because they were not fully funded, never because the program simply doesn’t work. When BO takes over, the stimulus nonsense becomes his baby, thus it can only fail due to not being fully funded.

  • Bob Clark

    Significant corners of world markets are betting the stimulus does re-inflate the economy, but too such an extent, inflation will surge once again and central banks will have to jack interest rates sharply upward in response. I think also we’ll get a rebound with or without the stimulus. However, because the nation has not pushed drilling in the Alaskan Wildlife Refuge and other conventional energy supplies, energy will serve as a break neck against any near-term economic upturns. Excerbating shortfalls in conventional energy supplies, a cycle of below normal temperatures in the Northern Hemisphere. I bet there’s a very good chance we see the U.S government ration natural gas supplies in the next 5 to 10 years.

    Not a pretty picture. Truly, government is not the solution but the problem.

    • Rupert in Springfield

      You sure got that right Bob.

      You want to see riots in the streets? Just imagine if the Saudis cut back on oil production and we go back to $4.50 gas. Instead of the 8 or 9 % unemployment we have now, try thinking about 15% or more. Lots of unemployed people with food prices going through the roof because of trucking expenses. That’s always a good combination.

  • Jerry

    Amen Bob.
    Dean will see that we are right – it just might take a year or two.

    • dean

      Jerry…the day I see you being right is the day I put in for my assisted suicide meds. Well…ok…not that extreme. But you get my drift.

      Rupert…I was just yanking your chain on the most-all thing. Payback. Lets call a UN sponsored truce. THey can start with us, build up some skills, and work up to the Israeli-Palestinian issue.

      When conservative governance fails, conservatives say that conservatism was not conservative enough. And we don’t have to simply predict this. Its already happened. George Bush and the Republican led Congress.

      Bob….economy will recover and price of oil will go back up regardless of whether we drill in alaska or not, which is why we need the alternative energy and conservation parts of the Obama plan. We have a very long road ahead to transition away from fossil fuels voluntarily before we HAVE to transition away involuntarily.

  • John in Oregon

    Its interesting to consider some of the half spoken misconceptions that have been posted on this subject. For example, “Economists agree that a stimulus is necessary.”

    As far as that statement goes it’s accurate. Left unspoken is the implication the speaker wishes to convey that the required stimulus is Government Spending. An implied statement that quite frankly is false.

    Factually, Government Spending to “stimulate the economy” has never worked. The rebate checks in the spring of 2008 didn’t work or the rebate checks in 2001. Spending didn’t work in Japan. “Throughout the 1990s, Japanese politicians tried to use .. stimulus packages to jump-start a stagnant economy. But the only thing that went up was Japan’s national debt.” Gerald Ford did a Keynesian stimulus focused on tax rebates in the mid-1970s. The economy did not improve. “Roosevelt followed the same approach. Government spending, of course, skyrocketed — rising by 106 percent between 1933 and 1940.” It took WWII to end the depression.

    We hear Congressman Henry Waxman channeled as saying Roosevelt never spent enough during the depression. If Waxman is correct one need only find one example of unlimited spending that did work. Two modern historic examples of unlimited spending come to mind, the Weimar Republic and Zimbabwe. Now those examples of spending driven recovery worked out really, really, really, really well didn’t they?

    As to the idea that WWII proved massive government spending does work is just so wrong on so many levels.

    On the afternoon of Sunday, December 7, 1941 after church John Henry, my grandfather, went out to the barn and began refurbishing the tack and sharpening the plow. You see, John Henry the former WWI doughboy, the hick farmer knew two things. John Henry knew he would harness Babe and Blue that coming spring of 1942 because our boys would need food to fight the coming war. John Henry and many like him knew that FDR could no longer prevent them putting plow to soil, seed to earth.

    There is something about looking down the muzzle of a tiger panzer 88 that’s very sobering. Government Spending, sorry, NO. The recovery of WWII had to do with the spirit of the American People. The low unemployment had to do with millions of men in the US Navy, the US Army, the US Army Air Force, the US Merchant Marine, and the US Coast Guard. The 87 year old man building airplanes at Douglas Aircraft, the Women building liberty ships. Sorry those Americans weren’t looking for a Government job, they were too busy wining a war.

    I see the attempts to decouple the failure of Keynesian demand driven economic theory and Government Spending as a “stimulus”. The General Theory of Employment, Interest and Money was not published until 1936. Sorry again, but John Maynard Keynes was a central figure in the post WW1 economic discussion 1919 to 1925. Keynes was wall known to both Hoover and Roosevelt before and during the Great Depression.

    What few know is that John Maynard Keynes himself had doubts about demand side spending. Keynes confided to Friedrich August von Hayek that his (Keynes’) theory was, at best, appropriate for the specific deflationary environment after the war had passed. According to Hayek,–Keynes himself agreed with this, and even *promised to rein in his foolish disciples if they ever got the crazy notion to advocate pump-priming.* But alas, Keynes died six months after pledging this to Hayek.

    Now for the stake through the heart of the supposition that economists agree with the Government Spending stimulus theory.

    *Myth: Government Spending ‘Stimulates’ the Economy*
    Daniel J. Mitchell

    *For Real Stimulus*
    “The massive new spending program that is being pushed by congressional Democrats emboldened by their newly enhanced majorities may come up as soon as Tuesday… Unfortunately, they’ve picked the least effective way to give the economy a boost. Those who argue for hundreds of billions of dollars for infrastructure projects and “green jobs” have it all wrong. We’ve tried those remedies before and found them wanting.

    *Is Government Spending Too Easy an Answer?*
    New York Times
    According to research cited by former top White House economist Greg Mankiw, the economy expands by $1 to $1.40 for every $1 spent by government. But if you cut taxes instead, you really get results. Mankiw cites a major study of tax changes dating back to 1947 showing that each $1 of tax cuts brings $3 in added GDP. This study is particularly significant because one of its authors, Christina Romer, is Obama’s chief economic advisor.

    *Sarkozy Merkel Blair call for new capitalism*
    PARIS (AP)
    Merkel deplored huge debts that governments are accumulating *to spend their way out of the present crisis.* Leaders should look beyond financial markets, she said, *singling out the American budget deficit* and China’s current account surplus — or trade balance — as problems upsetting the global economy. A Congressional Budget Office report estimates that the U.S. federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year — and that is before President-elect Barack Obama’s sweeping stimulus package is calculated.

    *The Deficit Spending Blowout*
    The looming red ink is unlike anything in U.S. peacetime history.
    The Wall Street Journal

    *Stimulating bankruptcy and chaos, 01-10-09*
    The Herald News

    *Isnt There Enough Stimulus As It Is?*
    Tribune Media Services, Inc

    *Smart People, Dumb Plan*
    Joseph Smith