The stimulus plan: bad policy, merely disguised spending

The conclusion

It’s just a spending bill with an extremely small amount of current stimulus effect.

Farther down the page is an outstanding analysis (not bare opinion) on the stimulus plan and what is wrong with it. It’s heavily footnoted to what appear to be thoughtful and authoritative sources for each point. One needs to look no farther than his point #4, based on data from the Congressional Budget Office — a neutral and objective (we hope) source — to see why this is not about stimulating the current economy:

4) An initial CBO analysis found that a mere $26 billion out of $274 billion in infrastructure spending, just 7 percent, would be delivered into the economy by next fall. An update determined that just 64 percent of the stimulus would reach the economy by 2011.

The entire article is repeated below. Read on.

About the spending … “stop economic starvation”

So if not to stimulate the current economic malaise back into life, what’s it about? An article from CNSNews reveals in the comments of Senator Claire McCaskill just what it’s about:

“I do think that there was some spending in the bill that was makeup for a starvation diet under the Bush administration, some important priorities of our party; frankly, of the American people,” said McCaskill.

Some spending … makeup? Starvation diet? As CNSNews points out

In 2000, the year before President George W. Bush took office, total federal expenditures were $1.78 trillion, according to the White House Office of Management and Budget. This year, the last budget approved under Bush–total federal expenditures are expected to be $3.1 trillion—not counting whatever amount the Congress approves for a stimulus package.

Under the “starvation diet” imposed by the Bush Administration, the annual federal budget grew by 1.32 trillion.

In 1989, when President Reagan left office, according to the OMB, all federal expenditures equaled only $1.14 trillion.

From Federal Spending Was on ‘Starvation Diet’ During Bush Years, Says Democratic Senator
Monday, February 09, 2009
By Terence P. Jeffrey, Editor-in-Chief.

So the plan is to make up for this “economic starvation” with the likes of the pork and non-stimulating spending as laid out in another purloined article discussed elsewhere in these Musings.

Now for the objective analysis on policy

10 Reasons to Whack Obama’s Stimulus Plan

January 27, 2009 02:10 PM ET

Some people are going to oppose President Obama’s ginormous stimulus package just because they’re on a different political team. But when you look at the economic evidence, it sure seems like an economic recovery package that’s heavy on government spending and light on tax cuts is just the opposite of what we should be doing right now. Try this closing argument on for size:

via 10 Reasons to Whack Obama’s Stimulus Plan – Capital Commerce (

Here is the rest of the 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.

2) Harvard economist Robert Barro looked at the multiplier effect of World War II military spending — supposedly the Mother of All Stimulus Plans and found that “wartime production siphoned off resources from other economic uses — there was a dampener, rather than a multiplier.” Barro prefers eliminating the corporate income tax to massive government spending.

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.”

4) An initial CBO analysis found that a mere $26 billion out of $274 billion in infrastructure spending, just 7 percent, would be delivered into the economy by next fall. An update determined that just 64 percent of the stimulus would reach the economy by 2011.

5) University of Chicago economist and Nobel laureate Gary Becker doubts whether all this stimulus spending will do much to lower unemployment: “For one thing, the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative.”

6) Christina Romer, the new head of the Council of Economic Advisers, coauthored a paper in which the following was written about taxes: “Tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.” And former Bush economic adviser Lawrence Lindsey tack on this addendum: “The macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet.”

7) Economists Susan Woodward and Robert Hall find that the multiplier effect from infrastructure spending maybe just 1-for-1, less than that 3-to-1 ratio for tax cuts that Romer found: “We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package. We should not count on any inducement of higher consumption from the infrastructure stimulus.”

8) Economist John Taylor thinks it better to let the Federal Reserve deal with the short-term problems in the economy, while fiscal policy should attend to long-term issues: “In the current context of the U.S. economy, it seems best to let fiscal policy have its main countercyclical impact through the automatic stabilizer … It seems hard to improve on this performance with a more active discretionary fiscal policy, and an activist discretionary fiscal policy might even make the job of monetary authorities more difficult. It would be appropriate in the present American context, for discretionary fiscal policy to be saved explicitly for longer-term issues, requiring less frequent changes. Examples of such a longer-term focus include fiscal policy proposals to balance the non-Social Security budget over the next ten years, to reduce marginal tax rates for long run economic efficiency, or even to reform the tax system and Social Security.”

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?













Earmarks by any other name

Much is said by some in Congress that the “stimulus” bill (recently passed by the Senate with the assistance of two terribly mis-guided Republicans — Specter and Snowe) contains no earmarks. And they say it proudly and, seemingly, seriously. Check the following list in an article from CNN. Call it “pork” or “earmarks” or whatever appellation suits your fancy today, but the fact of the matter is that most of these items are blatantly wasteful and have nothing to do with getting our economy back on track.

Many of these are just ordinary budget items that probably would not pass in a routine budget debate. While those items might not be pure “pork” in the classic sense, you have to ask about the necessity. My comments are in bold.

On Monday, Congressional Republican leaders put out a list of what they call wasteful provisions in the Senate version of the nearly $900 billion stimulus bill that is being debated:

The Senate is currently debating the nearly $900 billion economic stimulus bill.

The Senate is currently debating the nearly $900 billion economic stimulus bill.

• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.

• A $246 million tax break for Hollywood movie producers to buy motion picture film. Like they need a tax break?

• $650 million for the digital television converter box coupon program. To “save” the 6% of the country who couldn’t get the coupons squared away in the three years that this conversion has been underway. So they can watch soap operas?

• $88 million for the Coast Guard to design a new polar icebreaker (arctic ship). But wait … Gore’s global warming is melting all the ice!

• $448 million for constructing the Department of Homeland Security headquarters.

• $248 million for furniture at the new Homeland Security headquarters.

• $600 million to buy hybrid vehicles for federal employees.

• $400 million for the Centers for Disease Control to screen and prevent STD’s.

• $1.4 billion for rural waste disposal programs.

• $125 million for the Washington sewer system. Could not possibly be a big enough system at that meager price!

• $150 million for Smithsonian museum facilities.

• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion. That’s a budget mistake … don’t bury it in a “stimulus” bill.

• $75 million for “smoking cessation activities.”

• $200 million for public computer centers at community colleges.

• $75 million for salaries of employees at the FBI.

• $25 million for tribal alcohol and substance abuse reduction.

• $500 million for flood reduction projects on the Mississippi River.

• $10 million to inspect canals in urban areas.

• $6 billion to turn federal buildings into “green” buildings.

• $500 million for state and local fire stations.

• $650 million for wildland fire management on forest service lands.

• $1.2 billion for “youth activities,” including youth summer job programs.

• $88 million for renovating the headquarters of the Public Health Service.

• $412 million for CDC buildings and property.

• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.

• $160 million for “paid volunteers” at the Corporation for National and Community Service.

• $5.5 million for “energy efficiency initiatives” at the Department of Veterans Affairs National Cemetery Administration.

• $850 million for Amtrak.  To keep it going so it can lose more money?

• $100 million for reducing the hazard of lead-based paint.

• $75 million to construct a “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies.

• $110 million to the Farm Service Agency to upgrade computer systems.

• $200 million in funding for the lease of alternative energy vehicles for use on military installations.

From (accessed 2/8/09)

Romney’s speech — it’ll be historical

Regardless of your opinion of Mitt Romney’s politics, his speech in bowing out of the 2008 presidential race is outstanding. All of America needs to sit up and pay attention.

The following is former Massachusetts Gov. Mitt Romney’s address to the Conservative Political Action Committee, Feb. 7, 2008:

“I want to begin by saying thank you. It’s great to be with you again. And
I look forward to joining with you many more times in the future.

Last year, CPAC gave me the sendoff I needed. I was in single digits in the
polls and I was facing household Republican names. As of today, more
than 4 million people have given me their vote for president, less than
Senator McCain’s 4.7 million, but quite a statement nonetheless. 11
states have given me their nod, compared to his 13. Of course, because
size does matter, he’s doing quite a bit better with his number of

To all of you, thank you for caring enough about
the future of America to show up, stand up and speak up for
conservative principles.

As I said to you last year, conservative principles are needed now more than ever. We face a new generation of challenges, challenges which threaten our prosperity, our
security and our future. I am convinced that unless America changes
course, we will become the France of the 21st century—still a great
nation, but no longer the leader of the world, no longer the
superpower. And to me, that is unthinkable. Simon Peres, in a visit to
Boston, was asked what he thought about the war in Iraq. “First,” he
said, “I must put something in context. America is unique in the
history of the world. In the history of the world, whenever there has
been conflict, the nation that wins takes land from the nation that
loses. One nation in history, and this during the last century, laid
down hundreds of thousands of lives and took no land. No land from
Germany, no land from Japan, no land from Korea. America is unique in
the sacrifice it has made for liberty, for itself and for freedom
loving people around the world.” The best ally peace has ever known,
and will ever know, is a strong America!

And that is why we must rise to the occasion, as we have always done before, to confront
the challenges ahead. Perhaps the most fundamental of these is the
attack on the American culture.

Over the years, my business has taken me to many countries. I have been struck by the enormous differences in the wealth and well-being of people of different
nations. I have read a number of scholarly explanations for the
disparities. I found the most convincing was that written by David
Landes, a professor emeritus from Harvard University. I presume he’s a
liberal–I guess that’s redundant. His work traces the coming and going
of great civilizations throughout history. After hundreds of pages of
analysis, he concludes with this:
If we learn anything from the history of economic development, it is that culture makes all the
difference. Culture makes all the difference.

What is it about American culture that has led us to become the most powerful
nation in the history of the world?
We believe in hard work and
education. We love opportunity: almost all of us are immigrants or
descendants of immigrants who came here for opportunity—opportunity is
in our DNA. Americans love God, and those who don’t have faith,
typically believe in something greater than themselves—a “Purpose
Driven Life.” And we sacrifice everything we have, even our lives, for
our families, our freedoms and our country. The values and beliefs of
the free American people are the source of our nation’s strength and
they always will be!

The threat to our culture comes from within
. The 1960’s welfare programs created a culture of poverty. Some think we won that battle when we reformed welfare, but the liberals
haven’t given up. At every turn, they try to substitute government
largesse for individual responsibility. They fight to strip work
requirements from welfare, to put more people on Medicaid, and to
remove more and more people from having to pay any income tax
whatsoever. Dependency is death to initiative, risk-taking and
opportunity. Dependency is a culture-killing drug—we have got to fight
it like the poison it is!

The attack on faith and religion is no less relentless. And tolerance for pornography—even celebration of it—and sexual promiscuity, combined with the twisted incentives of
government welfare programs have led to today’s grim realities: 68% of
African American children are born out-of-wedlock, 45% of Hispanic
children, and 25% of White children. How much harder it is for these
children to succeed in school—and in life. A nation built on the
principles of the founding fathers cannot long stand when its children
are raised without fathers in the home.

The development of a child is enhanced by having a mother and father. Such a family is the
ideal for the future of the child and for the strength of a nation. I
wonder how it is that unelected judges, like some in my state of
Massachusetts, are so unaware of this reality, so oblivious to the
millennia of recorded history. It is time for the people of America to
fortify marriage through constitutional amendment, so that liberal
judges cannot continue to attack it!

Europe is facing a demographic disaster. That is the inevitable product of weakened faith
in the Creator, failed families, disrespect for the sanctity of human
life and eroded morality. Some reason that culture is merely an
accessory to America’s vitality; we know that it is the source of our
strength. And we are not dissuaded by the snickers and knowing glances
when we stand up for family values, and morality, and culture. We will
always be honored to stand on principle and to stand for principle.

The attack on our culture is not our sole challenge. We face economic
competition unlike anything we have ever known before. China and Asia
are emerging from centuries of poverty. Their people are plentiful,
innovative, and ambitious. If we do not change course, Asia or China
will pass us by as the economic superpower, just as we passed England
and France during the last century. The prosperity and security of our
children and grandchildren depend on us.

Our prosperity and security also depend on finally acting to become energy secure. Oil
producing states like Russia and Venezuela, Saudi Arabia and Iran are
siphoning over $400 billion per year from our economy—that’s almost
what we spend annually for defense. It is past time for us to invest in
energy technology, nuclear power, clean coal, liquid coal, renewable
sources and energy efficiency. America must never be held hostage by
the likes of Putin, Chavez, and Ahmendinejad.

And our economy is also burdened by the inexorable ramping of government
spending. Don’t focus on the pork alone—even though it is indeed
irritating and shameful. Look at the entitlements. `They make up 60% of
federal spending today. By the end of the next President’s second term,
they will total 70%. Any conservative plan for the future has to
include entitlement reform that solves the problem, not just
acknowledges it.

Most politicians don’t seem to understand the connection between our ability to compete and our national wealth, and the wealth of our families. They act as if money just happens–that
it’s just there. But every dollar represents a good or service produced
in the private sector. Depress the private sector and you depress the
well-being of Americans.

That’s exactly what happens with high taxes, over-regulation, tort windfalls, mandates, and overfed, over-spending government. Did you see that today, government workers
make more money than people who work in the private sector. Can you
imagine what happens to an economy where the best opportunities are for

It’s high time to lower taxes, including corporate taxes, to take a weed-whacker to government regulations, to reform entitlements, and to stand up to the increasingly voracious appetite of the unions in our government!

And finally, let’s consider the greatest challenge facing America—and facing the entire
civilized world: the threat of violent, radical Jihad. In one wing of
the world of Islam, there is a conviction that all governments should
be destroyed and replaced by a religious caliphate. These Jihadists
will battle any form of democracy—to them, democracy is blasphemous for
it says that citizens, not God shape the law. They find the idea of
human equality to be offensive. They hate everything we believe about
freedom just as we hate everything they believe about radical Jihad.

To battle this threat, we have sent the most courageous and brave soldiers
in the world. But their numbers have been depleted by the Clinton years
when troops were reduced by 500,000, when 80 ships were retired from
the Navy, and when our human intelligence was slashed by 25%. We were
told that we were getting a peace dividend. We got the dividend, but we
didn’t get the peace. In the face of evil in radical Jihad and given
the inevitable military ambitions of China, we must act to rebuild our
military might. Raise military spending to 4% of our GDP, purchase the
most modern armament, re-shape our fighting forces for the asymmetric
demands we now face, and give the veterans the care they deserve!

Soon, the face of liberalism in America will have a new name. Whether it is
Barack or Hillary, the result would be the same if they were to win the
Presidency. The opponents of American culture would push the throttle,
devising new justifications for judges to depart from the constitution.
Economic neophytes would layer heavier and heavier burdens on employers
and families, slowing our economy and opening the way for foreign
competition to further erode our lead.

Even though we face an uphill fight, I know that many in this room are fully behind my
campaign.” You are with me all the way to the convention. Fight on,
just like Ronald Reagan did in 1976. But there is an important
difference from 1976: today… we are a nation at war.

And Barack and Hillary have made their intentions clear regarding Iraq and
the war on terror. They would retreat and declare defeat. And the
consequence of that would be devastating. It would mean attacks on
America, launched from safe havens that make Afghanistan under the
Taliban look like child’s play. About this, I have no doubt.

I disagree with Senator McCain on a number of issues, as you know. But I
agree with him on doing whatever it takes to be successful in Iraq, on
finding and executing Osama bin Laden, and on eliminating Al Qaeda and
terror. If I fight on in my campaign, all the way to the convention, I
would forestall the launch of a national campaign and make it more
likely that Senator Clinton or Obama would win. And in this time of
war, I simply cannot let my campaign, be a part of aiding a surrender
to terror.

This is not an easy decision for me. I hate to lose. My family, my friends and our supporters… many of you right here in this room… have given a great deal to get me where I have a
shot at becoming President. If this were only about me, I would go on.
But I entered this race because I love America, and because I love
America, I feel I must now stand aside, for our party and for our

I will continue to stand for conservative
principles; I will fight alongside you for all the things we believe
in. And one of those things is that we cannot allow the next President
of the United States to retreat in the face evil extremism!!

It is the common task of each generation—and the burden of liberty—to
preserve this country, expand its freedoms and renew its spirit so that
its noble past is prologue to its glorious future.

To this task… accepting this burden… we are all dedicated, and I firmly
believe, by the providence of the Almighty, that we will succeed beyond
our fondest hope. America must remain, as it has always been, the hope
of the earth.

Thank you, and God bless America.”  (emphasis added)

Accessed on the internet 2/8/2008  at 

See video at

The Wal-mart you don’t know

(with apologies to my friend the WM manager)

The Wal-Mart You Don’t Know

The giant retailer’s low prices often come with a high cost. Wal-Mart’s
relentless pressure can crush the companies it does business with and
force them to send jobs overseas. Are we shopping our way straight to
the unemployment line?

An interesting story that has potentially huge implications. The author discusses in great detail the pressure that Wal-Mart puts on suppliers, how that causes many to outsource production — often to China — and the results this can ultimately have on the supplier.

I see a larger problem in this cycle:

  • WM pressures lowering of prices.
  • Supplier complies, ends up outsourcing many jobs.
  • Jobs lost here end up in China.
  • Goods come from China, sold in massive quantities in WM (remember how, only a few years ago, WM touted “Made in America” and then “Made in America, when we can find it”).
  • American consumers buy the goods, lots of those dollars end up in China.
  • China’s economy grows.
  • China loans those dollars back to us in U.S. debt.
  • U.S. pays gobs of interest to China.
  • China grows more.
  • China builds up international prowess, armies, nukes, etc.

Can YOU speak Chinese?  I can’t.