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10 Reasons to Whack Obama's Stimulus Plan
January 27, 2009 02:10 PM ET | James Pethokoukis

Some people are going to oppose President Obama's ginormous stimulus package just because they're on a different political team. But when you look at the economic evidence, it sure seems like an economic recovery package that's heavy on government spending and light on tax cuts is just the opposite of what we should be doing right now. Try this closing argument on for size:

1) A 2005 study by Andrew Mountford and Harald Uhlig "analyzed three types of policy shocks: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes) and a deficit-financed tax cut, in which revenues increase but government spending stays unchanged. We found that a deficit-spending shock stimulates the economy for the first 4 quarters but only weakly compared to that for a deficit-financed tax cut." In other words, FDR vs. Clinton vs. Reagan, Reagan wins.

2) Harvard economist Robert Barro looked at the multiplier effect of World War II military spending -- supposedly the Mother of All Stimulus Plans and found that "wartime production siphoned off resources from other economic uses — there was a dampener, rather than a multiplier." Barro prefers eliminating the corporate income tax to massive government spending.

3) Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago want to adress the fear and confidence issue by creating "the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years."

4) An initial CBO analysis found that a mere $26 billion out of $274 billion in infrastructure spending, just 7 percent, would be delivered into the economy by next fall. An update determined that just 64 percent of the stimulus would reach the economy by 2011.

5) University of Chicago economist and Nobel laureate Gary Becker doubts whether all this stimulus spending will do much to lower unemployment: "For one thing, the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative."

6) Christina Romer, the new head of the Council of Economic Advisers, coauthored a paper in which the following was written about taxes: "Tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects." And former Bush economic adviser Lawrence Lindsey tack on this addendum: "The macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet."

7) Economists Susan Woodward and Robert Hall find that the multiplier effect from infrastructure spending maybe just 1-for-1, less than that 3-to-1 ratio for tax cuts that Romer found: "We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package. We should not count on any inducement of higher consumption from the infrastructure stimulus."

8) Economist John Taylor thinks it better to let the Federal Reserve deal with the short-term problems in the economy, while fiscal policy should attend to long-term issues: "In the current context of the U.S. economy, it seems best to let fiscal policy have its main countercyclical impact through the automatic stabilizer ... It seems hard to improve on this performance with a more active discretionary fiscal policy, and an activist discretionary fiscal policy might even make the job of monetary authorities more difficult. It would be appropriate in the present American context, for discretionary fiscal policy to be saved explicitly for longer-term issues, requiring less frequent changes. Examples of such a longer-term focus include fiscal policy proposals to balance the non-Social Security budget over the next ten years, to reduce marginal tax rates for long run economic efficiency, or even to reform the tax system and Social Security."

9) Massive stimulus didn't work in the Great Depression. As this Heritage Foundation study notes: "After the stock market collapse in 1929, the Hoover Administration increased federal spending by 47 percent over the following three years. As a result, federal spending increased from 3.4 percent of GDP in 1930 to 6.9 percent in 1932 and reached 9.8 percent by 1940. That same year-- 10 years into the Great Depression--America's unemployment rate stood at 14.6 percent." Same goes for Japan and its Great Stagnation of the 1990s.

10) Olivier Blanchard, the chief economist of the International Monetary Fund, coauthored a paper which found "that both increases in taxes and increases in government spending have a strong negative effect on private investment spending."

Bottom line: There is another model out there. One that worked in 2003, 1997 and 1981. But will America use it?

Sources:

1) http://sfb649.wiwi.hu-berlin.de/papers/p...05-039.pdf

2) http://online.wsj.com/article/SB123258618204604599.html

3) http://online.wsj.com/article/SB123249646698200289.html

4) http://cboblog.cbo.gov/

5)http://www.becker-posner-blog.com/archiv...ama_st.htm

6)http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf

7)http://woodwardhall.wordpress.com/2008/1...ng-on-gdp/

8)http://www.stanford.edu/~johntayl/Papers...evised.pdf

9) http://www.heritage.org/research/economy/bg2222.cf

10) http://www.mitpressjournals.org/doi/abs/...lCode=qjec

11) http://www.weeklystandard.com/Content/Pu...xc.asp?pg=

http://www.usnews.com/blogs/capital-comm...-plan.html

Obama open to compromise on $825B stimulus bill
Published - Jan 27 2009 08:27PM EST

By LIZ SIDOTI and DAVID ESPO - Associated Press Writers

On the eve of a key vote, President Barack Obama privately promised Republicans he stands ready to accept changes in the $825 billion economic stimulus legislation, invoked Ronald Reagan to rebut conservative critics and urged lawmakers to "put politics aside" in the interest of creating jobs.

"The American people expect action," Obama said Tuesday as he shuttled between closed-door meetings with House and Senate Republicans on a trip to the Capitol that blended substance with political symbolism.

Republicans who attended the sessions said the president did not agree to any specific changes but did pledge to have his aides consider some that GOP lawmakers raised dealing with additional tax relief for businesses.

Prodded to budge on another point, Obama said that despite opposition, he will insist on giving relief to wage-earners who pay Social Security taxes but do not earn enough to owe income tax. His spokesman said the president reminded his critics that former President Reagan _ conservative hero to many contemporary Republicans _ supported the same concept while in the White House.

In a measure of the complex political dynamic in Congress, House Republican leaders urged their rank and file to oppose the stimulus measure hours before Obama arrived.

One Republican later quoted the president as saying any changes would have to come after the House gives what is expected to be largely party-line approval Wednesday to the Democratic-backed bill. Debate began late in the day on the measure, which includes about $550 billion in spending and roughly $275 billion in tax cuts.

The Senate shows signs of greater bipartisanship, including a decision in the Finance Committee on Tuesday to add a new tax break for upper middle-income taxpayers, at a one-year cost of $70 billion. It was advanced by Sen. Chuck Grassley of Iowa, the panel's senior Republican.

Democratic leaders in both houses have promised to have legislation ready for Obama's signature by mid-February, and Tuesday's developments coincided with fresh evidence of deterioration in a national economy seemingly growing weaker by the day.

Housing prices tumbled by the sharpest annual rate on record in November, according to a closely watched private report released during the day, and a measure of consumer confidence dropped to a historic low.

Separately, the Treasury Department announced distribution of $386 million to 23 troubled banks, the first awards from the federal bailout fund since Obama took office a week ago.

Obama traveled to and from the Capitol in a snowy motorcade on Tuesday, far different from the inaugural parade seven days earlier. This was a business trip, marking his second reach across party lines in as many days in keeping with a pledge to seek bipartisan solutions to major problems.

On Monday, he leaned on House Democrats to jettison an item that would make it easier for states to provide family planning funds for the poor under Medicaid, a provision in the legislation that had become a target of ridicule for Republicans. Press Secretary Robert Gibbs said Obama supports the concept but wants it included in a different bill.

Ironically, Democrats said deleting the provision would wind up increasing federal spending, since it probably would mean more money spent on higher pregnancy and postnatal care.

House Republican leaders welcomed the president a few hours after urging their rank-and-file to oppose the stimulus bill, and it was far from clear that Obama had managed to pick up any GOP support during the day.

Gibbs said the White House expects some GOP lawmakers will vote for the measure on Wednesday in the House, and indicated he hopes there will be more in the Senate and even more later when a final compromise is reached.

One Republican senator, speaking on condition of anonymity, said the president pledged to Sen. John Ensign, R-Nev., to have aides review two specific proposals. One would affect businesses that pay down their debt. The other would provide a temporary tax holiday for companies that have money overseas and bring it back to the United States to invest.

Obama ventured into an uncertain political environment when he stepped into the Capitol, a president with high approval ratings pitching a plan that also has been favorably received in the polls.

Republicans, on the other hand, are trying to regroup after last fall's elections, in which they lost the White House as well as seats in both houses of Congress. While some conservatives seem eager to mount a frontal attack on Obama and his plans, others are pursuing a strategy of criticizing congressional Democrats rather than the president.

Hours earlier, according to officials who were present at a GOP meeting, none of the Republicans in attendance spoke up in disagreement when urged to oppose the legislation by their leaders. Rep. John Boehner of Ohio, the party's leader, and Eric Cantor of Virginia, the second in command, said they wanted "100 percent" opposition to the measure, which they argue includes billions in wasteful spending, these officials said.

Across the Capitol, Senate Republican leader Mitch McConnell suggested that Democrats in Congress were the problem, not the president.

"We think the country needs a stimulus," McConnell said on NBC's "Today" show. But he also said that he believes most people do not believe recovery can be accomplished through projects like "fixing up the Mall," a reference to funding to repair the National Mall in Washington.

He said Republicans want a bill that devotes 40 percent of its total to tax cuts.

Some conservatives were far more blunt.

"While the president was genial, his proposal remains rooted in a liberal, big-government ideology that ignores history," said Rep. Tom Price of Georgia, head of the conservative Republican Study Committee in the House.

Complicating the Republican position was evidence of support among the nation's governors for the legislation taking shape.

The measure includes more than $120 billion in aid to schools, some of it to protect them from the effects of state budget cuts in a time of recession. It also provides more than $80 billion additional funding for Medicaid, the state-federal program that provides health care for low-income people, and $40 billion more to help people who have recently lost their jobs hold onto employer-provided health care. Another $32 billion is ticketed for transportation projects, and $30 billion more for water projects and rail and mass transit.

Obama's centerpiece tax cut would provide $500 per worker and $1,000 per couple for low and middle-income wage earners, including those who do not earn enough to owe income taxes.

___

Associated Press writers Liz Sidoti, Martin Crutsinger, Stephen Ohlemacher, Andrew Taylor, Jim Kuhnhenn and Jennifer Loven contributed to this story.

http://www.rr.com/home/home/article/9000...mulus_bill

An 11th reason - so we don't become another failed Socialist country.

Where is the change I was promised?

"Obama's centerpiece tax cut would provide $500 per worker and $1,000 per couple for low and middle-income wage earners, including those who do not earn enough to owe income taxes."

This sounds like to the victors go the spoils. He wants to reward those that put him into power. It is incensing that he would give money to people who didn't even pay taxes. Big surprise though. Ensure loyal government slaves.

"The slave becomes the master." Metallica

(01-27-2009 09:17 PM)UCBEast Wrote: [ -> ]An 11th reason - so we don't become another failed Socialist country.

Question: Why does Socialism always fail?
Answer: The rich eventually run out of $$$

If ya'll had paid any attention to President Cheney's first year in office maybe we wouldn't be in the mess we are in now. I know ya'll are still bitter about losing the election. but give the guy a chance. He hasn't been in office for 2 weeks yet.
Only 8 years of Bush enabled Obama to get where he is. Deal with it.[/i]

(01-28-2009 02:17 PM)beck Wrote: [ -> ]If ya'll had paid any attention to President Cheney's first year in office maybe we wouldn't be in the mess we are in now. I know ya'll are still bitter about losing the election. but give the guy a chance. He hasn't been in office for 2 weeks yet. Only 8 years of Bush enabled Obama to get where he is. Deal with it.[/i]

Beck, I have never stepped into this fray before, but you are turning into a complete anus sphincter. It is always "Ya'll" like only Republicans are capable of making mistakes. Then, it's "President Cheney's first year". WTF is up with that? That's two shots, then there is the ubiquitous "Only 8 years of Bush enabled Obama to get where he is." 5 sentences, and you piss off everyone reading this, liberals and conservatives alike. You add nothing but rancor.

Do you have absolutely nothing to add, or is this just your little game? Do you come to this board for sh!ts and giggles? I will say it again, you are turning into a complete anus sphincter.

(01-28-2009 02:30 PM)ctipton Wrote: [ -> ]

(01-28-2009 02:17 PM)beck Wrote: [ -> ]If ya'll had paid any attention to President Cheney's first year in office maybe we wouldn't be in the mess we are in now. I know ya'll are still bitter about losing the election. but give the guy a chance. He hasn't been in office for 2 weeks yet. Only 8 years of Bush enabled Obama to get where he is. Deal with it.[/i]

Beck, I have never stepped into this fray before, but you are turning into a complete anus sphincter. It is always "Ya'll" like only Republicans are capable of making mistakes. Then, it's "President Cheney's first year". WTF is up with that? That's two shots, then there is the ubiquitous "Only 8 years of Bush enabled Obama to get where he is." 5 sentences, and you piss off everyone reading this, liberals and conservatives alike. You add nothing but rancor.

Do you have absolutely nothing to add, or is this just your little game? Do you come to this board for sh!ts and giggles? I will say it again, you are turning into a complete anus sphincter.

Typical beck politics - utterly lacking in substance while afraid and unable to support his view. The good news is that anyone with an independent, open, logical mind has to be drawn to the other side when reading a beck "debate". Conservatives need to win open minds with facts and logic and he always makes us look good.

I mean can you imagine an open minded person reading any of beck's political exchanges coming away from it saying: "Wow, I never thought of it that way, beck makes some great points"?

House passes $819B stimulus bill

WASHINGTON -- In a swift victory for President Barack Obama, the Democratic-controlled House approved a historically huge $819 billion stimulus bill Wednesday night with spending increases and tax cuts at the heart of the young administration's plan to revive a badly ailing economy.

The vote was 244-188, with Republicans unanimous in opposition despite Obama's pleas for bipartisan support.

"We don't have a moment to spare," Obama declared at the White House as congressional allies hastened to do his bidding in the face of the worst economic crisis since the Great Depression.

The vote sent the bill to the Senate, where debate could begin as early as Monday on a companion measure already taking shape. Democratic leaders have pledged to have legislation ready for Obama's signature by mid-February.

A mere eight days after Inauguration Day, Speaker Nancy Pelosi said Tuesday's events heralded a new era. "The ship of state is difficult to turn," said the California Democrat. "But that is what we must do. That is what President Obama called us to do in his inaugural address."

With unemployment at its highest level in a quarter-century, the banking industry wobbling despite the infusion of staggering sums of bailout money and states struggling with budget crises, Democrats said the legislation was desperately needed.

"Another week that we delay is another 100,000 or more people unemployed. I don't think we want that on our consciences," said Rep. David Obey, D-Wis., chairman of the House Appropriations Committee and one of the leading architects of the legislation.

Republicans said the bill was short on tax cuts and contained too much spending, much of it wasteful and unlikely to help laid-off Americans.

The party's leader, Rep. John Boehner of Ohio, said the measure "won't create many jobs, but it will create plenty of programs and projects through slow-moving government spending." A GOP alternative, comprised almost entirely of tax cuts, was defeated, 266-170, moments before the final vote.

On the final vote, the legislation drew overwhelming support among Democrats while all but a few Republicans opposed it.

The White House-backed legislation includes an estimated $544 billion in federal spending and $275 billion in tax cuts for individuals and businesses.

Included is money for traditional job-creating programs such as highway construction and mass transit projects. But the measure tickets far more for unemployment benefits, health care and food stamp increases designed to aid victims of the worst economic downturn since the Great Depression of the 1930s.

Tens of billions of additional dollars would go to the states, which confront the prospect of deep budget cuts of their own. That money marks an attempt to ease the recession's impact on schools and law enforcement. With funding for housing weatherization and other provisions, the bill also makes a down payment on Obama's campaign promise of creating jobs that can reduce the nation's dependence on foreign oil.

The centerpiece tax cut calls for a $500 break for single workers and $1,000 for couples, including those who don't earn enough to owe federal income taxes.

The House vote marked merely the first of several major milestones a for the legislation, which Democratic leaders have pledged to deliver to the White House for Obama's signature by mid-February.

Already a more bipartisan - and costlier - measure is taking shape in the Senate, and Obama personally pledged to House and Senate Republicans in closed-door meetings on Tuesday that he is ready to accept modifications as the legislation advances.

Rahm Emanuel, a former Illinois congressman who is Obama's chief of staff, invited nearly a dozen House Republicans to the White House late Tuesday for what one participant said was a soft sales job.

This lawmaker quoted Emanuel as telling the group that polling shows roughly 80 percent support for the legislation, and that Republicans oppose it at their political peril. The lawmaker spoke on condition of anonymity, saying there was no agreement to speak publicly about the session.

In fact, though, many Republicans in the House are virtually immune from Democratic challenges because of the makeup of their districts, and have more to fear from GOP primary challenges in 2010. As a result, they have relatively little political incentive to break with conservative orthodoxy and support hundreds of billions in new federal spending.

Also, some Republican lawmakers have said in recent days they know they will have a second chance to support a bill when the final House-Senate compromise emerges in a few weeks.

That gave an air of predictability to the proceedings in the House, as Democrats defended the legislation as an appropriate response to the specter of double-digit unemployment in the near future.

Rep. Randy Neugebauer, R-Texas, sought to strip out all the spending from the legislation before final passage, arguing that the entire cost of the bill would merely add to soaring federal deficits. "Where are we going to get the money," he asked, but his attempt failed overwhelmingly, 302-134.

Obey had a ready retort. "They don't look like Herbert Hoover, I guess, but there are an awful lot of people in this chamber who think like Herbert Hoover," he said, referring to the president whose term is forever linked in history with the Great Depression.

http://news.cincinnati.com/article/20090...eakingnews