Not Sold on the Stimulus Package
I don’t know about you but I am not sold on the stimulus package. Yes I understand that there are a lot of people hurting. However, making decisions based on emotions is not going to solve the problem. The mere fact that Obama stated that the American people “don’t need to be convinced”, is out of touch. For the most part this is a very partisan stimulus package. Gary Becker, Nobel economic laureate and Kevin Murphy, a senior fellow at the Hoover Institution in an opinion piece in the Wall Street Journal were skeptical as well. Below are three excerpts from the article:
In addition, although politics play an important part in determining all government spending, political considerations are especially important in a spending package adopted quickly while the economy is reeling, and just after a popular president took office. Many Democrats saw the stimulus bill as a golden opportunity to enact spending items they’ve long desired. For this reason, various components of the package are unlikely to pass any reasonably stringent cost-benefit test.
The increased federal debt caused by this stimulus package has to be paid for eventually by higher taxes on households and businesses. Higher income and business taxes generally discourage effort and investments, and result in a larger social burden than the actual level of the tax revenue needed to finance the greater debt. The burden from higher taxes down the road has to be deducted both from any short-term stimulus provided by the spending program, and from its long-run effects on the economy.
Our own view is that the short-term stimulus from the legislation before Congress will be smaller per dollar spent than is expected by many others because the package tries to combine short-term stimulus with long-term benefits to the economy. Unfortunately, short-term and long-term gains are in considerable conflict with each other. Moreover, it is very hard to spend wisely large sums in short periods of time. Nor can one ever forget that spending is not free, and ultimately it has to be financed by higher taxes.
Obama says, “a failure to act will only deepen this crisis.” I say acting emotionally, without all the facts and rushing into spending $827 billion dollars is a mistake. If your house is burning down you act. You call the fire department and get out the hose or your neighbors hose if it is safe. You don’t act by going into the garage and pouring gas on the flames. You have to act appropriately.
I recently saw an ad signed by over 200 economist, including three Nobel prize winners that stated:
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.
I trust Nobel prize winning economists over any politician for the simple fact that politicians by nature are not necessarily concerned about you or the United States as they are about votes.
Finally, it is hard to believe that the government is going to solve a problem they had a hand in creating. George W. Bush and the republicans did not create this problem. Look into the government sponsored enterprises of Fannie Mae and Freddie Mac. They were encouraged to expand and buy mortgaged backed securities. Even risky sub prime mortgages. The government told us that AIG, Citi and other large companies were too big to fail. I say this stimulus package is too big to fail. Let’s get it right the first time and not waste one dollar of tax payers money.
Tags: Becker, fannie mae, freddie mac, Murphy, stimulus, Tom Wurdack