No "Me-Too-But-Less"

Over at AFP, Ed Frank amplifies my point about the dangers of "me-too" stimulus from Republicans:

To win this debate, conservatives need to draw a bright line in the sand: the way to best stimulate the economy is through tax relief - not paying one guy to dig a hole and another guy to fill it back in. Period.

Otherwise, anything they say will amount to, "That guy wants to waste $800 billion of your tax dollars on a scheme that will do nothing to stimulate the economy, while I only want to waste $200 billion of your tax dollars! Aren't I great?!"

Sadly, based on conversations I've had with people on the Hill, I'm afraid that's where we're headed. And that's exactly the kind of "Me-Too-But-Less" mentality that kept conservatives largely irrelevant on Capitol Hill for four decades.

To the extent we have lost the public opinion battle on tax cuts in the past, it's been because the debate was framed as unnecessary tax cuts fortherich (tm) versus prudent deficit reduction. The average person always tell a pollster we should do the prudent, "responsible" thing. Of course, that same taxpayer will gladly accept the tax cut once offered, making the polls showing Americans "don't want" a tax cut totally irrelevant.

Obama and the Democrats have completely taken this argument off the table. The argument is no longer reckless, tax-slashing Republicans vs. balanced budget Democrats. The Democrats have doubled down on the massive domestic deficit spending of the Bush era. There will likely be massive deficit spending of some sort in the next few years to deal with the "depression."

This is why a rule of No New Spending in the stimulus sounds good to me. As a matter of practical reality, our numbers in the Senate and House are such that no Republican proposal will become law. The opportunity to finesse the Democratic stimulus is not there because the playing field is titled so far in the Democrats' direction. With hopeless minorities, we are freer to demonstrate what we would do in an ideal governing situation, instead of trying to make the White House's proposal less bad.

The best strategy is to create a nucleus of energy around a proposal as diametrically opposed to President Obama's as humanly possible, thus pulling the eventual Gang of 14 to 20 "compromise" as far to the right as can be mustered.

If some sort of fiscal expansion is a given, and there is no way to paint a more modest set of permanent tax cuts as unreasonable when compared to an $800 billion stimulus, we might as well take this opportunity to have a public debate about the best way to stimulate the economy: tax cuts or spending hikes. To do that, though, the official Republican position on spending needs to be as clean as the driven snow.

Facing a new President in 2001, the Democrats made a profound mistake by initially countering Bush's $1.6 trillion tax cut by signaling agreement with $1 trillion in cuts. Lo and behold, they split the difference at $1.3 trillion, giving the new Republican President 80% of what he wanted. We cannot fall into the trap that Nate Silver outlines here:

The numbers we're playing with are so large here -- so large as to seem almost abstract -- that one gets the sense that whatever Obama calls for, Mitch McConnell will simply call for 40% less. So if Obama calls for a $1 trillion stimulus, McConnell will call for $600 billion instead. And if Obama calls for a $800 billion stimulus, McConnell will call for $480 billion instead.If I were Obama, and what I actually wanted was an $800 billion stimulus, I might have someone whisper some off-record comment to Adam Nagourney about a $1.2 trillion stimulus just to frame McConnell's expectations accordingly. Then Obama can force the GOP into the position of accepting a compromise which it doesn't really want.

Let's call BS. We agree to 0% of what Obama wants on spending, take the non-Scrooge position by going long on taxes, while still winning the fiscal responsibility argument by deficit spending less than the Democrats.

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If anything, we ought to go further

The Republican party ought to demand spending reductions to make clear we are not going to choke off this economy with a mountain of debt.

One of the few accomplishments of Bill Clinton was being forced by Newt Gingrich and co. to balance the federal budget. It was done before. It can be done again.

When the new Democratic president fails to even try, it will not go unnoticed. What will be noticed will be the permanent increase in federal spending for stuff the country did without and didn't much miss over the past few decades.

 

Choked off by debt

The economy has already been choked off by a mountain of debt. That's why credit markets are not functioning and the recession is deepening. Reducing spending is recessionary. Consumers have reduced spending, businesses have reduced spending. Now you want government to reduce spending as well?

The Republican party ought to demand spending reductions to make clear we are not going to choke off this economy with a mountain of debt.

That statement really betrays a fundamental misunderstanding of what is going in the economy right now. Can you cite a single economist who advocates the government join the other economic actors in reducing spending in the midst of the recession? Is any economist arguing right now that the great threat to the economy is deficit spending by the government? 

we are already running close to a trillion dollar deficit?

What size mountain will work for you?  The Matterhorn? Denali? Everest?

How is a mountain of federal debt going to do anything except guarantee budget deficits and tax hikes in perpetuity?

We are running extraordinarily expansionary fiscal and monetary policies at the moment. If anything, matters have worsened? Perhaps the conventional wisdom is simply wrong here. My wife is a nurse. I've learned from her that if increasing the dosage doesn't work, the rational mind determines if it's the wrong medicine.

Indeed, many folks brighter than I have said all we are doing to repeating Japan's mistakes circa 1990.  Hello to a lost decade of stagnation then.

 

 

WHO balanced the budget?

In August 1993, Al Gore cast the deciding vote as President of the Senate to pass Clinton's landmark budget that began the 8-year process to cut the Federal Deficits and move to a Balanced Budget.

In 1995, Al Gore pushed Clinton to offer a Balanced Budget in line with what the Contract With America folks wanted, while safeguarding Safety Nets.

In March, 1996, Al Gore delivered his famous "Governing in a Balanced Budget World" speech that detailed his plans and concerns with reducing deficits, balancing budgets, and growing Economies.

 

Excerpts:

"...Indeed, we have reduced the size of the federal work force by more than 200,000 positions in the last three years. Because of our efforts and our partnership with federal employees, the government work force as a percentage of the civilian work force is now smaller than it has been since 1933.."

"...For example, when we came to office the Federal Emergency Management Agency was a disaster. Now it's renowned for its assistance in response to disasters, praised on a bipartisan basis every time it is called upon to respond. The Social Security Administration now gives world-class service to our senior citizens. The Small Business Administration has reduced its size, cut its paperwork dramatically, and increased its loans.

Compared to the steady growth of the bureaucracy year-in and year-out, which our country was accustomed to before Bill Clinton was elected president, these recent achievements compiled over the last three years represent a new pattern and are remarkable, although they have generally been unremarked upon. Now, that's not for a lack of trying on our part. In fact, I even wrote a book to showcase our success. None of the royalties go to me, they all go to establish cash awards for federal employees who perform at an excellent level in providing service to the public..."

 

"..

MS. HILLGREN: Looking at the question as objectively as you can, don't you have the Republicans to thank for these next several decades of balanced budgets?

VICE PRESIDENT GORE: No, not -- no! Absolutely not. Look at the rhetoric and look at the results. Don't be misled by the rhetoric. Concentrate, instead, on the results. What we saw under twelve years of Republican rule was a quadrupling of the debt and the creation of annual budget deficits of $300 billion a year as far as the eye could see. That was a catastrophe for America. The budget of this year would not only be in balance, it would be in surplus, except for the interest that we are obligated to pay on the portion of the national debt created between 1981 and 1993. That is a fact. (Applause.) That is a fact. I want to make it clear to the C-SPAN audience that the applause is not coming from these objective journalists assembled here from news organizations, but rather from the guests who have taken the time to look at the facts and who -- (Laughter.) No, no, I -- (Applause.) -- who are not -- what I meant to say was, who are not obligated to be nonpartisan. But, seriously, that is a -- that is a--striking statistic. You can take all of the national debt up until 1981 and we could pay the interest on that every year fine, with no problem. You just take the Reagan-Bush portion of what we have borrowed during the previous twelve years and the interest on that one portion of the debt -- now is much larger than our annual budget deficit. So while the deficits increased each year during the Republican administrations, under President Clinton the deficit has come down three years in a row for the first time since Harry Truman was president. It has now been cut in half in absolute terms, and as a percentage of our gross domestic product. And it has contributed, along with reinventing government and along with increased investments in education and job training and science and technology and protection of the environment, to a turnaround in our economic circumstances..."

Clinton was forced to do the right thing

In 1993, Republican Senators filibustered President Clinton’s “stimulus package,” correctly arguing that it was just pork for special interest groups that was unnecessary for an economic recovery (which then occurred without any “stimulus,” despite cuts in deficit spending).

http://www.openmarket.org/2008/11/30/stimulus-follies/

Senate Republicans killed President Clinton's economic stimulus program today, maintaining their filibuster until Democrats surrendered and agreed to limit the bill to $4 billion for extended unemployment benefits

http://query.nytimes.com/gst/fullpage.html?res=9F0CE7DC1F38F931A15757C0A965958260

So, Black Oakhead, the 1990's economic boom had nothing to do with the sort of deficit spending stimulus package Obama is desperate to enact.

I'll wear my non partisan hat for a second, and rely on FactCheck.org    which appears to give Alan Greenspan the lion's share of the credit for the 1990's era balanced budgets.  This also indicates my policy prescription---budget discipline---actually worked when Democrats were forced into it.    (sadly, it's architect was last seen running CitiCorp into the turf).

Now, let's see, the Clinton era people wanted a stimulus package, whiffed, and wanted a tax hike, and got it. And how well did this work initially?

While falling long-term interest rates were an economic positive during the first year of the Clinton presidency, these low interest rates were short-lived as it became apparent that this administration was not committed to true deficit reduction. In fact, by late 1994, the 30 year yield was well above the level it stood at when President Clinton assumed office, leading to the growth slowdown that we experienced last year. It took Republican deficit cutting efforts in the 104th Congress to drive interest rates back down at the end of 1995.

Throughout his tenure (from the aborted stimulus package to the failed government take-over of health care to the spending caps enacted in the Budget Enforcement Act of 1990), Republican determination saved President Clinton from his spendthrift ways and kept us on the path of fiscal integrity.

http://www.senate.gov/comm/budget/releases/budget.html

The FY 1994 budget defcit was $203 Billion   IIRC, Mr. Gingrich took control of Congress that year and subsequently shut down the government  to force further fiscal conservatism on the Clinton administration.

My son acts real proud of himself after he cleans up his room. He forgets he was hectored for an hour to go do it.  I suspect he may have a lot in common with Bubba when he grows up.

 

I Hate to Remind You...

The White House PROPOSES budgets, the CONGRESS is charged by the Constitution with going over the Executive's budget requests and actually appropriating the funds.

The fact that the White House AND the Congress were in the GOP's firm grasp for years, and that together they drafted and enacted abortions like the Medicare Part D Prescription Drug Plan,  No Cild Left Behind, funding and enabling the War in Iraq, the 3 sets of Bush tax cuts to the rich, and the dismantling of regulatory agencies are just some of the reasons why the GOP is being held accountable right now.

"But Clinton was forced to do the right thing by the GOP!"  is an argument absurd on its face.

maybe where you live the news didn't get out

But the Republicans in Congress were seriously harangued for not spending ENOUGH money on prescription drugs and No Child Left Behind.  Example

The Democratic plan would cost an estimated $700 billion to $900 billion, more expensive than the $400 billion Bush has vowed to commit to overhauling Medicare.

Please point to Speaker Pelosi and Majority Leader Reid's principled opposition to expanding these programs. I can wait.

As for the Iraq War, it's running about $170B/year. (Notice I used a leftie site for documentation)  Yep, it's a budget buster, but Obama's stimulus package will spend in two years what Bush spent in six fighting in Iraq.  And streetscapes in New Fairfield and salt sheds in Woodbury are not going to a) improve our strategic interests vis-a-vis radical Islam or b) keep a responsible government in charge of (even @ today's depressed prices) over $ 4-8 Trillion worth of oil reserves. (what they have to do with promoting economic growth, well, you tell me)

Besides wars end. Domestic programs last forever.  

 

 

 

Lines in the sand

They didn't seem to do the GOP, or the country, much good for the last eight years.

what lines?

The GOP spent money like liberals and got thrashed. A prudent person would try something different.

Here's the rub

Fiscal conservatism has always been the GOP's claimed platform, but why should I believe them. They got their chance and blew it to hell. And the only people left in the party now are the old establishment which shepherded all that "liberal" spending the whole time they were in power.

Why the fuck should I think they mean what they say this time?

Well, the alternative is overt, unmitigated fiscal obscenity

and while I was a fan of the late George Carlin  there's rarely a need to use any of his seven infamous words in blog posts

At least the Democrats are up front about it

"Well, the alternative is overt, unmitigated fiscal obscenity" which is different how from the last eight years?

And it's a good thing I'm not on TV then isn't it?

TITS OR GTFO

rule 34 still applies.

That's where I call it

[T]he only people left in the party now are the old establishment which shepherded all that... the whole time ...

For all the talk on the Right about renewal and organizing, etc., the sad fact is that Obama ran against the GOP leadership, and was able to attach McCain to it.

The GOP needs a management turnover.  Nothing in the world can have too much effect until then.

Right now fiscal responsibility = stimulus

Taking a stand against deficit spending in the current economic climate is the opposite of fiscal responsibility. To lazily equate fiscal responsibility with a "principled" refusal of deficit spending only betrays a fundamental misunderstanding of the state of the American and global economy.

We agree to 0% of what Obama wants on spending, take the non-Scrooge position by going long on taxes, while still winning the fiscal responsibility argument by deficit spending less than the Democrats.

It would be fiscally irresponsible for the government to sit on its hands while the real economy follows Wall Street over the cliff. Tax cuts will have very little effect because individuals are not going to spend into the going recessionary environment we are in right now. They are going to save for a rainy day just the way the banks are currently doing allowing the credit crisis to continue. Asset values, employment, investment will continue to stagnate or decrease just as they are doing right now.

This recommendation is bad policy and bad politics rolled into one. Reviving the GOP brand must go through the door that says "good government" in order to get to the door that says "small government". We need to find ways to make conservative ideas relevant and effective again. This is not the way to do that.

What is wrong with easing personal debt?

The conventional wisdom holds that individuals will not spend until their accounts are in balance... e.g. their credit card or mortgage debt is manageable enough for them to begin making investments in their family, homes, etc.

In that case, what is wrong with giving individuals relief and helping them pay down debt to hasten the day when they can spend again? Doesn't that have the same rough effect as pumping a lot of liquidity into the system now with the hope of "saving" jobs -- not immediate economic growth, but speeding up the turnaround?

Government spending is a remarkably poor tool to hasten economic growth -- with a multiplier effect of as little as 1 and no more than 1.4. It wouldn't take much to beat the performance of new infrastructure spending, and lessening the personal debt load is not a bad policy goal.

Nothing wrong with easing personal debt and everything...

Easing personal debt is important. Individuals and businesses are deeply in debt and actively "deleveraging" as we speak. That debt reduction is in fact the great driver of the recession. We've suddenly gotten religion on savings, we're spending less, etc.

Unfortunately, private economic virtue turns out to be public economic disaster. All the debt easing means on aggregate less economic activity since demand dries up. The virtuous activity of paying down our debts leads to a vicious cycle of ever decreasing economic activity because we're all doing it at the same time. Housing prices continue to fall, jobs continue to disappear, businesses continue to go bankrupt (lousy Christmas sales are expected to bring a wave of retail bankruptcies), capital investment is put off for another quarter, and the spiral continues downward.

The question is now how do we get it going in the opposite direction? Where is demand for new economic activity going to come from?

You ask:

what is wrong with giving individuals relief and helping them pay down debt to hasten the day when they can spend again? Doesn't that have the same rough effect as pumping a lot of liquidity into the system now with the hope of "saving" jobs -- not immediate economic growth, but speeding up the turnaround?

Putting money into peoples' pockets that does not create demand for new activity will only run up public debt without breaking the downward spiral. It's not as if we're at some safe plateau where we can just wait until everyone is ready to spend again. Things are getting worse. As more businesses fail due to reduced demand, more jobs are lost, more homes are lost, etc. adding to the pressure to cut back and save and not spend and demand continues to lag.

Government spending is a remarkably poor tool to hasten economic growth -- with a multiplier effect of as little as 1 and no more than 1.4. It wouldn't take much to beat the performance of new infrastructure spending, and lessening the personal debt load is not a bad policy goal.

I agree that all things being equal deficit spending should be a last resort. Unfortunately, I think we really are in last resort territory now. Increasing personal savings rates in the US is a very important policy goal and, hopefully, outcome. Our savings rates are at zero and we've been supporting ourselves with Chinese savings and inflated housing prices. That formula is no longer viable. Nevertheless, in my view short-term demand stimulus is paramount right now; long-term behavior changes to increase savings is an issue for another day.

Thanks for the great site and discussion.

JS: Giving the Democrats a government program is like

giving a woman a diamond.

She will think this now means "forever".

That's the practical difficulty with the "last resort" argument; the Democrats think nirvana IS a huge tax and spend government.

We've seen tax cuts and tax incentives given and promptly taken away. IIRC the Rural Electification Administration was part of the New Deal's "stimulus package" circa 1933. It's still, as I understand it, subsidizing electric users on resort islands in FL and SC.

The Democrats as I've noted NEVER think its time for "long term behavior changes"---this would cramp their style.  The fi-cons finally proved to the Greens that the only thing that would get Americans to accept gasoline was a limited resource was actually paying $4 for a gallon; had the price been subsidized the realization would never have occurred.

Keeping people deluded as to economic reality with borrowed money is like running up a huge credit card debt to buy Oxycontin rather than address the illness that is causing the patient pain. And the addiction to the opiate of government intervention may prove a far more dangerous disease in the long run, dontcha think?

 

 

You want to give people

You want to give people relief?  Reverse the bankruptcy bill that passed in 2005.

"We had to kill the patient

"We had to kill the patient to save him," is not the way to do it, either.

 

Tax cuts stimulate more than spending

Tax cuts will have very little effect because individuals are not going to spend into the going recessionary environment we are in right now.

This is false. You dont know your economics. Read and understand:

http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html

Tax cuts are the most powerful economic stimulus we have right now, second to monetary policy, which is now out of bullets. We are talking about GDP multipliers of 4 or 5, when spending programs have multipliers of 1.2 to 1.4 or so. In other words, a $200 billion tax cut will do more to stimulate the economy than a $700 billion spending package.

Which is better for the economy AND more fiscally responsible long-term?

Furthermore, most of the spending will be both mis-timed and mis-spent, so that $700 billion and its 1.2 multiplier may even be optimistic, once you take out the 'bridge to nowhere factor', it may end up being worth less than what was spent. its the nature of these things, but an immediate tax cut, especially across-the-board payroll tax cut and expensing of investments, would have immediate beneficial economic effects, and since it is private secotr investment and spending, it will help the 'real economy' most directly.

The GOP stands on very solid policy grounds when arguing the superiority of tax rate cuts over spending programs as more economically 'stimulative'.

 

 

JS, are you paying attention?

Democratic argument in good economic times:

We have plenty of money. Let's spend it on stuff we didn't spend it on when times were bad.

Democratic argument in bad economic times

No one has any money. Let's put the government deep into hock to make sure we don't hurt people by cutting anything.

This is a game the taxpayer can't win and shouldn't play.

And your response is we should bring our own kerosene to the financial bonfire?

Frankly, the problem here in consumer confidence. I would suggest that the macroeconomic genuises who played with derivatives on Wall Street and burned down the house are the same sorts of people advocating massive new federal debt.  Which will be perceived by the public as a bad thing, and ...voila...further erode consumer confidence.

Policies that promise to get the government to live within its means would do far more to restore consumer confidence that tax withholding gimmicks or buying artificial turf school fields around the country.

  

 

I am paying attention, Ironman

If you're going to argue that the growing public debt will impact consumer confidence, how do you account for the fact that the growing deficit over the last 7 years didn't seem to register with consumers? The growth of government spending accelerated since 2000, revenues lost from the tax cuts were not made up by increased economic activity, and the war on terror was funded with debt; all of these factors and more have created record deficits. Despite those growing deficits, however, consumer confidence soared supported by and supporting the housing bubble. Those of us who have in fact been paying attention to the growing deficit and the bubble based economic recovery have been very concerned since 2005 at the latest. Consumers by and large have not seemed to be very concerned.

But the bigger issue is this: if you rule out government spending as the engine that leads us out of the recession, what alternative do you propose?

Here are the 4 main components of GDP: consumer spending, investment, exports and government spending. Which of these in your view is likely to lead us out of the recession?

Consumer spending is not going to lead us out of the recession: consumer confidence is in the tank because people are losing their jobs, their homes are depreciating, their savings, investments and retirement accounts have been crushed, etc. Consumer spending is not going to revive until consumer confidence does and that is not going to happen until the economic outlook improves. In other words, until people are getting new jobs, housing prices stabilize, etc.

Business investment is not going to lead us out of the recession: businesses are not going to be investing in new capacity while consumers are not buying their products. Therefore business investment that puts people to work building and upgrading production facilities, etc. is unlikely to lift the economy out of the recession. Further, production capacity is deeply under utilized right now, therefore businesses will generally have no need to invest in new capacity until a recovery is well under way.

Exports are not going to lead us out of the recession: American exports are are unlikely to rebound given the global nature of the recession. Foreign consumers and foreign business investment are basically where their American correlates are as per the above.

That leaves government spending.

I would be interested to hear your ideas of what will drive an economic recovery from where we are today. Simply saying no to more public debt is not going to do the trick unfortunately.

so if you believe that the bubble burst

what good is trying to reflate it with federal debt?

At some point RE prices reset to a reasonable multiple of household income. Presuming our fiscal policy doesn;t spike long rates to the stratosphere people will once again afford to buy houses sans gimmicks and we can regain our economic footing. The question is how long this takes

Trying to prop up economic insanity with borrowed money is its own form of insanity. The public is not going to "buy" your solution---hence money will change hands without improving consumer confidence.  Again, isn;t this Japan in the 1990's all over again? 

You know something else I learned from marrying a nurse---too much of the wrong medicine can kill the patient. A trillion dollar deficit is not improving his condition. Time for a second opinion before we double the dosage? 

Not calling for reinflating the bubble

You raise the Japanese deflation scenario. I'm not sure that the situations are comparable. However, I would be interested in hearing your thoughts on it.

My understanding is that the Japanese economy stagnated at least in part because of a failure of political will to write off all the bad debt. The financial system locked up and there was no credit available for new activity. We're taking a quite different approach that is targeted at getting the credit markets moving again as quickly as possible.

Despite that the question remains where will demand for new economic activity come from? What happens if demand continues to weaken and/or stagnates?

Let's give Obama and the dems all they want

I agree with your ideas Patrick as a conservative; why not let Obama and the dems get their package across and since it won't work, they'll be holding the bag with no one but themselves to blame.  They'll all get voted out since it will clearly be the Obama-Reid failed stimulus by 2010 and 2012.  Of course, they could argue that Bush made it so bad that it takes four more years and re-election to fix the economy.....

The problem with getting some of our ideas in there is that if the stimulus doesn't work, the dems will just blame us because the insertion of some of our ideas is what stunted the stimulus.  The dems have been well-versed in the blame game these past two years and know how to play that card successfully.  The only time we've really had them on defense was during the gas-price/offshore drilling debate and the surge (though the surge worked so well that the dems and Obama's errors in judgment became non-issues as Iraq stabilized; no Obama supporter can explain his idiotic prediction that the surge would not reduce violence.  Quite a flaw in judgment, it must have been racism....)

I say let's get as many no votes as possible on the stimulus but make sure that we let the American people know that we had an alternative and that the dems rejected it; therefore, the consequences of the next two years lies solely with Obama, Reid, and the dems.  No filibuster under any circumstances.

What's the proposed GOP

What's the proposed GOP alternative to the stimulus?  Or are you going to keep it a secret, like McCain's secretly knowing how to get bin Laden, and then claim that the alleged alternative would have been better.  Sounds like you need to put something on the table in order for the Dems to reject it.

What's the proposed GOP

What's the proposed GOP alternative to the stimulus?  Or are you going to keep it a secret, like McCain's secretly knowing how to get bin Laden, and then claim that the alleged alternative would have been better.  Sounds like you need to put something on the table in order for the Dems to reject it.

what was the alternative to the Iraq War?

You know, somethings are just going to be so unpopular in a few years people aren;t going to be asking that sort of question.

The TARP vote is going to be like the AUMF vote. The votes on Obamanomics is the chance for the various Republicans who felt duty bound to support Paulson (based on the alleged imminent financial armageddon he presented) to make good.  Politically, this will be a "two strikes-your out" for a huge number of voters in '10, '12 and probably even '14.  

The Stimulus Is happening...no matter what we say...

The stimulus is going to happen....no matter what we say.  However, that doesn't mean we can't be waiting at the end of the line with a big sign saying..."we told you so".

We all know the results of this upcoming spending binge.  Devaluation Of The Dollar, Inflation, and Higher Taxes (if not at the federal level, certainly at the state level). 

The problem is, most of the electorate has no comprehension of higher taxes, they certainly don't understand how currency markets work, and inflation, well, the older generation will get the picture but the younger generation, no chance.  They have no reference points.

What we need to do is put the results of this stimulus into dumb, stupid language.  My suggestion is that we simply state to the masses in our opposition that the only result to this cockamaimied spending spree is $5.00 gallons of milk and $4.00 loaves of bread.

Everyone can grasp that concept.  There is no better "Get Out The Vote (GOTV)" strategy than one saying to themselves while standing at the milk case in the store....damn republicans, they were right!

 

YES!

This is the essence of the party of "bold colors" argument where the GOP stands for something instead of becoming Dem Lite.

The GOP must assert itself as the anti-Dem party if it wants to prevail in 2010.

Okay, so now we have decided it's okay...

...to come out publicly against the stimulus debacle as a party.  I was just wondering who among the present wannabe RNC Chair candidates actually supports this resolution, and when did they first see the light? Does anybody know?  It would seem to me this might be a more important question to ask them than who has had an Twitter account opened the longest.

It would also be interesting to search the pages of this forum to see who among us was the first to defend our party's true allegiance to fiscal conservatism and come out against the stimulus proposal.  I know I came out against the stimulus policy as soon as McCain left the campaign trail and headed back to Washington. I was just wondering if any one had hit the issue before that date so we can take our collective hats off to them.

Please take note, I am not trying to blow my own horn here. As far as I can see, it was the general public and a few wise members of the House, particularly, I am proud to say, the majority of the House Republicans of Georgia (and even a few Georgia House Democrats) who steadfastly refused to support our government's turn to socialism on both votes. But now that our leaders have, apparently, seen the light, I just think it could help us pick the next leader of our party if we took a moment to look back to the past to see who actually saw the light first.

I know Gov. Sarah Palin saw the light early on and would have come out strongly against it publicly had it not been for the fact she was playing second fiddle to that goofball McCain. But I was just wondering if there was anybody else who now wants to lead us who can legitimately claim they are the true seers of the light, the true defenders of the right.

ex animo

davidfarrar

Can you link me to the Palin statements demonstrating

her understanding of economics and clear leadership in the fight against the stimulus package? I mean, now that she is free of the McCain campaign leash she can speak her mind, so what has she said?

All I can find is this where seems to follow - not lead - on these issues.

And she's just handed in a budget in Alaska that is built on the assumption of an oil price above $70 next year - when current prices are languishing below $40 a barrel and demand is weakening becasue of the economic slowdown.

And let's not forget the Gov's most famous statement about economic stimulus:

"That's why I say I, like every American I'm speaking with, we're ill about this position that we have been put in. Where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy. Um, helping, oh, it's got to be about job creation, too. Shoring up our economy, and getting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade -- we have got to see trade as opportunity, not as, uh, competitive, um, scary thing, but one in five jobs created in the trade sector today. We've got to look at that as more opportunity. All of those things under the umbrella of job creation."

 

Bankruptcy in finance and understanding

The most recent example of free market laissez-faire policy making was Paulson's decision on Monday, September 15, 2008 to let Lehman Brothers go bankrupt. Stunningly quickly the policy proved to be a huge mistake.

As you may recall, that same day Merrill Lynch announced it was being acquired by Bank of America to stave off its own bankruptcy. Lehman Brothers, having failed to find an acquiror, its stock price approaching $0.00, announced it would be filing for bankruptcy. Within hours of Lehman's announcement credit markets were freezing up and money market funds were breaking the buck [it didn't hit the news until early the next week, but the process had started within hours]. Meanwhile, AIG veered toward insolvency largely due to credit default swap liabilities related to Lehman--AIG had "insured" Lehman's obligations. At the same time, shorts were pushing down the stock prices of Goldman and Morgan Stanley pushing those firms toward the same cliff Lehman had just disappeared over.

Looking at these events, can you really say that 1) allowing Lehman to go into an unorderly bankruptcy was sound policy? Are you willing to say that we should have allowed AIG, Goldman and Morgan to all meet the same fate that week or the one following?

The government stepped in to prevent AIG from going bankrupt and halted short-selling in financial equities. They did that so that money markets would not fail, so that credit would not freeze up beyond the interbank lending that was already locked. If they hadn't done so consider that as an example and a minor one at that, Amazon.com would probably be bankrupt because the credit card system would have probably locked up. Is that really fiscal responsibility in your view? Do you really want to live in a world where the trucker who delivers food to your local supermarket requires payment in cash at delivery?

That these interventions were necessary and the attendent swelling of the public debt is a terrible thing. But given the alternatives, I think we're better off with terrible at this point. Fanciful and facile calls for "free market solutions" that neither demonstrate a knowledge of the situation nor acknowledge the consequences of their suggested policies are worse than useless. Not only do they have nothing to do with actually addressing these very serious issues facing all of our well-being, they threaten to render conservative perspectives and views irrelevant to the eventual solutions.

The markets failed spectacularly in September and October of 2008. There seems to be little appreciation of that fact. Analysis and debate about the root causes of the failures are important and will be, like those of the Great Depression, the subject of study for generations. We have to recognize that the economic/financial world we all grew up in is over. Building the next one will require as a starting point sober and responsible recognition of what went wrong. By advancing specious, reckless and unserious proscriptions conservatives risk not having a role in that project.

The difference between a transfusion and a diaylsis machine

Paulsen wanted a one-shot chunk of change to recapitalize the financial system to avert what he perceived as an imminent freeze-up.

Actually what did happen ($350B used primarily to buy bank capital) was better than what he said he wanted ($700B to buy bad paper) from the taxpayer's perspective---it's far more likely that at some date in the foreseeable future the Treasury can get made whole by selling off its stake.

I'm assuming Paulson was right about the threat. Well, that threat appears to have passed. LIBOR is unfrozen and banks are able (albeit largely unwilling) to lend to each other. The fear of a cybernetic bank run is over. It was a painful one shot remedy. Amazon is up and running this holiday season.

What Obama now wants is likely to devolve into a recurring annual $500B drain on the public fisc for projects and programs that the fiscally irresponsible Congress of Tom DeLay and Bill Frist found unworthy of financing.  (since the argument will be "if we cut the stimulus the economy will slide back into recession")    I would argue that is "specious, reckless and unserious" economic policy. We will be paying debt service on this expense long after what it bought have been tossed aside as useless or outdated.

Indeed, in the long run the addiction to federal largesse will prove more damaging that a short run financial morass. If we agree that this nation has been living beyond its means, than the day of reckoning will be painful whenever it is faced and there is every reason to believe it will be far more painful a decade from now  (when China is stronger and the early Boomers retired) than facing the hard financial truth now while we are still the masters of our own destiny.

 "We have to recognize that the economic/financial world we all grew up in is over." The same arguments were made both in America and Europe in the 1930's that "capitalism had failed". Once given another chance after World War II, these sentiments went into the dustbin of history.

I'm sure it would be politically correct to simply roll over and accept the bankruptcy of Obamanomics. The Old Right was led by William F. Buckley, who proudly decided his mission was to form a magazine which "stands athwart history, yelling Stop, at a time when no other is inclined to do so, or to have much patience with those who so urge it."

Shouldn't the Next Right have similar aspirations, or should we simply hoist the white flag of intellectual defeat? 

I'm sorry I'm not making

I'm sorry I'm not making myself clear, Ironman.

"We have to recognize that the economic/financial world we all grew up in is over." The same arguments were made both in America and Europe in the 1930's that "capitalism had failed".

I am not saying capitalism has failed. I am saying that major characteristics of the American economy are no longer viable: 1) America will no longer be the lone giant of finance; Europe and the the BRICs have learned their lesson of their vulnerability; 2) the easy credit regime is over; 3) the consumption driven economy is over; 4) replacing savings with asset bubbles (tech bubble fueling 401ks and the housing bubble) is over. These changes will mean that the basic economic relations we've grown used to since the mid-80's will be replaced by new ones whose shape and structure have yet to be determined. A lower standard of living in consumption terms is very likely for the vast majority of Americans but many of them will have greater savings.

It is interesting that you are rather sanguine about TARP and support the Wall Street bailout:

Paulsen wanted a one-shot chunk of change to recapitalize the financial system to avert what he perceived as an imminent freeze-up.

Actually what did happen ($350B used primarily to buy bank capital) was better than what he said he wanted ($700B to buy bad paper) from the taxpayer's perspective---it's far more likely that at some date in the foreseeable future the Treasury can get made whole by selling off its stake.

I'm assuming Paulson was right about the threat.

Since there is no oversight and Treasury won't say where the money went and we are talking about Wall Street, I am very pessimistic that Treasury will ever recoup the taxpayer funds.

But why do you support the Wall Street bailout but not demand stimulus in the Main Street economy?

Because TARP was a one-time transfusion

To keep the patient's circulatory system running. Done.

The use of deficit finance to overcome the structural changes in the global economy (many of which were on the way with or without an economic crisis) is ,as I said; akin to treating the patients with opiiates. It will mask the pain, but create potentially fatal dependency.

BTW...words matter... saying "the economic/financial world we grew up in is over" is giving a rheotorical blank check to the socialists. Why in Wicca's name would any prudent individual want that to happen?.....the UK went forty years from Attlee to Thatcher trying to undo that sort of damage. 

Also BTW, the use of the TARP finds may be opaque, but the recipient insitutions were supposed to secure the advance with collateral in the form of equity interests to the Treasury . I do not think President Obama plans to put mortgages on the sidewalks and salt sheds his program is going to fund.

We have two "bad raps" on the economy

Right now the GOP is caught between two incompatible but widespread perceptions about its economic policies: (1) They have become a party of big spending and big government virtually indistinguishable from the Democrats except for their rhetoric, and their failure to confront big government has been a significant contributor to the current economic problems; and (2) they are blind adherents of a laissez faire ideology who caused our current problems by preventing neccessary regulation and spending programs. People who like free markets and limited government have come to see the GOP as Democrats Lite (or worse), while those who favor socialism still see us as extreme free market ideologues. The coming "stimulus" is a good opportunity to refute one of these stereotypes, and I'd suggest that the one to attack is the one that repels people who would actually be inclined to vote for us on economic grounds. The idea of a modest tax cut package is a good one because it would be more deficit-friendly than the Dems' spending proposal while also focusing on things that actually enhance liberty, free markets, and spur growth.

Permanently repealing the death tax would be a good start. And how about letting those of us who pay our own health insurance to get the same tax benefits as those who get it from their employers?

You may be right, but you're

You may be right, but you're essentially saying you'd rather the GOP sit back and wait for the country to fall further into the tank and then claim some mythical (nonexistent) alternative that the GOP would have shared (if only they hadnt been so pissy over losing the election) would have saved us from disaster.  Somehow I don't think that will endear the GOP to more voters any more than McCain's ridiculous claim that he alone knows how to get bin Laden.  Why not make a case now for what the GOP proposes as an alternative?  Yes, it won't get passed, but if the GOP isn't principled enough to come clean with an alternative proposal, why on Earth should anyone believe they had a clue in the first place?  If they don't have a clue what to suggest now, why would I think they have a clue what to do when we're further into the muck?

Tax Cuts Work, spending increases don't

Economists know that the GDP 'multiplier' effect of spending is small, maybe 1.1 to 1.4.

OTOH, the right kind of tax cuts can have an economic multiplier effect of 4 or 5 or even more.

What does this mean?

Good policy is ALWAYS good politics. The GOP needs to craft an "Economic Recovery Act" that uses the $500 billion that Obama would spend and crafts a 3-year tax cut plan:

1. Make the 15% dividend and cap gains tax rates permanent

2. Cut the corporate tax rate from 38% to 30%, and have full expensing  for all investement expenses in 2009 and 2010.

3. Cut the PAYROLL TAX, and pay for that cut partly by raising oil import fees.

4. Make all the middle class Bush tax cuts permanent immediately. Make the full Bush tax cuts permanent if possible, or extend them another 2 years (Stay of execution for tax cuts).

 

The economy will recover over time anyway, but the tax cut policies will make it recover faster and better than any other alternative. The Congressional GOP should line up behind such a policy position and stick to their guns. Vote NO on any stimulus package that lacks tax cut stimulus.

http://travismonitor.blogspot.com/

Nobel Prize winning economists would disagree with you

In a recession, the problem is reduced demand. As a small business owner, I can tell you that you can cut my taxes and give me all the incentives in the world and it won't make one bit of difference - I'll put the money in the bank and there it will sit until I think that my customers, consumers, have got money and want to spend again.

Or, two quote two fellows much more clever than me:

In a recession, the primary problem is that the nation's firms face a reduction in demand for their products — not that they lack available workers, equipment, or anything else needed to produce goods and services. Indiscriminately injecting cash into such firms through tax breaks, without linking the tax breaks to new business activity, would do little if anything to address the underlying difficulty.

Firms that are faced with reduced demand for their products lay off workers, regardless of how much cash they have. The managers of firms have a fiduciary responsibility to maximize their profits, and in the face of reduced demand for their product, firms therefore typically reduce costs by cutting back on production, which triggers layoffs. As the number of unemployed workers increases, a downward economic spiral can occur. Households with unemployed workers, facing a sharp decline in their incomes, cut back on spending and further reduce the demand for products. That, in turn, leads to additional layoffs. This harmful cycle, by which an economic slowdown can build into a more serious recession, can be arrested or broken by boosting demand for the goods and services that American companies produce. Only when a company faces renewed demand for its products will it end the process of shedding workers and begin to create new jobs. As a result, the primary objective of a stimulus package should be to spur spending on these products.

An effective stimulus package consequently should expand the aggregate demand for goods and services in a timely way. Mr. Hubbard notwithstanding, there is little question that increases in government expenditures can be quite effective in boosting aggregate demand and thereby stimulating the economy in the short run.

Temporary expansions in unemployment insurance, for example, would spur increased consumer spending. Households in which a worker is laid off experience a significant decline in income. They thus are likely to spend a high percentage of any additional income they receive while out of work. The extra spending on unemployment benefits that a temporary expansion of unemployment benefits provides thus has a direct economic benefit — it keeps more workers employed at firms that produce the products the unemployed workers purchase with their additional cash. Temporary expansions in unemployment insurance consequently are a "win-win" proposition: They are quite effective in helping more people keep their jobs during an economic downturn, and they also assist those who are unfortunate enough to have lost their jobs.

 

we've already been extending unemployment insurance

If that's the medicine, it's probably not going to restore the patient to health.

Last time I checked, this was not an incentive for entrepeneurship

Little interest in demand side calculus

There seems to be relatively little interest here in the economic forces at work when the demand curve inverts. Folks seem to support Paulson's approach which is to address each new crisis as it arises which usually kicks off within a week or two of Mr. Paulson's latest statement that the problem has been contained.

But seriously, there seems to be a strong preference for tax cuts over spending which while generally to be applauded seems misplaced in the present circumstances. My experience with most conservatives is that they appreciate and understand economics. The present crisis however seems to have brought many of us up short; perhaps due to complacency after so many years of prosperity under effective monetary policy. In any event, I was surprized when Congressional Republicans recommended albeit briefly that cutting the capital gains tax and the estate tax as an alternative to TARP. Despite the cogency of the arguments against tax code remedies in that case, there continues to be a strong bias in favor of using the recession as a government shrinking exercise rather than appreciating the enormous severity of the problems we're facing.

I would have hoped Congressional Republicans could provide some guidance to the Obama administration in crafting an effective and transparent stimulus package. Instead they seem to be channeling Rahm "it is a shame to waste a crisis" Emmanuel.  

2009 is going to an interesting year; I hope not too interesting.

My alternatives to tax cuts is Rubinomics

and stopping deficit spending. But JS you are a Johnny one note that the government needs to spend more money. Which history demonstrates leads to worse long term problems down the line (higher interest rates and or taxes). Federal spending programs live forever.  Let's not allow this crisis to be hijacked for the expansion of government, and if it is , let it occur without our fingerprints.

The current economic crisis is frightening enough

The current economic crisis is frightening enough to require drastic action, and if that action is likely to get things moving again, then I'm all for it, even if it goes against my ideological leanings in normal times..

And I for one appreciate JS's patient detailed explanations of his position.

I think too many people are parroting the line that FDR prolonged the Great Depression, and not enough are remembering that the Wall Street Crash was in 1929 and FDR  didn't take office until 1933. By then the rot had well and truely set in.

Bernacke is not repeating that era

http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Monetarist_explanations

In their 1963 book "A Monetary History of the United States, 1867-1960", Milton Friedman and Anna Schwartz laid out their case for a different explanation of the Great Depression. After the Depression, the primary explanations of it tended to ignore the importance of money. However, in the monetarist view, the Depression was “in fact a tragic testimonial to the importance of monetary forces.”[3] In his view, the failure of the Federal Reserve to deal with the Depression was not a sign that monetary policy was impotent, but that the Federal Reserve exercised the wrong policies. They did not claim the Fed caused the depression, only that it failed to use policies that might have stopped a recession from turning into a depression. Ben Bernanke, the current Chairman of the Federal Reserve, thought Friedman was right to blame the Federal Reserve for its role in the Great Depression, stating on Nov. 8, 2002:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." [4]

Before the 1913 establishment of the Federal Reserve, the banking system had dealt with periodic crises in the U.S. (such as in the Panic of 1907) by suspending the convertibility of deposits into currency. The system nearly collapsed in 1907 and there was an extraordinary intervention by an ad-hoc coalition assembled by J. P. Morgan. The bankers demanded in 1910-1913 a Federal Reserve to reduce this structural weakness. Friedman suggests the untested hypothesis that if a policy similar to 1907 had been followed during the banking panics at the end of 1930, perhaps this would have stopped the vicious circle of the forced liquefaction of assets at depressed prices. Consequently, in his view, the banking panics of 1931, 1932, and 1933 might not have happened, just as suspension of convertibility in 1893 and 1907 had quickly ended the liquidity crises at the time.”[5]

Essentially, the Great Depression, in the monetarist view, was caused by the fall of the money supply. Friedman and Schwartz write: "From the cyclical peak in August 1929 to a cyclical trough in March 1933, the stock of money fell by over a third." The result was what Friedman calls the "Great Contraction"— a period of falling income, prices, and employment caused by the choking effects of a restricted money supply.

The money supply is now growing exponentially. The irony is by the time monetary policy stems the tide, Obama is going to flood the economy with fiscal stimulus, which is probably going to generate massive inflation.  

Tax Cuts

Tax cuts may stimulate the economy, but the problem still remains... massive debt being incurred because the government is trying to accomplish something.

The mantra should be tax cuts, and spending cuts, to bring back under control this federal monster.

Tax cuts and spending being flatlined will only increase debt and further our problem, and put off the issue for future generations to deal with - thus increasing THEIR taxes.

Tax cuts and spending increases, which is what Obama is proposing, is by far the most dangerous and reckless thing possible - it moves the line in both directions (less revenue, more outlays) thus balooning things even further.

I'm extremely EXTREMELY disapointed that republican strategists, analysts, consultants and pundits have STILL not even SNIFFED this issue.  The mantra remains "cut taxes" and then the sentence ends.

For the love of god people, lets do the right thing here.  Yeah, go ahead and cut taxes, but slash and burn spending too please.

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