Sense And Sensibility

This morning, we learned that America’s unemployment rate has jumped to 7.6%, the highest it’s been in 17 years.  As it stands, we’ve lost roughly 3.6 million jobs since this recession started.

There is a job creation bill languishing in the Senate as you read this.  Why hasn’t it been passed? Why haven’t we already begun putting Americans back to work?

Well, because the Republicans are holding it up.  They only have a problem with 2% of the job creation bill, but apparently that’s enough to shoot it down and kill millions of potential jobs.  Whatever happened to bipartisanship and compromise?

Plus, the GOP’s rhetoric on the stimulus shows they know next to nothing about economics, which is why we’re in this mess to begin with–why do you think the Republicans lost the past two elections? Because they spent 8 years running a prosperous economy into the ground.

Steven Pearlstein says it better than I ever could:

As long as we’re about to spend gazillions to stimulate the economy, I’d like to suggest we throw in another $53.5 million for a cause dear to all business journalists: economic literacy. And what better place to start than right here in Washington.

My modest proposal is that lawmakers be authorized to hire personal economic trainers over the coming year to sit by their sides as they fashion the government’s response to the economic crisis and prevent them from uttering the kind of nonsense that has characterized the debate over the stimulus bill during the last two weeks.


Let’s review some of the more silly arguments about the stimulus bill, starting with the notion that “only” 75 percent of the money can be spent in the next two years, and the rest is therefore “wasted.”

As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures.

Moreover, much of the money that can’t be spent right away is for capital improvements such as building and maintaining schools, roads, bridges and sewer systems, or replacing equipment — stuff we’d have to do eventually. So another way to think of this kind of spending is that we’ve simply moved it up to a time, to a point when doing it has important economic benefits and when the price will be less.

Equally specious is the oft-heard complaint that even some of the immediate spending is not stimulative.

“This is not a stimulus plan, it’s a spending plan,” Nebraska’s freshman senator, Mike Johanns (R), said Wednesday in a maiden floor speech full of budget-balancing orthodoxy that would have made Herbert Hoover proud. The stimulus bill, he declared, “won’t create the promised jobs. It won’t activate our economy.”

Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus.


What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending.


Personal economic trainers would confirm all this. Until they’re on board, however, here’s a little crib sheet on stimulus economics:

Spending is stimulus, no matter what it’s for and who does it. The best spending is that which creates jobs and economic activity now, has big payoffs later and disappears from future budgets.

[Emphasis mine]

Democrats are trying to invest in America and Republicans are fiddling while the economy burns.  That’s really all there is to it.


One comment

  1. wilsonrofishing · February 8, 2009

    My issue with this bill is that a big portion of it is just disparate spending, largely not linked to anything. Sure it is spending, and spending will stimulate the economy. But if that is all the President and Congress wanted to do, then I would argue that cutting taxes and/or sending out a gift card to the American taxpayers would have been just as effective as this lowest common denominator type bill. I would personally put my 10K family equivalent share of this bill towards a Dodge Challenger, by the way. . .

    This will likely be one of the most significant pieces of legislation that the administration gets through during this term; it is also pretty mediocre.

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