Tuesday, January 20, 2009

Comments on the proposed recovery act

I've been doing some reading about the proposed "American Recovery and Reinvestment Bill of 2009" and want to share with you some of the statements that stood out:

From The Economist:

"The New Deal was introduced into a world of giant organisations—of big businesses and big trade unions that were capable of striking deals with big government. But today’s economy is much more fluid. America’s most successful companies are entrepreneurial outfits like Apple and Google, which thrive on flexibility; even giant companies such as General Electric are breaking themselves up into entrepreneurial divisions. More Americans own their own companies (15%) than belong to trade unions (12%).

Many liberals are determined to bail out Detroit’s carmakers. But is subsidising weak companies really the best way to start a new era of liberal political dominance? They are infatuated with the idea of a Green New Deal. But do they really think that a Washington brains trust is the best way to nudge people to change their habits? Mr. (Peter) Beinart argues that Americans want their government to “keep their 401Ks from going down” and “their health-care premiums from going up”. But can you base a new economic order on such pie-in-the-sky expectations?"

From John Henke, one of the founding editors of TheNextRight:

"This is a crucial point. With the fiscal stimulus legislation, Democrats want to create manufacturing and construction jobs - an attempt to recreate the New Deal. But America is no longer a manufacturing economy. America is an Information Economy. Dragging us back to 1930's-era shovel projects is not economic progress. It is nostalgia."

Investor's Business Daily editorial, "Paving Projects Won't Boost Economy":

"Although it's not popular with his party, Obama might want to rethink his aversion to tax cuts. They'll actually work. How do we know? Because they have in the past. In the '20s, '60s, '80s and again this decade, new presidents also faced grim economic conditions. Each time, the president – be it Coolidge, Kennedy, Reagan or Bush – cut taxes. And each time the economy boomed. … the only stimulus that's been shown to really work is cutting taxes."

From the blog A Taxing Matter:

"But many of the tax provisions are especially worrisome. The expansion of the earned income tax credit and child tax credits probably makes sense--that gets money into the pockets of those who most desperately need help. But making the home buyer provision a subsidy? Hard to justify that on fairness grounds or efficiency grounds, especially to the extent it goes to anyone above the 40% income distribution. Providing another tax cut like the stimulus checks (albeit indirectly this time, through the worker credit) for 95% of American workers doesn't make sense either. Couples with almost $200,000 in income don't need and shouldn't receive a $1000 credit. We should give more tax cuts to people at the bottom and none to people with such high incomes. (In fact, we should be preparing everyone with incomes more than about $50,000 per capita for an inevitable significant tax increase that will be necessary to pay off the huge debts due to the recession and unpaid-for Bush wars.)"

From National Review Online editor-at-large Jonah Goldberg:

"Economist Kevin Hassett of the American Enterprise Institute notes that whatever the benefits of the proposed stimulus, they probably don’t outweigh the enormous costs of the debt we would incur. As a result of the stimulus, the deficit this year would equal the total cost of the federal government in 2000. That’s on top of $7.76 trillion in bailouts pledged by the government, according to Bloomberg.com.

The real reason the stimulus package will be gigantic is not that the smartest people with the best ideas say it needs to be. It’s that Obama’s real priority is to get the bill out as quickly as possible, which means every constituency gets something, including Republicans. Indeed, Republicans are a priority because if he can bribe them into supporting the bill, that might prevent them from campaigning against it in 2010 if it proves ineffective or counterproductive. Hence Obama’s proposed billions in tax breaks for corporate welfare addicts and the lobbyists who love them. Democrats are justly skeptical about a tax break for a company that decides not to lay off its workers.

The GOP is right to question this “shovel-ready” infrastructure “investment.” From World War II to the early 1990s, according to economist Bruce Bartlett, not a single stimulus bill succeeded at moderating the recession it was aimed at, while many bills helped invite the next recession. Bartlett supports a stimulus in theory (as do I); he merely notes that the political process tends to be just that — a political process — and it produces political results.

The best stimulus might be to trim — or temporarily eliminate — the payroll tax. That would put money in the hands of the people who need it — and know best how to spend it. But that would be “too ideological” because it rejects the assumption that government knows best, and it would reward taxpayers, not politicians."

Lastly, there is the article "Does Government Spending Bring Prosperity?" from the Foundation for Economic Education's Freeman Magazine. It was written in 1975 by Percy L. Greaves, Jr., but valid today:

"The underlying philosophy behind political spending is not new. Similar ideas have appeared throughout all history. They came to full flower shortly after the economic collapse of 1929, when unbalanced budgets were generally accepted as necessary economic measures for relieving those in distress. You could not let innocent people starve, could you?

People pointed to idle factories, unemployed workers and their unsatisfied wants. All we need to do, they said, is to get the government to start priming the pump. A little government spending would provide the would-be workers with the wherewithal to buy the things they desperately need. This would encourage businessmen to put the unemployed to work in the idle factories. This solution sounded so simple, and its political appeal was apparent. So we tried it.

People just plumb forgot all that economists had ever taught. Many desperate persons reached for whatever share they could get of the apparent prosperity that followed. Until war changed the picture, the price they paid was chronic unemployment by the millions. Are we now asking for a repeat performance?
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When the government raises the money it spends by borrowing savings or taxing its citizens, it merely transfers spending power from private owners and to political spenders in power. This creates no new wealth. It reduces the amount private citizens can spend while increasing the amount government can spend. With less money in their pockets and bank accounts, private individuals and corporations must reduce the amounts they spend or invest. Assuming prices and wages remain the same, they must buy fewer goods and employ fewer workers on private payrolls producing what people want most.

Money spent by governments cannot create any more jobs or produce any more wealth than it can when spent by private persons. In fact, it creates less, because both the tax collectors and tax spenders must be paid a commission. Their labors add nothing to the wealth of society. The shift of the money from private citizens to political spenders must result in fewer productive jobs, and thus a smaller amount of goods and higher prices than if the money had been left in private hands.
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Then, too, much government spending is not based on the economic principle of getting the most for the least. This permits political spenders to grant privileges to their friends. Such political plums provide more satisfaction and prosperity for nonproducers at the expense of producers. The net result must always be a reduction in the production of wealth. Any such reduction in the quantity of goods and services available in the market tends to raise all prices and thus reduce the satisfactions and living standards of every buyer in that market. So spending to help one group, laudable as it may seem, does not, and cannot, create general prosperity."

2 comments:

Hooda Thunkit said...

Maggie,

As you and I already know, cutting taxes creates an economic boom every time it has been tried and therefore is the obvious thing to do.

So, why does it scare liberal governments to do it? Are the afraid of success, or do the secretly prefer failure?

Mad Jack said...

Hooda: The reason cutting taxes terrifies liberal governments is because it relinquishes control to the individual. Most liberals are content to let the government make decisions for them, rather than cope with life on their own.

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