Minority Leader Sen. Mitch McConnell compared the plan to President Franklin Delano Roosevelt's "New Deal" public works program -- which he said did not help the nation out of the Great Depression.
"We're talking about an extraordinarily large amount of money, and a crushing debt for our grandchildren," said McConnell, of Kentucky. "Now, if most Republicans were convinced that this would work, there might be a greater willingness to support it. But all the historical evidence suggests that it's highly unlikely to work."
So the stimulus package got debated and trimmed a little. Its probably enough to pass. Its a Keynesian approach to fixing this problem, something republicans hate. I am unsure why, its completely hypocritical of them to say anything about deficit spending when they have doubled the debt in their short 12 years of rule. Even Keynes made it clear that large deficit spending is a last resort (the fed lowered interest rates to 0% last year, look like we are at last resort status), but when you do it, do it big.
Think of the Powell Doctrine, if you are going to invade a country, do it big, but make sure you have assessed all other possibilities.
The quote i started with just makes me laugh. What hypocrisy! Never have I seen a republican present evidence that providing tax cuts actually improves the economy, all we get is things like “it just makes sense”. Seems to me that what makes sense if that if I am the owner of a business, and I get a 100K tax break, then I can be 30K richer while the rest of my 500 person staff can each have an extra 140 dollars, Woohoo! they can feel really comfortable with that! I bet that will make them feel good about buying a new boat!
I was unhappy with the bank bailouts. I wasnt sure if they were needed, but after learning about it and seeing the both candidates supported it, I was able to understand the need. But I can’t believe oversight was not provided, and was not surprised about the huge tax payer paid bonuses handed out (disappointed, but not surprised). Most of this money from the Obama stimulus package, on the other hand, is going to projects that require people to work to get done (although I do have to agree with many republicans that there are some projects – some not most of the ones they were complaining about- that are not related to stimulus and should have been voted on separately). If people are working then they are more willing to spend. That makes economy better and that seems more logical to me. Want evidence? Lets just look at the GDP.
When did Roosevelt implement the New Deal? 1933-1938. Looking at this graph, when would you say that the economy started to turn around? Shall we zoom in?
The new deal was an implementation of Keyensian ideas. Funnily enough, Keynes blasted Roosevelt for not going far enough in his spending!
The funny part is that you will hear many conservatives say it was not the New deal, it was WWII that did it. Guess what? The deficit spending increased to make the extra weapons, food and so forth to be able to be a strong force in the war. The war actually allowed the US to implement Keynesian economics in a more true fashion.
So it completely cracks me up when I hear a fiscal conservative asking for evidence that this will work. I’m not saying that it is guaranteed, I’m saying that there is evidence that it works. Where is the evidence that conservative, greed based ideals work? Because all I see is debt increase during republican rule.
Now its true that I could be getting into a causation-correlation fallacy here. But I have never heard of any other forces that are theorized to have improved the economy at that time, but perhaps they are there.
Circling Back to Mitch McConnells quote I started with, its coming quickly obvious to me that listening to them is like listening to evolution or holocaust deniers. No matter how much evidence is available they will continue to blather on about there being no evidence at all. Transitional fossils anyone?
Note: I am well aware that I am not an economist and this is not an overly complex analysis. What I was getting at is about evidence. There IS good historical evidence that this approach will work and get us into a positive feedback loop rather than the negative one we are in now. The key is to get people working so they feel more comfortable spending, the opposite is happening now.
6 comments:
Nice rant. I think the problem naturally is political. Obama squandered some momentum by getting caught up in the desire to be inclusive to the Republicans. I think all of our interests would have been much better served if he had come up with a very stripped down-devoid-of-pork bill and jammed it through Congress instead of surrendering the economic high ground to he right.
By the way I love the name of your blog. One of my favorite lines is from Camus' The Myth of Sisyphus where he says that the only question worth asking is whether or not to commit suicide.
Sparkomatic
Ack, sorry, just recognized your post from the last thread about tax cuts. I usually come to your site for science related goodness, but economics is always a nice turn.
First, you seem to criticize the Republicans for critiquing Keynesian economics while piling on debt. The vast majority of that debt comes from Keynesian or quasi-Keynesian activities. Economic conservatives have been complaining rampantly about Bush's policies since he first got in office... in fact, it is nearly impossible to find a Austrian or Chicago school economist who has had anything nice to say about Bush specifically because Bush has followed Keynesian policies. For example, Bush has increased non-discretionary defense spending by the highest rate since LBJ (who coincidentally, also helped start the 1970s stagflation with Nixon). While the Republican hypocrisy is evident, it doesn't negate the fact that over the last 8 years the Republicans and Democrats have practiced Keynesian policies to the extreme.
Second, tax cuts work in the exact same way that Keynesian policies work... they pump money into the economic system. I surely don't want to drag up stuff from your previous post about economics since it'd be unfair, but you seem to preface your argument that tax cuts don't work by saying that they'll increase debt tremendously. That is true, but so will this stimulus bill. Will the stimulus bill help the economy? Of course, because there is money being pumped into the system. Would a tax cut help the economy? Of course, because there is money being pumped into the system. The real question ought to be which policy will help more... tax cuts or increased government spending.
I'll come out and admit I am a libertarian (albeit a bad one); however I'll also admit Im very pro-science and pro-technology and often smile when I hear about spending increases in those specific areas; however there are many things in this bill which won't make America more competitive or fix problems. There is ~200 billion in healthcare and jobless benefits that won't fix the system nor provide incentives to work/save money respectively. Similarly, I believe a good portion of the ~275 billion in tax cuts will act as welfare type payments instead of providing relief to people who are working. The ~90 billion for infrastructure tends to go to pork projects even if people state otherwise. Heck, even the stuff I should like such as the technology section is focused on giving underprivileged areas broadband... which could very well be obsolete by the time it gets installed. To me, these spending bills aren't going to benefit people... they are just going to throw money around and hope it sticks. A lot of the ideas seem to fall under the Broken Window Fallacy that libertarians like to quote so often .
Anyways, excellent entry. Sorry I didn't get to comment it all; however this post is already long enough!
Thanks for visit jason (and previous visits too!)
My issue with republicans and tax cuts is not that they propose them or even that they want them. My issue is that tax cuts provide little or not concrete economic improvement without associated spending cuts. In fact, the hard work is the spending cut, and this is the work that needs to come before there is talk of tax cuts.
As I mentioned before, a tax cut to a business results in a large chuck of change going to few people and small drips of change going to lots of people. This is not a good recipe for getting lots of people to spend money.
Now I agree that military spenidng seems like a good idea, and it was a good idea in WWII, but that was because the military was put to good use immediately. Paying for a strong military, over ten times as much as the next highest to sit around is just kinda dumb. I realize there are spin off technologies that get trickled down, like aircraft systems, ssurveilance systems and so forth.
But if we are going to spend that kind of money, why wouldn't we do it in smart power grids, solving energy issues to get us off foreign fuels and fossil fuels altogether. We got our ass kicked by Vesta, a Danish wind power company who sell their turbines, and currently commands a 28% market share (almost double that of GE), providing thousands of jobs and technologies and products that are sold around the world.
Investing in energy technology will allow us to do the same for other areas, but we have to have a large jump start.
This is the sort of reasoning that is behind a real keynesian approach to moving the economy along, yes it bring on debt, but the payback has a chance to far larger than any sort of nickle return program that a tax cut imbues.
Now, I will say, there are a number of things that are in there that I would like to see removed. I dont get how any sort of welfare or social services have anything to do with stimulus. That is a separate debatable item as far as I can see. There are a few other things, but for the most part, its a good move.
Oi, I know this is a week old so I won't counter any of your points... for the most part, I completely agree with you. How odd it is.
Economic conservatives are not in favor of tax cuts without associated spending cuts, especially "libertarian" conservatives. Economic conservatives of the Libertarian persuasion tend to be Austrian or Chicago-style economists who tend to believe that tax cuts ought to be followed by spending cuts. What Bush did over the last 8 years isn't economic conservatism but some perversion of Neo-con ideology.
You and I disagree on how successful Keynesian spending will be; however I would agree that it is better to spend the money on energy independence and science than welfare. Atleast the economy will get useful technologies from the science spending. While taking on more debt from Keynesian spending will help the economy, so would taking on more debt for tax cuts. Its the same principle.
Oh well, this is a week old. Mea culpa on that
I'm happy to discuss old posts, particularly if I learn things.
Looks to me like the largest segment of this bill is in fact tax relief.
I wish it were not. I think providing more jobs by way of physical infrastructure projects is way better then providing tax relief for the reasons I mentioned above in the comments.
But what do you think about the largest part of the stimulus being tax cuts? Its not be majority of the bill of course, just the largest part of the pareto.
your point above that neo-con military spending is in fact keynesian, was interesting. True too. I had not thought about it that way. Still ridiculous in the face of global military powers and the strength of our allies.
The largest segment of the bill is indeed tax relief since thats where a plurality of the money goes; however the way that those "tax" credits are handed out is very curious. One thing that is in the American psyche is that any tax cut is a good tax cut. If you can mask something as a tax cut, you'll get people to vote for it. This is one of those cases.
A lot of the "tax cut" is going to various welfare-like programs. Once Clinton and the Republicans got rid of many benefits under welfare, they instituted things such as the "Earned Income Tax Credit" to take its place. Instead of getting welfare, people will get payments if they do not earn a certain amount in taxes. Therefore if they earn nothing, they will be paid to off-set that. So one of the tax cuts will be to fund that program further.
Also, the other parts of the "tax cut" are no better. As you mentioned somewhere else, there is no corresponding spending decrease with the tax cut. Therefore we are simply making welfare payments to everyone while borrowing from China and essentially our children (or us young folk). Plus, the ways that the "tax cut" is specified really just pork to various industries. For example, there are 10s of billions of dollars of "tax cuts" that are just bribes to get people to buy houses and cars. If you buy neither a house nor a car, you won't see a dime of that. Similarly, there are tax cuts which go to green energy sources that are less tax cuts and more research investment; however, once again, it'll just look better to call it a tax cut than a Keynesian investment.
As for military spending, it is definitely a Keynesian type of spending. The government, when in recession, needs to flood money into the economy and one easy way that is readily accepted by the public is through increased military spending. Thats not to say that all Keynesian economists are fine with that... many believe that military spending is inefficient compared to money spent on infrastructure. If fact, one of the groups that believes military spending is ridiculously inefficient is libertarians (which I saw you lump in with global warming / 9/11 deniers, anti-vaccinationists, and people who believe in psychics... that hurt).