Christopher Caldwell, writing in the Financial Times, writes:
The stimulus will be expensive, more expensive than the Iraq and Afghanistan wars combined and Nancy Pelosi, Senate majority leader, has called it a mere “down payment”. The stimulus bill, whether it succeeds or fails, could be the Democrats’ Iraq. Like Iraq, it is a long-standing partisan project that is being marketed as an ad hoc response to a national emergency. It reflects the pre-existing wishes of the party’s most powerful interest groups more than the pre-existing wishes of the country. Democrats are now liable to be judged by the standard they created when they abandoned the Bush administration over the Iraq war: you break it, you own it.
The full article can be found here.
But this is just a continuation of what Bush has been doing for a whole year. The Republicans have this sudden change of heart just as Obama takes office? You don’t think that’s just a little odd? Are you really going to try and throw this whole disaster around the necks of the Democrats? Isn’t this just politics, and aren’t you falling for it?
Not that I’m not happy to see Republicans oppose it, but when they only oppose it when they have no ability to stop it, and they support it when they do have the ability to stop it, you have to recognize this for what it is.
What Jon Said.
There is a difference between what Republicans proposed and what Democrats are proposing.
David D. Friedman, son of Milton Friedman, said it best here:
What congress is passing should more properly be called “Democrat pork fest”.
The principle is the same though, HP. The problem supposedly is the tightening of credit. The solution is to grease the skids by deficit spending/loaning. This is Keynsian liberalism, both from Republicans prior to the Obama administration and Democrats after the Obama administration.
As far as Friedman’s claims, I genuinely see both actions as simply spending, but in Bush’s case he’s giving money to friends on Wall St where Obama is creating jobs, which is more likely to help the working class. Friedman can call Bush’s stimulus a loan, but how can these firms pay back these loans when they are being used to prop up a housing bubble that is in the process of bursting? Homes are way over priced as you know in San Diego. They were bid up to absurd prices by easy money and government backed loans to the jobless/unemployed etc. In other words, this is a bubble created by government that both Democrats and Republicans are complicit in. Now that this has popped there is no way this money is coming back.
It’s all big spending liberalism, both from Bush and Obama. Your posts here attempt to deflect the blame from Republicans at all costs and saddle the Democrats with the problems. Do you understand why you sounds more like a partisan than a person of genuine principled opposition to me?
My point is that with Bush’s it atleast addressed the dilemma: were in a liquidity trap, it tries to loosen liquidity by taking on bad mortgages.
With Obama’s, he claims its a stimulus bill but it really isn’t. First, most of the stuff in the bill (92%) wont even take place until after 2009…when we may be already recovering. Second, alot of the stuff has no expiration date…like most government programs, it will go on forever. So its not tied to the economy in anyway…if next year we start doing better, dont matter, it continues anyway. And when you look at the list of where the money goes, its basically a long list of Democrat constituents - teachers, union workers, etc.
I guess this is where we split hairs. You claim these differences are insignificant…I claim they are very significant. One may be based on faulty economics but atleast it addresses what everybody agrees is the problem. The other is opportunistic, it basically uses our current economic environment as an excuse to pass what Democrats have been wanting to pass even before the crisis. Hence the parallel to Iraq post 9/11 with Republicans.
They are both addressing the same problem, but they do it in different ways. The problem is liquidity. Bush gives money to Wall St buddies. Obama creates government jobs. These jobs do go away if they are not funded. Infrastructure jobs in theory are completed when the job is done. It does take time for them to ramp up, just as it takes time for Bush’s money paid out to Wall St buddies takes a while to trickle in. This is the same dolling out of taxpayer money in both cases. To condemn Obama and rationalize away Bush is to play the role of a partisan. Why not act like a liberterian and recognize that Republicans are likewise big government liberals?
I am not sure that the first bailout was not necessary as I am not sure that a real fiscal stimulus is not also necessary. I am not an ideologue…I take no absolutes in either direction.
My only point in criticizing this is to point out the vast difference this “stimulus” bill is from an actual stimulus bill. I am not addressing whether or not we need a stimulus bill per se…as I am not sure either way. What congressional Democrats are doing in the name of a “fiscal stimulus” is tantamount to Bush funding the Iraq war for another 5 years and maybe starting a war with Iran…all the while claiming he is doing it for “fiscal stimulus”. Or to give a better example, it would be like the first bailout going to the pockets of Wall Street execs. It’s nothing but rewarding political constituents…pure and simple. Even David Friedman (no conservative, by any standard) pointed out the stark difference. This “fiscal stimulus” is one in name only!
Maybe we’re going around and around here, but let me instead say something about the stimulus plans in general.
The way I see it what’s happening today, put simply, is that people have made poor investment decisions based upon a false perception of U.S. economic conditions that were misleading due to government intervention. It would kind of be like if you had a restaurant and the circus came to town and set up across the street. Suddenly your business is booming and you decide to double the size of your establishment, only to have business disappear shortly thereafter and you’re stuck with bills you can no longer pay because business is not there anymore.
We’ve been consuming in this country like crazy because we can run huge deficits and there don’t seem to be any effects. We borrow and consume. The government creates a bubble in the housing market and homeowners think they have real wealth, so they borrow against that wealth and spend. The bubble has popped and the phony wealth has disappeared.
Everybody hates the correction, but the correction is really the cure to the disease. The disease was mal-investment due to a phony economy. The cure is to liquidate the bad debt and start fresh. The medicine tastes bad, but it is necessary for the economy to re-balance based upon the actual value of the assets that make up our economy as opposed to the phony value we’ve been making decisions based upon.
But nobody wants to swallow the medicine. So the government is stepping up telling people that we can continue to operate based upon our phony economy. They want to try and prop it up. But all they can really do is destroy our currency in a futile attempt to keep people doing what we’ve been doing. The correction has to come, and it will either come now, and be painful, or it will come down the road and it will be even more painful. Nobody in government wants pain of any kind right now.
So what both the Republicans and Democrats are doing is preventing the very correction that is key to turning things around. So when I hear you get upset that Obama is pumping up the phony economy, but you are relatively silent when Republicans do the same, or you try to recognize distinctions between the two plans so as to blame Democrats and give Republicans a pass, to me it sounds partisan. What our government is doing is working on the destruction of our currency so they can prop up a phony economy. Republicans and Democrats are doing it. If we don’t instead get upset about that, rather than imagining distinctions so as to score points against a particular political party, we could see a real economic disaster in this country.
I think you are too Austrian for my taste…but I don’t want to get into a discussion on Austrian economics (partly because I dont understand it all completely myself). Hows that.
Can you be too Austrian?
I could be wrong on this stuff too. You’re better read on these issues than I am. What I often do is just throw out an argument that makes sense to me even if I haven’t studied the alternatives, and I hope that someone that disagrees attempts a rebuttal so that I can see weaknesses I may not have considered. I’d be interested in how you’d react to what I have, even if you don’t want to go into detail if you think there’s something wrong with the Austrian theory I’m espousing here.
This so called stimulus package has nothing in it to stimulate the economy or create jobs and is so full of pork that you can almost hear it squeal. It is nothing but a pay back package to all those that supported and contributed to Obamas campaign. How will 4 billion dollars to ACORN going to create jobs unless you plan on going to work for them to be another Obama groupie? Millions are going to re-sod the trampled ground at the site where Obama threw his outlandish 180 million dollar whooppie party. What a joke on all those that voted for this media created fraud that promised a change in the way the government operates. Looks like government as usual to me; appointing tax evaders to positions, one of which will oversee the IRS. Obama also said no more lobbyists and to date he has appointed 19 of them. Don’t see any change going on here, only the government growing in leaps and bounds putting a strangle hold on every Americans neck. And one more executive order from this little Hugo want-a-be, Americans will realize that socialism is just around the corner.
Jon,
Well we don’t disagree on that much. I do agree with you that we have been living above our means and this recession is different than the rest in the sense that its more of a rebooting than a recession. From now on I expect our standard of living to have to be more in line with our means. Which means we will have to make sacrifices, sacrifices that politicians don’t want to talk about. A big part of this recession is really just the economy readjusting to this new reality.
Where I start to disagree is when we start getting into fed policy and the dollar. Austrian’s are too dogmatic on those issues, IMO. Don’t get me wrong though, I do agree that inflation and artificially raising money supply is a dangerous tool for the government to have. I do agree that it gets abused and can certainly wreck an economy (just look at Zimbabwe). BUT…there are cases where that is not the most pressing danger.
For example, during the great depression, I do believe that it would have been the right thing to do for the fed to have been more loose with the money supply. It wouldn’t have eliminated a recession but it certainly would have smoothed it out - probably even reduced it from a “great depression” to a mild recession. Maybe the same argument can be made in todays economic crisis, I don’t know.
Second, with regard to the dollar, I think Austrians focus too much on the US feds ability to manipulate the dollar as if the USA was the only player involved. They don’t take into account substitution and the fact that a large part of the dollars value is its respective value compared to that of other currency. In other words, yes it matters if the US is diluting the dollar, but it also matters if other countries are doing the same thing. For example, if the dollar is being diluted by a factor of 10, yet the Euro, the Yen and the pound are being diluted by a factor of 15…this could very well make the dollar stronger. Or to use a more pertinent example, if the US is diluting the dollar with the goal of making the economy stronger (get us out of a possible great depression) or atleast a safer place to invest in, especially with respect to other economies, this is an overall good thing and better than simple worries about the dollar in absolute terms. What I am trying to say is that the dollar is valued not just on its fed policy but also on its relative value to other currencies. Austrians seem to forget about that second point.
Another point I tend to disagree with is with regard to Greenspan. Austrians tend to see him as the evil guy who could have just raised interest rates at the right time and everything would have been fine. But its much more complicated than that. For one, its very very difficult to time the bursting of a bubble right ( see here and here). Also, I dont think you can blame the low interest rates completely on Greenspan. Remember, there was alot of money coming in from foreign countries then, particularly from Asia, and so our fed didn’t have as much power as Austrians think. In fact, one can make the argument that had the fed raised interest rates, that would have made America a more attractive place to lend money and made the housing bubble worse.
All in all though, I think what we have here is a personality difference. I tend to do the opposite of what you do: I feel uncomfortable talking about things I don’t completely understand and/or feel there is not a clear cut answer to. That is why I rarely discuss the Iraq war, macro, fed policy, foreign policy and overall anything that I have not made up my mind about or feel is a “debatable point”. By debatable point, I mean that both sides can be right, depending on their starting points. Or where there is not enough information to make a definitive decision. In other words, where its more “religious” than factual. I’m also really turned off by those who make definitive statements on such issues, one way or the other. They make it seem much simpler than it actually is. Granted, this can be said of most things, but my threshold of what is debatable is alot looser than yours…and when it falls in that category, I bring up the topic more as a learning process than as a blogging, pointing the finger way.
With that said, if you are interested more in the other side to Austrianism, and respected critiques of it, I recommend these links. Here, here, here, here, here and here.
Two quick points. Austrians I think agree that freeing up credit was necessary during the depression. The problem was the fed artificially ballooned the money supply in the 20’s, then actively restricted money during the depression. The point was to get people to mal-invest, then with foreknowledge of what the money supply would do get out of stocks and into cash before calling in loans and drying up the money as per fractional reserve banking. Then you can acquire foreclosed assets for pennies on the dollar. Rockefeller, Kennedy, and others like them were all in cash when the crash hit. Lucky? Or in the know?
With regards to Greenspan, I think it does appear his easy money policy caused bubbles, but this is not to say that anybody knows exactly what the value of money is or what interest rates should be. The point is the Fed is a monopoly that sets prices arbitrarily. We need a system that is more free, and that’s feasible.
Going back to the original point of this post, you had written in your first comment:
Not that I’m not happy to see Republicans oppose it, but when they only oppose it when they have no ability to stop it, and they support it when they do have the ability to stop it, you have to recognize this for what it is.
Wrong. The WashingtonPost reports here.
The title of the article says it all, it reads:
Senate Lacks Votes to Pass Stimulus
Democrats Trying to Trim $900 Billion Plan to Gain GOP Support
Go Republicans!
I agree that the Stimulus will be the Obama-Democrat Iraq, which is why the Republicans are opposing it politically even though much of it they agree with ideologically.
So which was a better bet: a) that we would find WMDs in Iraq, or b) we can find new jobs for the millions of people who have been doing the same thing for 30 years and can no longer compete in the global economy?
That is a partisan question: It puts the Iraq war in the worst possible light yet puts the fiscal stimulus in the best possible light. The truth is much more complicated…
My comment was meant to be tongue-in-cheek by saying that both questions are partisan and driven by the party in power. The main difference is that the Iraq war vote was supported by the Democrats under threat of being branded unpatriotic if not supported. Obama has stressed the urgency of the stimulus bill, but the Republicans aren’t biting. They continue to ride the tax cut ship, while ignoring the facts that trickle down economics don’t work.
Obama’s plan may fail - the tax cut plan under the Republicans would fail.
“the truth is much more complicated”? Please enlighten us with your wisdom.
I am curious, EM, why do you think the tax cut plan under the Republicans would fail? What makes you think that tax cuts are inferior to spending?
Tax cuts per se are not bad, but you have to look at whether they are stimulative in growing the economy. The George W. Bush tax cuts were designed to give the average middle class taxpayer around $600 while giving the upper class taxpayer around $12,000. This disparity widened the wealth gap and did not result in the increase in tax revenues and job creation to pay for itself. Therefore the government had to run huge budget deficits, adding about $5 trillion to the national debt, which doubled during the Bush years. The same thing happened during the Reagan years - he threw the country into recession and tripled the national debt.
I don’t know exactly what the Republicans are proposing to address the economic crisis. They are basically spending all their time criticizing whatever the Democrats and Obama are trying to do. I don’t know whether the Obama plan will work, but I don’t think tax cuts by themselves, even if they are targeted toward the middle class, are going to be enough. I think they need to be supplemented by spending in areas that will carry long term benefits, such as renewable energy, education, and high technology.
Bottom line - it is disappointing that there isn’t enough common ground for both of the parties to agree on in addressing this crisis.
BTW, why do you think tax cuts are good for Hispanics? Hispanics have a lower than average household income and large participation in the underground economy, therefore are going to get a disproportionately smaller benefit from tax cuts.
You make several arguments, all independent of each other. Let me splice them up.
First, you argue that tax cuts vis-a-vis spending are not stimulative. I answered that claim directly in this comment (click here), let me know what you think.
Second, you make the argument that Bush’s tax cuts “widened the wealth gap”. But, depending on ones perspective, one could say Bush’s tax cuts actually favored the working class over the rich, see here.
Third, you claim that tax cuts increase deficits…what, spending doesn’t do that?
Lastly, it is not tax cuts per se that I think are good for Hispanics - its less government. It is my firm belief that the smaller the government, the lower the tax base, and the more capitalist the country, the better off are the poor and minorities. If you think government spending is the answer to poor minorities woes, just take a look at our public schools and see what that has brought to the ghettos of the US.
I’m going to make this my last post, let you respond with the last word, and agree to disagree:
1. The only people that think the Bush tax cuts favored the working class over the rich are those who already felt the rich paid a disproportionately large share of the taxes and the tax cuts didn’t go far enough to be fair to the rich.
2. Spending does not necessarily increase deficits because it generates jobs, income, and income taxes for the private sector. There are plenty of defense contractor lobbyists who argue that increasing defense spending will reduce the deficit.
3. Hispanics benefit greatly from government programs for healthcare, education, welfare, etc. Since their household incomes are less than average, they are more likely to benefit from these services and be negatively impacted if they are cut.
I am not a fan of big government or many parts of the Democrat agenda, however it is absolutely clear that Hispanics are far better off with the Dems than the Republicans, who would like to cut all social welfare programs, eliminate ESL in the schools, and implement anti-immigrant policies.
I have enjoyed the discussion. Adios.
My response:
1. Agreed.
2. Tax cuts and spending, from a deficit perspective, are the same thing. The only difference, and one of the main reasons why I support tax cuts vs spending, is that atleast with tax cuts you are guaranteed that the person gets value.
For example, if I were to get a tax cut in the amount of, say, $400 dollars then I could spend that on whatever brings me atleast $400 of value. The only real loss are the (relatively) minor transaction costs of me sending the government my tax money only for some of it to be returned.
Contrast that to my tax money being spent on some failing public school systems construction buildings, “even though the district has 15 vacant school buildings, a large surplus of property and no plans for new construction”, see here. Where is my value in such spending? It is, after all, being paid with my tax dollars.
Remember, just as spending “creates jobs”, tax cuts, spent or invested, also creates jobs…just in more efficient places.
Regarding Hispanics and social programs…sure, some do benefit. But the overwhelming majority of them, those that don’t need welfare and other such programs, don’t. Besides, as I mentioned above, look at these “benefits” the poor supposedly reap. If you have been to any public school in the ghetto, you will see that it is anything but a benefit.
Thanks for the respectful exchange. Feel free to comment anytime. I much prefer the civil critic than the praising follower.
Sorry but I can’t resist one final comment on this topic. You have mentioned twice the decrepit condition of inner city schools. This is exactly why school modernization is such an important infrastructure project. The lack of reasonable school facilities is a major cause for the disparity in the quality of education afforded much of the inner cities, whose dwellers are disproportionately minorities, including Hispanics.
Like you, I am a devout believer in capitalism, however it is up to us to protect those who cannot protect themselves and regulate the markets when they are abused.
I hope you will visit our blog: http://www.ethnicmajority.com/wordpress. Perhaps we can share some of our postings. Take care.