Hamilton, Madison, and Jay

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Friday, February 13, 2009

Will the stimulus work? Economists are laughing at the proposition

We have the Democrats, led by President Barry, claiming that if this stimulus bill isn't passed, it will mean an economic catastrophe. The president himself stated in his WaPo op-ed that if it wasn't passed "this recession would be irreversible." You simply have to laugh at the fear-mongering going on at the hands of the Democrats. McClatchy had an interview with economists who state, point-blank, this stimulus bill won't do a damn thing to stimulate the economy:

The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won't stimulate economic activity, according to a range of respected economists.

"I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who's usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending.

"It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits."

House and Senate negotiators this week narrowed the differences between their competing stimulus plans. In so doing, they scrapped a large tax credit for buying automobiles that would've caused positive ripple effects across the manufacturing sector. They settled instead on letting purchasers of new vehicles deduct from their federal taxes the state and local sales taxes on the cars they bought.

The exception to this is for buyers of plug-in hybrids, cars that run off a battery that can be charged at home or in the office. Buyers of these vehicles, available in very limited supply, could get a tax credit of up to $9,100.

A Republican-backed proposal that would've provided a $15,000 tax credit to first-time homebuyers also was scaled back dramatically. Instead, the compromise provides first-time homebuyers a tax credit of up to $8,000, and it doesn't have to be repaid over the life of the mortgage. Incentives already in place offer buyers a $7,500 credit that must be repaid, so the bill is an improvement, but short of what many economists think is necessary.

Another reason that some analysts frown on the stimulus is the social spending it includes on things such as the Head Start program for disadvantaged children and aid to NASA for climate-change research. Both may be worthy efforts, but they aren't aimed at delivering short-term boosts to economic activity.

"All this is 25 years of government expansion jammed into one bill and sold as stimulus," said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

The view wasn't much more supportive on the other side of the political spectrum. In a brief on the stimulus compromise, William Galston, a senior fellow at the center-left Brookings Institution and a former Clinton White House adviser, warned Thursday that a bank-rescue plan being finalized will make the $789 billion look like "pocket change."

"While the stimulus bill is a necessary condition for economic stabilization and recovery, it is hardly sufficient," Galston wrote. "As the lesson of Japan in the 1990s shows, fiscal stimulus without financial rescue yields stagnation — at best."

" . . . Serious observers believe that recovery cannot begin until we acknowledge that losses in the financial system amount to some trillions of dollars, rendering many institutions insolvent. The temptation will be to muddle along, hoping that these institutions can gradually regain strength without putting massive amounts of taxpayers' money at risk. If we go down that road, we are likely to end up with zombie banks whose balance sheets are riddled with near-worthless investments — banks that cannot lend to credit-worthy customers and who cannot trust one another," Galston wrote.

Paging President Barry, the cat is out of the bag. the emperor has no clothes. Even leading economists are saying that this bill is nothing more than a socialist wish list disguised as stimulus, and that the president and Congress are lying to the public about the stimulus that will be provided. The fact is that there will be no stimulus at all, or any that does come will be very short-term, at best. At worst, it'll dig us deeper in this recession and lead us down the road of inflation; possibly into stagflation as we head into 2010.

This bill absolutely must be stopped, and for more than one reason. The first is obvious: The bill is too big, and will spend too much. The second is that the bureaucracies and programs enacted in this bill will never be killed by the government. Representative Minnick had a better idea in his proposal; his was targeted, timely, and temporary. There is nothing in this bill that will make any of this temporary. Last but not least, it should be opposed because it is anything but bipartisan. It was Pelosi who crowed about winning and that because of that Democrats should write it. (Memo to Pelosi: that's not how it works in DC. That might explain why your caucus isn't pleased with you right now.)

As they say, read the whole thing. There's a lot more to the McClatchy report than what's right here, and it's full of more warnings from economists that this stimulus won't do what the Democrats claim it will. Evidently President Barry isn't listening to all of his economic advisers. Either that or he chose to listen to the two nuts leading the congress over people who, well, know money better than those in Congress that spend money like water.

Publius II


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