When Barack Obama was originally pushing his ginormous stimulus bill, like many conservatives, I pointed out that it wasn’t going to work.
Among other things, I noted history has shown that stimulus bills of this sort don’t get the economy moving, I pointed out that there wasn’t even that much Keynesian stimulus in the bill — and it didn’t escape my notice that a significant portion of the spending was backloaded. In other words, we were going to spend as much money as “FDR’s New Deal AND the war in Vietnam combined” for a stimulus bill that wouldn’t actually stimulate the economy.
That was my position. Now for reasons that will soon become obvious, let’s look at some of the things that Robert Reich, Clinton’s Secretary of Labor, was saying about the same time. Of course, he supported it.
As the buyer of last resort, the federal government must respond if that cycle is to be reversed. In my judgment, this will require a stimulus of about 6 and a half percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.
Without such action, I estimate that another 3 million jobs will be lost in 2009, unemployment will rise to 10 percent of the workforce by the end of this year, and under-employment – including people working part-time who would rather be working full time, and those too discouraged even to look for work – will reach 15 percent. Without federal action, next year could be even worse.
As we now know, the unemployment rate hit 10.2% and underemployment was still at 19.1% in May of this year. In other words, things turned out even more poorly than Reich’s “worst case scenario” predicted it would get WITHOUT the stimulus.
Of course, the response to this is always: Well, it must have been even more terrible than we thought and had we not done it, things would be even worse now. Except the people saying that are the same ones who made the wrong call on the stimulus in the first place while the people who disagree are the ones who correctly predicted the stimulus wouldn’t work.
Anyway, now Reich is back demanding more stimulus and complaining about all of us horrible people who actually want the government to show some fiscal restraint after the biggest orgy of wasteful spending in the history of Planet Earth:
We’re falling into a double-dip recession.
…The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).
But all these boosts will end soon. Then we’re in the dip.
Retail sales are already down.
So what’s the answer? In the short term, more stimulus — especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can’t run deficits.
But the deficit crazies in the Senate, who can’t seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.
In the longer term, we need a new New Deal that will bolster America’s floundering middle class. Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.
If government stimulus were the answer, our economy would be roaring right now, Japan’s economy wouldn’t have been mired in a 20 year slump, and Greece would be the world’s most prosperous nation.
Moreover, you often hear liberals say “long-term debt (bad),” as Reich does, but then they oppose any and all attempts to tackle the debt. For example, look at Reich’s prescription for the future: More government spending, increase the percentage of people not paying any income tax — which is at 47% already — and pile even more of the tax burden on the rich.
The whole idea that we can have a massive welfare state funded by a tiny percentage of the population is completely unworkable. If you killed the goose that laid the golden eggs and took every LAST DIME of people making more than $75,000, it would only add up to 4 trillion dollars — which sounds like a lot until you remember that the National Debt just cracked 13 trillion dollars.
We simply can’t afford to keep throwing good money after bad on more big government programs that simply don’t work. We also can’t afford to keep relentlessly persecuting the most successful Americans to pay for it. The very fact that so much of American society ISN’T WILLING to pay a fair value in taxes for the government services they receive tells you that it’s not worth it. Putting those people trillions more in debt for more non-functional government programs isn’t the answer to our economic problems.