Here is my condensed version...
Posted on 02/12/2009 8:19:19 PM PST by Entrepreneur
Six Fatal Flaws With the Stimulus Bill
When the need for a stimulus package was first discussed late last year, I was skeptical, but kept an open mind. Investments in roads, bridges, and the grid wouldn’t be bad. Certainly the electric grid needs upgrading (ditto for power generation). Tax incentives, if really in the plan, would be very welcome if the right kind.
We don’t need some stimulus check that’s Keynesian in effect. We need cuts in the capital gains rate, top marginal corporate tax rate (ours is the second highest in the word), or the top personal marginal rate. These increase the after tax return from investments and would automatically draw money from the sidelines and stimulate capital formation, economic activity, and job creation.
That’s not what we got. Investment and incentives are a minor part of the current travesty. The price tag has also changed. The original plan was to be “as high as $500 billion.” The Senate bill is 64% higher.
We’re told it’s the current bill or nothing and in his press conference, the president said, “Doing nothing is not an option.”
The choice shouldn’t be this bill or nothing. It should be this bill or something that will work.
I feel like a hospital patient suffering from pneumonia. The doctor looks me over and declares, “He’s really sick. Doing nothing is not an option, so we better amputate.”
While politics and economics are intertwined, I’d like to separate the two as much as possible and look at the stimulus plan economically. As it stands, the plan suffers from at least six fatal flaws.
Flaw #1: The stimulus plan assumes the government creates wealth.
The government does not create wealth, it merely moves it around. It merely spends other people’s money less efficiently than they could spend it themselves. George Mason University Professor Richard Wagner nailed it…
“Any so-called stimulus program is a ruse. The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing or by inflating the currency, the added spending will be offset by reduced private spending. Furthermore, private spending is generally more efficient than the government spending that would replace it because people act more carefully when they spend their own money than when they spend other people's money.”
His colleague, noted economist Walter Williams, adds…
“A visual representation of the stimulus package is: Imagine you see a person at work taking buckets of water from the deep end of a swimming pool and dumping them into the shallow end in an attempt to make it deeper. You would deem him stupid. That scenario is equivalent to what Congress and the new President proposes for the economy.”
In his press conference the president referenced Japan’s Lost Decade as a reason to act now. During the Lost Decade Japan suffered a recession spurred on by a burst real estate bubble. A series of policy blunders followed that turned a financial correction into a decade of malaise.
John Makin, in a report for the American Enterprise Institute, noted that the major lessons for the U.S. from Japan’s Lost Decade were 1. To avoid deflation by acting fast to cut interest rates and 2. To avoid raising taxes. Unlike Japan’s central bank, the Fed cut rates quickly. Whether we can avoid a tax hike remains to be seen.
Makin also noted that the government spending failed to help. “The packages were poorly directed,” he wrote, “Largely toward unproductive public works projects and credits to small businesses that were no longer economically viable. It would have been far better to have reduced tax rates and allowed households to employ the increase in disposable incomes as they saw fit. Investment incentives would have helped as well, since part of the aftermath of the stock market boom was a collapse in private investment following the excessive buildup that occurred in the 1980s. Also, the need to move production facilities abroad grew as the economic environment in Japan deteriorated and deflation strengthened the yen, making goods produced in Japan too expensive in world markets.”
Even National Public Radio reporters agree that Japan’s government spending did more harm than good. NPR’s Eric Weiner reported, “Another lesson from Japan: Don't try to spend your way out of an economic trough. Japan ramped up government spending on public works projects, including bridges and river ‘improvement’ programs that literally lined many waterways with cement. But it didn't work, and today the only evidence of this spending binge is the ugly slabs of cement that mar the Japanese countryside.”
This was a lesson Japan should have learned from studying the Great Depression. In 1939 Henry Morgenthau, FDR’s Secretary of the Treasury said, “We are spending more money than we have ever spent before, and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started and an enormous debt, to boot.”
Morgenthau was point man for the New Deal and he declared it a failure. Watch this video for a discussion with the authors of two new books on the depression:
If politicians were serious about stimulating the economy, they would pass a bill with immediate private sector incentives. Specifically, they would reduce capital gains taxes to raise the after tax return from investments. They would also slash the top corporate tax rate, which is currently the second highest in the world.
These are lessons that we taught the world with the Kennedy tax cuts and Reagan tax cuts. In fact, this is what ultimately led to a Japanese recovery.
According to Makin, “Japan's movement out of its decade of negative growth and deflationary pressures in the early part of the millennium relied heavily on close examination of U.S. policy measures and advice from U.S. policymakers. We should hope that whoever is elected president this November will not ignore the lessons of Japan's last decade when it comes to examining options on tax policy. Revenue-neutral reductions in marginal tax rates--more things taxed at lower rates--is the best policy alternative. Further subsidies to already oversubsidized sectors of the American economy--like real estate--would be unwise. The extensive subsidies for the real estate sector constitute part of the problem we are now facing, not a desirable part of the solution.”
Unfortunately, we seem set on relearning the lesson. Here’s how little the authors of the stimulus bill know about incentives. One of the provisions of the Senate version of the bill is a $15,000 tax credit for buying homes. But the tax credit is not retroactive to the start of the year or even to today. By putting this into the bill, they effectively freeze home sales until the final legislative monstrosity works its way through conference (where the House and Senate versions are merged into one), gets passed, signed into law, and takes effect. In short, they’re making things worse RIGHT NOW.
Flaw #2: There is very little immediate stimulus.
Let’s say one buys the failed, tired Keynesian rationale for government pump priming. If so, we need spending now, not years from now.
Glenn Beck wrote, “According to the CBO, only $26 billion — just over 3 percent — will be spent this year. Another $110 billion — or 13 percent — will be spent next year. Which means that by the time President Obama's term is halfway through, just 16 percent of the money will have been spent.”
If this is not an immediate stimulus bill, what’s the hurry to pass it? Why not slow down and get it right? Why not pass a bill for current year spending only? Future stimulus could be rolled into the regular federal budget process.
Flaw #3: We don’t even know what’s in it and what we’re learning isn’t good.
The more we learn about this legislative travesty, the worse it looks. Did you know it includes provisions to foster socialized medicine?
According to the Hudson Institute’s Betsy McCaughey, “One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions. These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, ‘Critical: What We Can Do About the Health-Care Crisis.’ According to Daschle, doctors have to give up autonomy and ‘learn to operate less like solo practitioners.’”
McCaughey adds, “Hiding health legislation in a stimulus bill is intentional. Daschle supported the Clinton administration’s health-care overhaul in 1994, and attributed its failure to debate and delay. A year ago, Daschle wrote that the next president should act quickly before critics mount an opposition. ‘If that means attaching a health-care plan to the federal budget, so be it,’ he said. ‘The issue is too important to be stalled by Senate protocol.’”
Getting rid of government health care provisions, including the creation of a major new bureaucracy should be enough to derail the legislation by itself. McCaughey notes, “The bill allocates more funding for this bureaucracy than for the Army, Navy, Marines, and Air Force combined.”
That’s not all. Apparently ACORN is getting billions. If you aren’t familiar with ACORN, it’s the community organizers who have consistently been found involved in voter fraud. ACORN is essentially a political organization. Why should we be forced to fund them?
What else is hiding in the bill?
Flaw #4: It’s a really, really bad deal.
In his press conference, the president declared that the success metric is creating or saving 4 million jobs. First, how do you know if you save a job? You don’t. By claiming he saved jobs, the president has an escape clause that allows him to claim success under any circumstances.
If no jobs are created, he can simply claim that 4 million were saved. How will we know? We won’t.
Let’s say 4 million jobs are created. We’re spending at least $820 billion to create 4 million jobs. Let’s do the math…
$820,000,000,000 / 4,000,000 jobs = $205,000 per job.
Does that look like a good deal to you?
Flaw #5: The plan does little to improve infrastructure.
In the president’s original proposal, he stressed infrastructure improvements. Infrastructure spending can improve the nation’s efficiency. It can make us more productive. Unfortunately, there’s not much in this disaster of a bill.
According to the “Wall Street Journal,” “Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There's another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities.”
What little infrastructure investment is present in the bill won’t make much of a difference anytime soon. The president’s budget direct, Peter Orszag, admitted that “even those [public works] that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”
The bill spends eight times as much on income transfer payments as roads and bridges. Transfer payments do not create jobs. If anything, they provide disincentives to seek work.
It doubles, DOUBLES the size and scope of the Departments of Energy and Education. In short, this bill doesn’t stimulate the economy, it stimulates the government.
Flaw #6: It saddles us with too much debt.
Not including interest payments, the government stimulus monstrosity will saddle the average family of four with $11 thousand of debt. Let’s not even consider the fact that the deficit DOUBLED last year when President Bush pushed through his hurried, ill-conceived stimulus bill that seems to have evaporated.
You would be hopping mad if someone took out an $11 thousand dollar loan in your name, spent it on who knows what, and left you to repay it. Well, that’s exactly what the government is doing. In fact, the government did it last fall, is doing it again, and threatening to do it a third time in the future.
What Can You Do?
It won’t hurt to call and/or email your Congress Critters and share your feelings about this legislative debacle. I understand that sentiment is running around 100 to 1 against the bill. Congress is getting flooded with angry calls and emails. Good.
Next, you can examine the charities and other groups you support. If you’re a member of AARP and they support the bill (I don’t know if they do or not), let them know your feelings. If AARP or any other group does not reflect your views, pull out and support more worthwhile groups.
Finally and most importantly, take control of your own destiny. Have a personal expansion. Grow your business. It’s what I’m doing.
Look, unless you’re prepared to pack and move to another country, you’re going to have to weather the storm. Fortunately you can, if you make changes in the way you do business.
You can’t save your way out of this. You can’t do what you’ve always done. You’ve got to get aggressive, more aggressive than the next guy. You’re going to have to work harder. You’re going to have to put forth more effort. You’re going to be scared at times, but you can do it.
Dave Chase, Chief Marketing Officer for Altus Alliance, wrote a great article about the companies that prospered during the Great Depression. Chase wrote that “not all was doom and gloom during the Great Depression. It was a time when those who knew what they were doing made great economic strides, and the very nature of the Depression was an economic boon for them. It was a time when several companies benefited from aggressive marketing while their rivals cut back. A good example of that would be Kellogg besting C.W. Post during that time. Consumers didn't stop spending during the Depression; most just looked for better deals, and the companies providing those better deals came out stronger after the Depression ended. When spending picked up, consumer loyalty to those companies remained.”
In other words, you’ve got to get aggressive and take share from your competitors. You’ve got to market smart and use promotions wisely.
According to Chase, “Those companies that not only survived but also thrived during the Great Depression were those that continued to act as though there were nothing wrong and that the public had money to spend. In other words, they advertised. These are industries that didn't wait for public demand for their products to rise. They created that demand even during the most difficult of times.”
The good news is your competitors and other businesses are cutting advertising precisely when they should do more. This means there are deals to be had in the advertising arena. You can negotiate like never before. Try it.
When it’s harder to get customers you need to put forth more effort, not less.
Actually, the stimulus bill will do exactly as it is intended (which is perhaps different from its stated goals). The government invests in poverty, misery and control. This will be its greatest investment as such to date. The result will be massive poverty and misery. Of course, then they’ll have to clamp down on us to contain the angered masses which, ultimately, is the rationale for all of this by the people now in charge and will give them the third of the three goals. Or, at least, a shot at it.
Only six?
This needs to be made into a self-playing powerpoint or mpeg and chain emailed around the country asap.
Obama claiming to save 4,000,000 jobs is like Clinton saying he was going to put 100,000 cops on the street.
At least six
Here is my condensed version...
“According to the CBO, only $26 billion — just over 3 percent — will be spent this year. Another $110 billion — or 13 percent — will be spent next year. Which means that by the time President Obama’s term is halfway through, just 16 percent of the money will have been spent.”
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That needs to be repeated 100x/hour across the USA.
This is a beggar’s banquet. The dems picking the last scraps off the carcass of the American Dream for their brood. It’s a feast for fools.
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