Monday, February 09, 2009

Not so stimulating

The stimulus plan will pass with minimal GOP support and that's as it should be. The plan presents a radical departure from what the Republican Party is supposed to stand for and the best it can do now is to provide principled opposition or, as the President of Unity calls it, "distractions and politics as usual."

There is a sense, however, in which the plan is neither fish nor fowl. It is certainly not animated by supply side principles but neither does it seem to be a coherent effort to make the type of social investments that the left believes will lead to economic growth. There is, to be sure, a little bit for everybody but that's the problem. The Dems are managing to blow through a trillion dollars without coming close to solving any of the supposed "crises" that have come from years of GOP neglect.

We are left then with a sort of unadulerated retro classic Keynesian priming of the pump. Spend money. Spend it on anything. All will be well.

There are two problems. The first is that a stimulus justification would require that the spending be temporary. I suspect that the welfare spending in the bill will not be - at least not without substantial GOP gains in 2010.

The second is that this type of pump priming doesn't work. It didn't end the Great Depression. It didn't work during the post war period. It didn't work for Japan in the 90s.

A friend recently suggested that, well, the problem with the New Deal is that it was too small but WWII, when we really kicked out the jams, shows the power of deficit spending. That, he says, finally ended the Great Depression.

Maybe. But if we wanted to make this like WWII, we'd have to not only engage in massive deficit spending (more than what this package calls for) but we would have to prevent people from spending the money for four years so there would be substantial deleveraging and pent up demand and we'd have to blow up a good chunk of the EU. There would be no transfer payments and no spending on social programs.

When pressed to make a case for the plan, Obama invokes panic (we'll have a "catastrophe) and says "I won." But, as Rich Lowry says, "[i]f he had pledged in October to double federal domestic discretionary spending in a matter of weeks—including increasing the budget of the National Endowment for the Arts by a third, spending hundreds of millions more on federal buildings and throwing tens of billions on every traditional liberal priority from job training to Pell Grants—he’d have been hard-pressed to win at all."

The current economic downturn is serious but it is not - at least not yet - the worst since the Great Depression. The notion that because we have to do something we should do anything is where disasters begin.

As for transfer payments, if you believe in the liquidity trap, then transfer payments are the last thing you want because people won't spend the money. You have to spend it for them.

I'd be shocked if there isn't some improvement in the short run, but it's the longer run that concerns me.


Dad29 said...

The longer run concerns CBO, too, which predicts that the debt (alone) will crimp GNP in the out-years.

Anonymous said...

Rush Limbaugh revealed some pages from the stimulus package that gives us national health care. That was the first I heard of it being in this plan but it is no wonder the left is pushing so hard to get this past.

He said, “The elderly are going to have to accept some of the things that come from aging”. It appeared he read that from the stimulus package.

It also appeared that the National Health Plan will tell doctors what they can and cannot do with patients and that procedures cannot exceed a limit based on the average annual costs for the expected years you have remaining. In addition, they will have everyone persons medical file.

This sound like a very scary plan that we should be getting more info on. Are the Republicans even reading it?

Anonymous said...

Is it also true that the stimulus package commits us to spending $9.7Trillion more on bad morgages?