I never had any doubts that the federal government’s financial bailout and the stimulus bill were needed to weather the economic storm that hit us in 2008. Many people disagreed, but as the New York Times reported this week:
Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.
In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.
In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.
“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.
Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.
In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.
In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.
“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.
That’s right. If those who wanted our government to act like some dumbass tightwad had gotten their way, we would be in a depression now instead of working our way out of a recession.
I was one, and still am one that thinks the stimulus bill wasn’t big enough. More government spending on much needed infrastructure projects would help create jobs, which would in turn create demand for goods and services, resulting in more economic growth. Obama requested just enough stimulus money to weather the storm, but the storm has not passed, and he needs to ask for more to pull us out of this mess, but he won’t in this highly partisan environment, especially in a mid-term election year.
Ever since Democrats passed the stimulus bill in early 2009, Republicans in congress have attempted to portray themselves as born-again deficit hawks, eschewing their profligate ways during the George W Bush years. Fortunately, this fiction has not survived the question of what to do about the Bush tax cuts for the rich which are due to expire.
McConnell and others in the GOP explain the difference in terms of their opposition to government spending adding to the deficit, but this hardly concerned them when they were passing the Medicare drug benefit or appropriations for the wars in Iraq and Afghanistan – none of which were offset with spending cuts elsewhere. Even now when pressed to identify specific and significant cuts to government spending in programs such as Medicare or Social Security or the defence budget, GOP spokespeople dodge and weave and obfuscate shamelessly without ever giving a straight answer. Indeed, if you listen to them in other contexts, they insist not enough is being spent on things like border security.
This incoherence is fundamental to today’s national Republican Party and is guided by an essential right-wing conviction: that an unfettered free market is paramount, and that government has no business and is essentially ineffective in all but a few areas such as national security. The party therefore has no incentive to make government work efficiently or effectively either when they are in power or in opposition, since this would undermine their guiding principal. This explains, for example, the utter incompetence of the Bush years when the GOP controlled both the White House and the congress, and the intransigence of today’s congressional Republicans as they strive to thwart any and all initiatives of the Obama administration. For Republicans gridlock is good.
Voters should remember this as they go to the polls this fall. By any reasonable standard, the Obama administration and congressional Democrats have accomplished a great deal in the last two years, virtually all of which I happen to believe, will be to the long term benefit of the country. In the short term, the stimulus really did soften the blow of this deepest of economic downturns. Yet the number of jobless is still way too high and Americans are feeling unsettled and grumpy; Democrats, unfairly or no, are likely to feel the brunt of their ire. Republicans will benefit simply by being the party out of power. But a party as bereft of ideas as the GOP and whose policies and ideological devotion to deregulation largely caused the mess in the first place should not be rewarded with increased power and influence. That is simply a recipe for prolonged national pain.
Conservatives hate this bill. They tend to hate anything successful that comes out of the Obama Administration. They also don’t approve of average Joes getting special benefits funded by tax dollars. Funny… many of them do seem to approve of five-hundred times the amount spent on the Cash for Clunkers program going to extremely wealthy CEO’s in the form bonuses paid via corporate welfare payments to buoy the companies they ruined with their risky management practices.
Anyway, a program that helps people afford new cars and rids the roads of gas-guzzling SUV’s and trucks and replaces them with new more fuel efficient and less polluting cars that will save the new-car buyers up to around $1,000 per year in fuel costs is a triple-good thing – the two aforementioned items, plus fewer sight-blocking F-150’s and Ford Excursions for me to get stuck behind. No wonder people have responded so favorably to the deal. The program also pumps money into the sagging auto industry. Seems like a win/win to me, but then I’m not a billionaire conservative who doesn’t care about an extra thousand dollars spent on gasoline and doesn’t believe in global warming.
When Americans think of national vulnerabilities, their minds turn first to international terrorism or to possible security threats from the likes of North Korea or, maybe, in the future, China.
Yet our real vulnerability has been shown not to be from bombs and missiles, but from an economic recession that has exposed our tattered social safety net as an object that resembles Swiss cheese, and the fact that secure funding for vital public services such as education is a fantasy.
While private sector job losses have hit globally, only America, among leading industrialized nations, is seeing teachers, police and fire and other key public employees being laid off. This is folly of a high order. It’s bad enough losing private-sector jobs but when we slash public jobs not only are we adding to the pernicious effects of the recession by increasing unemployment, but we are hurting our children and the most vulnerable in our communities who rely on government services the most. How will slashing teachers and school librarians help our kids to compete with their international peers who are fortunate enough to be living in countries not plagued by such terminal myopia?
It has become clear that the impact of Obama administration’s stimulus package has been to mitigate the cuts in state budgets. That is not meant as a criticism. In fact, without the stimulus many more states and would be facing fiscal disaster and their people more pain.
A recent piece on PBS’s News Hour highlighted how the Hartford, Connecticut, school district had been making recent strides in improving test scores with innovative policies, and were looking to federal stimulus money for education to further boost their efforts. Instead, the governor of the state slashed education funding and the federal stimulus money will be used to “flat line” meaning it will replace the state funds, hopefully without substantial cuts.
And Connecticut is one of the lucky states; in my own state of Washington, the stimulus money will not make up for state cuts, and school budgets are being slashed. Few state governors have had the courage to propose temporary tax increases to help get us through this terrible spell and avoid damaging cuts in education, health and other social services.
Depressingly, it goes without saying that as more Americans lose their jobs they are also losing their healthcare insurance, thanks to our lack of universal medical insurance. Americans, in fact, are suffering in this recession far more than people in any other industrialized nation; we seem unable to understand that America cannot be strong abroad when it is weak and vulnerable at home.
President Obama understands this as well as anyone else in the country; it’s really too bad that so many of his fellow citizens don’t.
I understand the theory of The Republican Road to Recovery (see below) and I know how it “works” in practice, because it’s been the economic doctrine of choice for most of the last thirty years. The theory, also known as “supply side” and “trickle down,” is supposed to provide extra cash and capital to entrepreneurs who will in turn use their wealth to create jobs. The people who get those jobs spend the money they earn on goods and services. Their spending creates more demand for those goods and services, which in turn creates even more jobs. The theory works great… on paper. Kind of like last year’s Mariner team looked good… on paper.
The problem with the theory is that the very wealthy people at the top don’t practice what their party preaches. They don’t “trickle” their new found wealth down onto the rest of us. The rich have kept almost all of their tax savings for themselves. And the jobs they have created over the past six to eight years have not raised the average American’s standard of living. Average workers lost ground while those at the top saw their incomes nearly double. The jobs that have been created are generating more and more wealth for owners of the companies, but most of the people they employ aren’t getting paid enough to keep up with the increased cost of living.
So the Republicans’ plan to give the super rich hundreds of billions of dollars in more tax cuts every year is about the worst thing we could do right now. Historical data shows that their plan does not stimulate the economy. All their recovery plan would do is provide billions of dollars to the already super-rich people who would use their tax savings to replenish their depleted investment portfolios. Very little of “stimulus dollars” from tax cuts would go back into the economy.
To reiterate what is in the post below, the average CEOs of Americas largest 800 companies would see a tax cut of $1,500,000 every yearif the tax cuts outlined in The Republican Road to Recovery were implemented and Paul Ryan’s plan to eliminate the capital gains tax was enacted. Now that’s what I call “redistribution of wealth,” but the redistributed dollars would be going to people who are already obscenely rich.
Here’s a chart I found a couple days ago on Open Left that shows how much bang for the buck different types of stimulus plans provide:
You can see from the chart that tax rebates work on about a one-to-one ratio. People spend their lump sum payments, and it provides the economy with a quick shot in the arm.
The chart shows that permanent tax cuts are very ineffective at stimulating the economy and creating jobs.
You can see that government spending is very effective at stimulating the economy. Why? Because it creates both jobs and demand for things that people going through rough times, like many Americans are right now, would otherwise choose not to spend their money on. It’s no surprise that the biggest bang for the buck comes from extending income support to people who lost their jobs for the obvious reason that they will spend every penny they get. Infrastructure spending is also very effective because it creates employment and it improves productivity by rebuilding roads, bridges, schools, dams, water systems, electrical systems, etc. that must operate efficiently for our economy to prosper.
So my solution for stimulating the economy would be to extend unemployment benefits, and provide tax rebates for single payers making under $80,000 and joint filers making under $160,000. To help pay for the government spending, I would immediately raise the top tax rate to 50% and then increase it again later if needed. (That’s still a pretty good deal when you compare it to what the top rates were between 1932 and 1980.) I would leave other tax rates as they are for now, but in two years I would raise the 28% bracket to 30% and the 33% bracket to 35%.
I would then dole out some money to the states for the next two years to help them with the demand for health and human services due to recession-caused unemployment. I would also let them know they can’t rely on federal funds once things turn around in two years, so they better find a solution to their revenue problems between now and then.
I would spend heavily on infrastructure repair, and I’d start right here Seattle! I’d order up a construction crew to start boring the tunnel to replace the viaduct right away and another crew to reinforce weak points on the viaduct that will have to remain in place for the five or more years that it will take to complete the tunnel. Then I’d hire a demo crew to tear the viaduct down. And then I’d throw a huge party for the people of Seattle to celebrate the destruction of their city’s ugliest and noisiest road ever built.
There are projects like this all over the country. There are old levees, old bridges, flooded roads, dilapidated schools… We should spend the money to fix these things now. The spending will create jobs and it will improve our productivity in the long run.
And that’s the HariKari stimulus recovery plan – Guaranteed to work.
The economy has been getting worse and worse every day, and while President Obama was juggling with the problems of filling his cabinet positions, minority Republicans in congress seized on the opportunity to play politics with a much needed economic stimulus package. The “conservatives” who gave us three trillion dollars of added debt during their man’s failed terms as president are now crying foul about spending money right here in the U.S. to create much needed jobs and repair our crumbling infrastructure.
A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.
It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.
Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.
It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.
…
So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.
It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.
Krugman and several other columnist were wondering when Obama “the orator” was going to speak passionately about why congress needs to pass the bill right now. Obama answered the call last night:
“Don’t come to the table with the same tired arguments and worn ideas that helped to create this crisis,” Mr. Obama told a gathering of House Democrats in Williamsburg, Va., referring to Republican demands for more tax cuts.
“We are not going to get relief by turning back to the very same policies that for the last eight years doubled the national debt and threw our economy into a tailspin,” Mr. Obama said. “We can’t embrace the losing formula that says only tax cuts will work for every problem we face, that ignores critical challenges like our addiction to foreign oil, or the soaring cost of health care, or falling schools and crumbling bridges and roads and levees.”
…
“The scale and scope of this plan is right. If we do not move swiftly,” the president said, “an economy that is in crisis will be faced with catastrophe.” He added, “Millions more Americans will lose their jobs. Homes will be lost. Families will go without health care. Our crippling dependence on foreign oil will continue. That is the price of inaction.”
Republicans, including John McCain will have none of it. They have but one solution for every economic problem: Tax Cuts.
Republican efforts to drastically alter the package, by eliminating huge blocks of spending in place of expanded tax cuts, continued Thursday morning as Senator McCain proposed yet another substitute bill, including a plan to slash corporate and personal income taxes. Democrats defeated his proposal and others.
John McCain needs to go back and watch his own speech that he gave on the night of November 4, 2008 – His CONCESSION speech, the one where he said:
“The American people have spoken, and they have spoken clearly.”
That’s right Johnny. You lost.. by a lot. The American people did speak clearly. They are tired of the Republicans’ failed economic policies that favor only the very richest among us. In fact, even the very richest among us are tired of the reckless Republican tax cuts. Here’s a snippet from a column that Reed Hastings, CEO of Netflix, wrote for the New York Times today:
I’m the chief executive of a publicly traded company and, like my peers, I’m very highly paid. The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.
Then, the next time a chief executive earns an eye-popping amount of money, we can cheer that half of it is going to pay for our soldiers, schools and security. Higher taxes on huge pay days can finance opportunity for the next generation of Americans.
So take note people. If we want to get this economy back on track, the government needs to start spending money right now on projects that will put people back to work and improve our future economic prospects. How will we pay for it? By raising taxes on the very richest among us who got a free ride while Bush added trillions to our national debt.
