TheCenterLane.com

© 2008 – 2019 John T. Burke, Jr.

Once Upon A Crisis

Comments Off on Once Upon A Crisis

As the 2012 Presidential election campaign heats up, there is plenty of historical revisionism taking place with respect to the 2008 financial / economic crisis.  Economist Dean Baker wrote an article for The Guardian, wherein he debunked the Obama administration’s oft-repeated claim that the newly-elected President saved us from a “Second Great Depression”:

While the Obama administration, working alongside Ben Bernanke at the Fed, deserves credit for preventing a financial meltdown, a second great depression was never in the cards.

*   *   *

The attack on the second Great Depression myth is not simply an exercise in semantics.  The Obama Administration and the political establishment more generally want the public to be grateful that we managed to avoid a second Great Depression. People should realize that this claim is sort of like keeping our kids safe from tiger attacks.  It’s true that almost no kids in the United States are ever attacked by tigers, but we don’t typically give out political praise for this fact, since there is no reason to expect our kids to be attacked by tigers.

In the same vein, we all should be very happy we aren’t in the middle of a second Great Depression; however, there was never any good reason for us to fear a second Great Depression.  What we most had to fear was a prolonged period of weak growth and high unemployment.  Unfortunately, this is exactly what we are seeing.   The only question is how long it will drag on.

Joe Weisenthal of The Business Insider directed our attention to the interview with economist Paul Krugman appearing in the current issue of Playboy.  Krugman, long considered a standard bearer for the Democratic Party’s economic agenda, was immediately thrown under the bus as soon as Obama took office.  I’ll never forget reading about the “booby prize” roast beef dinner Obama held for Krugman and his fellow Nobel laureate, Joseph Stiglitz – when the two economists were informed that their free advice would be ignored. Fortunately, former Chief of Staff Rahm Emanuel was able to make sure that pork wasn’t the main course for that dinner.  Throughout the Playboy interview, Krugman recalled his disappointment with the new President.  Here’s what Joe  Weisenthal had to say about the piece:

There’s a long interview with Paul Krugman in the new Playboy, and it’s excellent.

We tend to write a lot about his economic commentary here, but he probably doesn’t get enough credit for his commentary on politics, and his assessment of how things will play out.

Go back and read this column, from March 2009, and you’ll see that he basically called things correctly, that the stimulus would be too small, and that the GOP would be emboldened and gain success arguing that the problem was that we had stimulus at all.

*   *   *
At least as Krugman sees it, the times called for a major boost in spending and so on, and Obama never had any intention to deliver.

What follows is the prescient excerpt from Krugman’s March 9, 2009 essay, referenced by Joe Weisenthal:

The broader public, by contrast, favors strong action.  According to a recent Newsweek poll, a majority of voters supports the stimulus, and, more surprising, a plurality believes that additional spending will be necessary.  But will that support still be there, say, six months from now?

Also, an overwhelming majority believes that the government is spending too much to help large financial institutions.  This suggests that the administration’s money-for-nothing financial policy will eventually deplete its political capital.

So here’s the picture that scares me:  It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up.  Obama finally concedes that a bigger stimulus is needed.  But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.  And as a result, the recession rages on, unchecked.

In early July of 2009, I wrote a piece entitled, “The Second Stimulus”, in which I observed that President Obama had already reached the milestone anticipated by Krugman for September of that year.  I made a point of including a list of ignored warnings about the inadequacy of the stimulus program.  Most notable among them was the point that there were fifty economists who shared the concerns voiced by Krugman, Stiglitz and Jamie Galbraith:

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.

Mike Grabell of ProPublica has written a new book entitled, Money Well Spent? which provided an even-handed analysis of what the stimulus did – and did not – accomplish.  As I pointed out on February 13, some of the criticisms voiced by Mike Grabell concerning the programs funded by the Economic Recovery Act had been previously expressed by Keith Hennessey (former director of the National Economic Council under President George W. Bush) in a June 3, 2009 posting at Hennessey’s blog.  I was particularly intrigued by this suggestion by Keith Hennessey from back in 2009:

Had the President instead insisted that a $787 B stimulus go directly into people’s hands, where “people” includes those who pay income taxes and those who don’t, we would now be seeing a stimulus that would be:

  • partially effective but still quite large – Because it would be a temporary change in people’s incomes, only a fraction of the $787 B would be spent.  But even 1/4 or 1/3 of $787 B is still a lot of money to dump out the door.  The relative ineffectiveness of a temporary income change would be offset by the enormous amount of cash flowing.
  • efficient – People would be spending money on themselves. Some of them would be spending other people’s money on themselves, but at least they would be spending on their own needs, rather than on multi-year water projects in the districts of powerful Members of Congress.  You would have much less waste.
  • fast – The GDP boost would be concentrated in Q3 and Q4 of 2009, tapering off heavily in Q1 of 2010.

Why did the President not do this?  Discussions with the Congress began in January before he took office, and he faced a strong Speaker who took control and gave a huge chuck of funding to House Appropriations Chairman Obey (D-WI).  I can think of three plausible explanations:

  1. The President and his team did not realize the analytical point that infrastructure spending has too slow of a GDP effect.
  2. They were disorganized.
  3. They did not want a confrontation with their new Congressional allies in their first few days.

Given the fact that the American economy is 70% consumer-driven, Keith Hennessey’s proposed stimulus would have boosted that sorely-missing consumer demand as far back as two years ago.  We can only wonder where our unemployment level and our Gross Domestic Product would be now if Hennessey’s plan had been implemented – despite the fact that it would have been limited to the $787 billion amount.


 

Struggles of a Passive Centrist

Comments Off on Struggles of a Passive Centrist

In September of 2010, I wrote a piece entitled, “Where Obama Went Wrong”.  It began with this statement:  “One could write an 800-page book on this subject.”  Noam Scheiber has just written that book in only 368 pages.  It’s called The Escape Artists and it is scheduled for release at the end of this month.  The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

The following graph from The Economic Populist website depicts the persistence of unemployment in America:

Noam Scheiber’s new book piqued my interest because, back in July of 2009, I wrote a piece entitled “The Second Stimulus”, which began with this thought:

It’s a subject that many people are talking about, but not many politicians want to discuss.  It appears as though a second economic stimulus package will be necessary to save our sinking economy and get people back to work.  Because of the huge deficits already incurred in responding to the financial meltdown, along with the $787 billion price tag for the first stimulus package and because of the President’s promise to get healthcare reform enacted, there aren’t many in Congress who are willing to touch this subject right now, although some are.

The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance.  With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough.  “Abso-fucking-lutely not,” Romer responded.  She said it half-jokingly, but the joke was that she would use the line on television.  She was dead serious about the sentiment.  Axelrod did not seem amused.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.  Obama could have educated the American people by directing their attention to a June 3, 2009 essay by Keith Hennessey (former director of the National Economic Council under President George W. Bush) which described the Recovery Act as “effective”.

Noam Scheiber’s New Republic article detailed Obama’s evolution from inexperienced negotiator to President with “newfound boldness”:

FOR TWO AND A HALF YEARS, Obama had been hatching proposals with an eye toward winning over the opposition.  In most cases, all it had gotten him was more extreme demands from Republicans and not even a pretense of bipartisan support.  Now, after the searing experience of the deficit deal, he still wanted reasonable, centrist policies.  But he was done trying to fit them to the ever-shifting conservative zeitgeist.  When he finally turned back to jobs in August, he told his aides not to “self-edit” proposals to improve their chances of passing the Republican House.  “He pushed us to make sure this was not simply a predesigned legislative compromise,” one recalls.

Many readers will be surprised to learn that Larry Summers had aligned himself with Christina Romer by advocating for additional fiscal stimulus during the summer of 2009.  In fact, Ms. Romer herself has already confirmed this.  The Romer-Summers alliance for stimulus was also discussed in Ron Suskind’s book, Confidence Men.

As for the stimulus program itself, a new book by Mike Grabell of ProPublica entitled, Money Well Spent? provided the most even-handed analysis of what the stimulus did – and did not – accomplish.  Mike Grabell gave us a glimpse of his new book with an article which appeared in The New York Times.  The piece was cross-posted to the ProPublica website.  Keith Hennesssey’s prescient observations about the shortcomings of that program, which he discussed  in June of 2009, were somewhat consistent with those discussed by Mike Grabell, particularly on the subject of “shovel-ready” programs.  Here is what Keith Hennessey said, while supporting his argument with the observations of Congressional Budget Office Director Doug Elmendorf:

In fact, the infrastructure spending in the stimulus law will peak in fiscal year 2011, which goes from October 1, 2010 to September 30, 2011.  That’s too late from a macro perspective.

The Director further points out that the 2009 stimulus law created many new programs.  This slows spend-out, as it takes time to create and ramp up the new programs.

The Administration has made much of working with federal and state bureaucracies to find “shovel-ready” projects to accelerate infrastructure spending.  All of my conversations with budget analysts suggest this claim is tremendously overblown, and Director Elmendorf asks, “Is this practical on a large scale?”

On February 11, 2012, Mike Grabell said this:

But the stimulus ultimately failed to bring about a strong, sustainable recovery.  Money was spread far and wide rather than dedicated to programs with the most bang for the buck.  “Shovel-ready” projects, those that would put people to work right away, took too long to break ground.  Investments in worthwhile long-term projects, on the other hand, were often rushed to meet arbitrary deadlines, and the resulting shoddy outcomes tarnished the projects’ image.

The Economic Recovery Act of 2009 will surely become a central subject of debate during the current Presidential election campaign.  Regardless of what you hear from partisan bloviators, Messrs. Hennessey and Garbell have provided you with reliable guides to the unvarnished truth on this subject.



 

Time For Another Victory Lap

Comments Off on Time For Another Victory Lap

I’m no cheerleader for President Obama.  Since he first became our Disappointer-In-Chief, I have vigorously voiced my complaints about his decisions.  At the end of President Obama’s first month in office, I expressed concern that his following the advice of “Turbo” Tim Geithner and Larry Summers was putting the welfare (pun intended) of the Wall Street banks ahead of the livelihoods of those who voted for him.  I lamented that this path would lead us to a ten-year, Japanese-style recession.  By September of 2010, it was obvious that those early decisions by the new President would prove disastrous for the Democrats at the mid-term elections.  At that point, I repeated my belief that Obama had been listening to the wrong people when he decided to limit spending on the economic stimulus package to approximately half of what was necessary to end the economic crisis:

Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate.

Last week, I was about to write a piece, describing that decision as “Obama’s Tora Bora moment”.  When I sat down at my computer just after 11 p.m. on Sunday, I realized that the timing wouldn’t have been appropriate for such a metaphor.  The President was about to make his historic speech, announcing that Osama Bin Laden had been killed.  Just as many have criticized the Obama administration’s handling of the disaster in the Gulf of Corexit as “Obama’s Katrina Moment”, I believe that the President’s decision to “punt” on the stimulus – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora.  The consequences have been enormously expensive (simply adding the $600 billion cost of QE 2 alone to a better-planned stimulus program would have reduced our current unemployment level to approximately 5%).  Beyond that, the advocates of “Austerian” economics have scared everyone in Washington into the belief that the British approach is somehow the right idea – despite the fact that their economy is tanking.  Never mind the fact Australia’s stimulus program was successful and ended the recession in that country.

The Fox Ministry of Truth has brainwashed a good number of people into believing that Obama’s stimulus program (a/k/a the American Recovery and Reinvestment Act of 2009) was a complete failure.  You will never hear the Fox Ministry of Truth admit that prominent Republican economist Keith Hennessey, the former director of the National Economic Council under President George W. Bush, pointed out that the 2009 stimulus “increased economic growth above what it otherwise would have been”.  The Truth Ministry is not likely to concede that John Makin of the conservative think-tank, the American Enterprise Institute, published this statement at the AEI website:

Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S. growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.

On the other hand, count me among those who are skeptical that the Federal Reserve’s monetary policy can have any impact on our current unemployment crisis (it hasn’t yet).

Many of Obama’s critics have complained that the Presidential appearance at Ground Zero was an inappropriate “victory lap” – despite the fact that George W. Bush was invited to the event (although he declined).  Not only was that victory lap appropriate – Obama is actually entitled to run another.   As E.J. Dionne pointed out, the controversial “nationalization” of the American auto industry (what should have been done to the Wall Street banks) has become a huge success:

The actual headlines make the point. “Demand for fuel-efficient cars helps GM to $3.2 billion profit,” declared The Washington Post.  “GM Reports Earnings Tripled in First Quarter, as Revenue Jumped 15 Percent,” reported The New York Times.

*   *   *

“Having the federal government involved in every aspect of the private sector is very dangerous,” Rep. Dan Burton, R-Ind., told Fox News in December 2008.  “In the long term it could cause us to become a quasi-socialist country.”  I don’t see any evidence that we have become a “quasi-socialist country,” just big profits.

Rep. Lamar Smith, R-Texas, called the bailout “the leading edge of the Obama administration’s war on capitalism,” while other members of Congress derided the president’s auto industry task force.  “Of course we know that nobody on the task force has any experience in the auto business, and we heard at the hearing many of them don’t even own cars,” declared Rep. Louie Gohmert, R-Texas, after a hearing on the bailout in May 2009. “And they’re dictating the auto industry for our future? What’s wrong with this picture?”

*   *   *

In the case of the car industry, allowing the market to operate without any intervention by government would have wiped out a large part of the business that is based in Midwestern states.  This irreversible decision would have damaged the economy, many communities and tens of thousands of families.

And contrary to the predictions of the critics, government officials were quite capable of working with the market in restructuring the industry. Government didn’t overturn capitalism.  It tempered the market at a moment when its “natural” forces were pushing toward catastrophe. Government had the resources to buy the industry time.

In fairness, President Obama has finally earned some bragging rights, after punting on health care, the stimulus and financial “reform”.  He knows his Republican opponents will never criticize him for his own “Tora Bora moment” – because to do so would require an admission that a more expensive economic stimulus was necessary in 2009.  As a result, it will be up to an Independent candidate or a Democratic challenger to Obama (less likely these days) to explain that the persistent economic crisis – our own “lost decade” – lingers on as a result of Obama’s “Tora Bora moment”.


wordpress stats


A Preemptive Strike By Tools Of The Plutocracy

Comments Off on A Preemptive Strike By Tools Of The Plutocracy

The Financial Crisis Inquiry Commission (FCIC) was created by section 5 of the Fraud Enforcement and Recovery Act (or FERA) which was signed into law on May 20, 2009.   The ten-member Commission has been modeled after the Pecora Commission of the early 1930s, which investigated the causes of the Great Depression, and ultimately provided a basis for reforms of Wall Street and the banking industry.  As I pointed out on April 15, more than a few commentators had been expressing their disappointment with the FCIC.  Section (5)(h)(1) of  the FERA established a deadline for the FCIC to submit its report:

On December 15, 2010, the Commission shall submit to the President and to the Congress a report containing the findings and conclusions of the Commission on the causes of the current financial and economic crisis in the United States.

In light of the fact that it took the FCIC eight months to conduct its first hearing, one shouldn’t be too surprised to learn that their report had not been completed by December 15.  The FCIC expects to have the report finalized in approximately one month.  This article by Phil Mattingly and Robert Schmidt of Bloomberg News provides a good history of the partisan struggle within the FCIC.  On December 14, Sewell Chan of The New York Times disclosed that the four Republican members of the FCIC would issue their own report on December 15:

The Republican members of the panel were angered last week when the commission voted 6 to 4, along partisan lines, to limit individual comments by the commissioners to 9 pages each in a 500-page report that the commission plans to publish next month with Public Affairs, an imprint of the Perseus Books Group, one Republican commissioner said.

Beyond that, Shahien Nasiripour of the Huffington Post revealed more details concerning the dissent voiced by Republican panel members:

During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.

I gave those four Republican members more credit than that.  I was wrong.  Commission Vice-Chairman Bill Thomas, along with Douglas Holtz-Eakin, Peter Wallison, and Keith Hennessey issued their own propaganda piece as a preemptive strike against whatever less-than-complimentary things the FCIC might ultimately say about the Wall Street Plutocrats.  The spin strategy employed by these men in explaining the cause of the financial crisis is to blame Fannie Mae and Freddie Mac for the entire episode.  (That specious claim has been debunked by Mark Thoma and others many times.)  This remark from the “Introduction” section of the Republicans’ piece set the tone:

While the housing bubble, the financial crisis, and the recession are surely interrelated events, we do not believe that the housing bubble was a sufficient condition for the financial crisis. The unprecedented number of subprime and other weak mortgages in this bubble set it and its effect apart from others in the past.

Many economists and other commentators will have plenty of fun ripping this thing to shreds.  One of the biggest lies that jumped right out at me was this statement from page 5 of the so-called Financial Crisis Primer:

Put simply, the risk of a housing collapse was simply not appreciated.  Not by homeowners, not by investors, not by banks, not by rating agencies, and not by regulators.

That lie can and will be easily refuted —  many times over —  by the simple fact that a large number of essays had been published by economists, commentators and even dilettantes who predicted the housing collapse.

Yves Smith provided a refreshing retort to the Plutocracy’s Primer at her Naked Capitalism website:

This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth.  Yes, the US and other countries provide overly generous subsidies to housing, and curtailing them over time would not be a bad idea.  But that’s been our policy for decades.  Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy.  In reality, both the run-up to the crisis and its aftermath were one of the greatest wealth transfers from the citizenry at large to a comparatively small group of rentiers in the history of man.

*   *   *

This pathetic development shows how deeply this country is in thrall to lobbyists.  But these so-called commissioners, who are really no more than financial services minions out to misbrand themselves as independent, look to have overplayed their hand.  This stunt shows more than a tad of desperation on the part of banks and their operatives in their excessive efforts block any remotely accurate, and therefore critical, report on the industry.

Perversely, this development may be a positive indicator on several fronts.  First, the FCIC report may be tougher and more probing than I dared hope.

The fact that a pre-emptive strike by the Plutocratic “Gang of Four” has been initiated with the release of their Primer could indeed suggest that that their patrons are worried about the ultimate conclusions to be published by the FCIC next month.  The release of this Primer will surely draw plenty of criticism and attract more attention to the FCIC’s final report.  Nevertheless, will the resulting firestorm motivate the public to finally demand some serious action beyond the lame “financial reform” fiasco?  Adam Garfinkle’s recent essay in The American Interest suggests that such hope could be misplaced:

Obsessed with vacuous celebrity, Americans make it easier than ever for plutocrats to sail under the radar.  Corporate heavyweights and bankers may be suborning Congress and ripping off  “we the people” left and right, but we’re too busy dancing with the stars to notice.

Will this situation ever change?



Rethinking The Stimulus

Comments Off on Rethinking The Stimulus

February 22, 2010

On the anniversary of the stimulus law (a/k/a the American Recovery and Reinvestment Act of 2009 — Public Law 111-5) there has been quite a bit of debate concerning the number of jobs actually created by the stimulus as opposed to the claims made by Democratic politicians.  For their part, the Democrats take pride in the fact that John Makin of the conservative think-tank, the American Enterprise Institute, recently published this statement at the AEI website:

Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S.growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.

A few months ago, I had a discussion with an old friend and the subject of the stimulus came up.  My beefs about the stimulus were that it did not offer the necessary degree of immediate relief and that a good chunk of it should have gone directly into the hands of the taxpayers.

I recently read a blog posting by Keith Hennessey, the former director of the National Economic Council under President George W. Bush, which expressed some opinions similar to my own on what the stimulus should have offered.  Although Mr. Hennessey preferred the traditional panacea of tax cuts as the primary means for economic stimulus, he made a number of other important points.  With so much fear being expressed about the possibility of a “double-dip” recession, our government could find itself in the uncomfortable position of considering another stimulus bill.  If that day comes, we have all the more reason to look back at what was right and what was wrong with the 2009 stimulus.

Keith Hennessy began with this statement:

Unlike many critics of the stimulus law, I think that fiscal policy can increase short-term economic growth, especially when the economy is in a deep recession.  In other words, I think that fiscal stimulus is a valid concept.  This does not mean that I think that every increase in government spending, or every tax cut, (a) increases short-term economic growth or (b) is good policy.

At the end of his second paragraph, he got to the part that was music to my ears:

If the Administration had instead put $862 B directly into people’s hands, you would have seen more immediate spending and economic growth than we did, even if people had saved most of it.

In contrast, government spending is powerful but painfully slow.  If the government spends $1 on building a road, eventually that entire $1 will enter the economy and increase GDP growth.  Your bang-for-the-deficit-buck is extremely high.  The problem is that bang-for-the-buck doesn’t help us if that bang occurs two or three or four years from now.

*   *   *

I would instead prefer that people be allowed to spend and save the money how they best see fit.  My preferred path also has less waste and bureaucracy.

A bit later in the piece, Hennessey said some things that probably caused a good number of the CPAC conventioneers reach for the Tums:

I agree with the Administration that last year’s stimulus law increased economic growth above what it otherwise would have been.  I agree that employment is higher than it would have been without a stimulus.

Of course, Hennessey complained that “The law was poorly designed and inefficient” — in part because the money was funneled through federal and state bureaucracies — another valid point.  Then, he got to the important issue:

Given a decision last year to do a big fiscal stimulus, I would have preferred, in this order:

1.  putting all the money into a permanent reduction in income and capital taxes;

2.  putting all the money into a temporary reduction in income and capital taxes;

3.  putting all the money into transfer payments;

4.  what Congress and the President did.

Given the policy preferences of the President, his team’s big policy mistake last year was to let Congress turn a reasonable macroeconomic fiscal policy goal into a Congressional spending toga party.  Given his policy preferences, the President should have insisted that Congress put all the money into (2) and (3) above.  He would have had a bigger macro stimulus bang earlier.

In case you’re wondering what “transfer payments” are — you need to think in terms of “wealth transfer”.  In this case, it concerns situations where the government gives away money to people who aren’t rich.  A good example of this was the stimulus program that took place under President Bush.  Individuals with incomes of less than $75,000 received a $300 “stimulus check” and households with joint incomes under $150,000 got $600.

My own stimulus idea would involve a “tax rebate” program, wherein the taxpayers receive a number of $50 vouchers based on the amount of income tax they paid the previous year.  The recipients would then be instructed to go out and buy stuff with the vouchers.  So what if they spent it on imported merchandise?  The American retailers and shipping companies would still make money, finding it necessary to hire people.  The vouchers would display the person’s name and address.  In order to use the vouchers, identification would be needed, so as to prevent resale.  The maximum amount of cash change one could get back from a voucher-funded purchase would be $10.

Hopefully, we won’t need another stimulus program.  However, if we do, I suggest that the government simply give us vouchers and send us shopping.



wordpress visitor