Friday, September 9, 2011

Just Another Stimulus Package

Obama's "jobs bill," announced last night, is just another stimulus package, plain and simple.  But not only is it just another Keynesian[1] spending package, it is the same old policy proposals cloaked (poorly) in a new garb.  The Wall Street Journal said it best:
If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.
It seems that Obama has the vision of a new New Deal - the same type of stimulus; filling potholes, building infrastructure, and the like, that has already been attempted twice with little success during the Great Recession.  This is the same Keynesian economics that has, for some, justified profligate spending since World War Two.  Its record is, of course, highly debatable - after all, it was not so much the New Deal that brought America out of the Great Depression but World War II.  And while the staunchest defenders retort that military expenditures are government spending and thus justify Keynesian economics, there is a qualitative difference insofar as WWII spending occurred amid massive domestic and international structural changes.

But even if one concedes that Keynesian stimulus worked during WWII, it is the only event in American history that can make this claim.  Subsequent attempts have largely failed - most clearly demonstrated in the two most recent stimulus packages.  It is time to jettison this outmoded economic philosophy.  A simple enough reason is that Americans are catching on to the reality - any stimulus has to be paid by the taxpayer down the line.  Obama may wish to paper over this by claiming the "jobs bill" is fully funded, but the reality is if he is able to squeeze a few more billion out of the Super Committee, it should be used to further reduce our debt, rather than pay for new programs.

The truth is that the economy is failing to right itself because of fear.  Business owners and entrepreneurs have little certainty as to what is going to come out of Washington - more taxes or less, greater spending or austerity, increased or decreased regulation, downgrades, debt or solutions.  This has led to a near paralysis as a wait and see mentality has set in.  The volatility of the stock market says it all.  We have all become manic-depressives.

If Obama is serious about jobs, he has to allow business to do what it does best - get to work - by creating the stability it needs to properly function.  This is not even a call for decreased regulation or taxes [some regulation, as Obama pointed out is necessary to protect the safety and security of workers and consumers], but a need for businesses to know that their operating environment tomorrow will be the same as it is today.  This small thing, renewed confidence, will allow them to go forward and make long-term plans.  It is an easy solution - maybe too easy for a Democratic party beholden to the notion that complex government programs are needed to solve man's everyday problems.

The Republicans shouldn't even consider the bill; it is a waste of time.  Sure Obama will try to peg them as obstructionist and thus the Republicans should avoid grappling in the mud.  Their response so far - no response - is perfect.  There is no debate here, just political theater as Obama launches he reelection campaign. [But if one feels compelled to see what's economically wrong with his proposal the Heritage Foundation has put together a concise list.]

[1] Keynesian economics is the economic philosophy that government spending is sometimes needed to support the economy.  First developed by John Maynard Keynes in the early 20th century, it has often been used to justify countercyclical deficit spending (i.e. during recessions) by the government to stimulate the economy.  Largely beyond its original intent it has been argued by some (most notably following the Kennedy administration) that it should not solely be used during recessions but during other times of non-full employment.  This argument has led to deficit spending during economical booms to increase employment.  

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