Sunday, February 03, 2008

Stimulus Round Up

Plenty has already been said on the Stimulus Bill. Rather than adding to that volume, simply some links to those that I think get it right:

Lawrence Kudlow, January 5, Goldilocks Needs Tax-Reform, Not Populism:

Yes, corporate profits are slowing and jobs are softening. Despite 52 months of ongoing jobs gains and 1.3 million new payrolls in the past year, December jobs registered only 18,000 and the unemployment rate ticked back up to (a still historically low) 5 percent. Despite years of gains from a booming business sector, corporate profits are in fact falling at about a 6 percent clip.

But the last thing we need now is root-canal economic populism from the campaign trail and the mainstream media telling us that Americans are unhappy. Unhappy? According to a Gallup Poll released last week, "Most Americans say they are generally happy, with a slim majority saying they are 'very happy.'" They're also prosperous. According to Investor's Business Daily, household wealth in the U.S. soared 51 percent to $58.6 trillion in last year's third quarter from $38.8 trillion in 2002.


The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend. Today's John Edwards/Mike Huckabee anti-business populism sounds more like William Jennings Bryan than Adam Smith. It's absolutely crazy. They attack Wall Street and investors, which is another way of attacking capital. Without capital investment, there will be no new business, no new jobs, and no middle class.

Amity Shlaes, January 16, Stop Bush, Democrats Before They Save Our Economy:

President George W. Bush, briefed by experts, may take up the stimulus concept as early as this week. In coming months, the candidates will lean hard on the experts as they battle over questions such as whether the next middle-class tax credit should be refundable (Democrats), or not (Republicans).

This is perverse. The real question about tinkering should not be "how?" but "why?" The persistence of the stimulus habit, and the endorsements by experts, makes it worthwhile to review such previous interventions and their consequences.

Back in the early 1990s, great economies confronted trouble. The savings-and-loan crisis, a recession and disappointing productivity numbers all darkened the U.S. future. In Japan, banks were foundering, and the real estate bubble had popped. The Nikkei stock index was plunging.


Fortunately, Republicans and conservative Democrats tamped Clinton's domestic project down into nothing. For the rest of the decade, the Clinton team mostly stayed out of the tinkering business, with spectacular results.

Japan, by contrast, heeded the U.S. and the experts and dutifully "stimulated" the economy for years.

Late in the decade, Prime Minister Keizo Obuchi dumped billions of dollars into the economy on public works projects and tax cuts in the name of recovery. Because his Liberal Democratic Party had so many followers in rural areas, within the keiretsu business conglomerates, and among bureaucrats, the outlays were especially wasteful. A number of stimulus packages and Bridges to Nowhere later, the Japanese economy slept on.

Louis R. Woodhill, January 17, Stimulus and Superstition
- What the economy doesn’t need now is more government mistakes.

With recession concerns mounting, politicians and pundits have started proposing programs to “stimulate” the economy. All of these plans involve some combination of additional short-term government spending and one-time transfer payments to people who would be expected to spend the additional money. But there is one small problem with these proposals: They are based on economic superstition.

Recessions are periods of falling gross domestic product. They are presumed to be caused by falling demand, and it is assumed that the stimulus measures being proposed will increase demand. In fact, they will do no such thing. Similar programs were tried in the U.S. in the 1930s, Japan in the 1990s, and again in the U.S. in 2001. They all failed. The belief that government spending and deficits stimulate demand is a superstition.


Recessions don’t just happen. They are caused by government mistakes. When recession looms, the answer isn’t superstition-based stimulus programs, but to correct the mistake. Economies need three things from government: incentives, money, and certainty. Right now, the main problem seems to be certainty. The solution is to make the 2003 tax cuts permanent and to stabilize the value of the dollar. If we do that, we can stop talking about stimulus programs.

Senator Bob Corker, January 30, Economic Stimulus Bill is "Nothing But a Political Stimulus":

"What I see in this package is nothing but a political stimulus,” said Corker. “It's a stimulus to make the American people think that we, as a body, are doing something to actually cause the economy to be stronger.

“Not to be misunderstood – I'm a strong believer in low taxes and creating a structure in this country that people can count on to move ahead and to make investments, but with that has to be the reality that spending has to be under control."

“…We in this body will never deal in my generation with paying for the $150 billion. But the next generation might, I doubt it. It would actually be $329 billion in 20 years at present rate. And the generation after that, $722 billion."

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