Even if you are a full-fledged Obama supporter, if you know anything about economics you have to accept that this proposed “stimulus” plan is just a pork-laden deficit spending plan that will not stimulate the economy. It will buy more votes for Democrats with my children and grandchildren footing the bill. No thanks.
Writing over at US News, James Pethokoukis lists his 10 Reasons to Whack Obama’s Stimulus Plan and there are some good ones. Take off your Obama hat, retire the silly HopeyChange for a minute, and try some honest critical thinking and logical thought while you read that article.
1) A 2005 study by Andrew Mountford and Harald Uhlig “analyzed three types of policy shocks: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes) and a deficit-financed tax cut, in which revenues increase but government spending stays unchanged. We found that a deficit-spending shock stimulates the economy for the first 4 quarters but only weakly compared to that for a deficit-financed tax cut.” In other words, FDR vs. Clinton vs. Reagan, Reagan wins.
So deficit-financed tax cuts are the most effective approach. Of course, we all know that Democrats hate tax cuts unless they are those welfare-in-disguise tax cuts where people who pay no income taxes get a ‘credit’ (again, it’s a welfare check). Next, what about a cut in the capital gains tax?
3) Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago want to adress the fear and confidence issue by creating “the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years.”
Agreed. The people getting the Earned Income Tax Credit are not going to invest or spend us out of this recession. The people who pay capital gains taxes are. But of course, since people who pay capital gains taxes are far less likely to vote Democrat than those getting the Earned Income Tax Credit welfare check, this is a non-starter for Pelosi and Reid.
9) Massive stimulus didn’t work in the Great Depression. As this Heritage Foundation study notes: “After the stock market collapse in 1929, the Hoover Administration increased federal spending by 47 percent over the following three years. As a result, federal spending increased from 3.4 percent of GDP in 1930 to 6.9 percent in 1932 and reached 9.8 percent by 1940. That same year– 10 years into the Great Depression–America’s unemployment rate stood at 14.6 percent.” Same goes for Japan and its Great Stagnation of the 1990s.
10) Olivier Blanchard, the chief economist of the International Monetary Fund, coauthored a paper which found “that both increases in taxes and increases in government spending have a strong negative effect on private investment spending.”
Bottom line: There is another model out there. One that worked in 2003, 1997 and 1981. But will America use it?
Not a chance. This is just a vote buying collectivist wet dream and has nothing to do with stimulating the economy.
It is time for the GOP to grow a pair.