The Action Americans Need

An Editorial by Barack Obama Thursday, February 5, 2009; Washington Post
(Interspersed with comments by various authors.)

"By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression. Millions of jobs that Americans relied on just a year ago are gone; millions more of the nest eggs families worked so hard to build have vanished. People everywhere are worried about what tomorrow will bring."

Rather than spending money we don't have, I wish Obama would use his political capital to change the parts of our political system that are dysfunctional - our entitlement programs that are demographically bankrupt, our broken budget system, our Byzantine tax system, our financial system that is in disarray. These changes would be more likely to create the confidence and trust in the future that our economy needs to get healthy again rather than borrowing and spending. Borrowing and spending is how we got into this mess. Let's look in a different direction.

--Russell Roberts, professor of economics at George Mason University, “Stimulus just digs debt hole deeper.”

"What Americans expect from Washington is action that matches the urgency they feel in their daily lives -- action that's swift, bold and wise enough for us to climb out of this crisis"

The saying “First, do no harm” is the cardinal rule of medicine. It applies equally to economic policy. At the very time that the Senate is debating whether to spend $800 billion or $900 billion to stimulate the economy, the government is considering other legislative and regulatory initiatives that would impede economic recovery.
--Diana Furchtgott-Roth, First Do No Harm RealClearMarkets

"Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."

American Institute for Economic Research Research Reports Vol. LXXVI, No 2 Feb. 2, 2009
"In absolute terms, 2.6 millions is indeed the biggest annual job loss since 1945...However, it's a great exaggeration to say this represents the worst annual job loss since World War II...A 2.6 million job loss represents a much smaller percentage of the work force now than it did back then...The risk is that such exaggerations will further erode the confidence of consumers, businesses, and investors, and be used to justify extraordinary policy responses to not-so-extraordinary cyclical phenomena."

"That's why I feel such a sense of urgency about the recovery plan before Congress. With it, we will create or save more than 3 million jobs over the next two years, provide immediate tax relief to 95 percent of American workers, ignite spending by businesses and consumers alike, and take steps to strengthen our country for years to come."

Borrowing to “put money in people’s pockets,” say, by tax rebates, is exactly as pointless (or inflationary) as borrowing and spending. but lowering the distortions caused by high tax rates can do a lot of good. However, to really do any good, tax rates have to be low and predictable for a long time…Even if we borrow to lower tax rates, we have to raise tax rates in the future to pay back the debt, so any borrowing-financed tax reduction can’t be permanent and thus have the desired incentive effects. the only real fiscal “stimulus” is to lower tax rates, broadening the base, while at the same time attacking the structural deficits that everyone knows otherwise mean higher tax rates in the future.
--John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?”

"This plan is more than a prescription for short-term spending -- it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care and education. And it's a strategy that will be implemented with unprecedented transparency and accountability, so Americans know where their tax dollars are going and how they are being spent."

[A]t various times in American history, moments like this one have been used for big programs, from integrating the armed forced to creating Social Security and, later, Medicare. So it is little wonder that everyone with a big, stalled, transformative project--green energy programs, broadband networks that reach into rural America, health insurance for the newly unemployed or uninsured—is citing the precedent of Franklin D. Roosevelt, and declaring that a New deal is over due.
--David Sanger, “A Stimulus Plan with Dual Goals: Reform and Recovery” NYT 2-1-09

"In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive."

These ideas changed because Keynesian economics was a failure in practice, not just in theory. Keynes left Britain 30 years of miserable growth. Richard Nixon said “we’re all Keynesians now” just as Keynesian policy led to the inflation and economic dislocation of the 1970s…Keynes disdained investment, where we all now realize that saving and investment are vital to long run growth. Fiscal stimulus advocates are hanging on to ..ideas that everyone including they abandoned, and from hard experience, If we forget all that, we could repeat the economics of postwar Britain, of spend-and-inflate Latin America, and of bureaucratic India
--John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?"

"I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail."

How can anyone claim that we have tried laissez-faire and it has failed when, as pointed out by Dr. George Resiman:
1) Government spending in the United States currently equals more than forty percent of national income...
2) There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with...the economic freedom of the individual...
3) The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well-known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA,CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA...
4) To complete this catalog of government interference and its trampling of any vestige of laissez-faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations...
5) And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level...(emphases are mine)

"Every day, our economy gets sicker -- and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now."

[A]ny jobs created by government make-work programs will be slow to arrive, quick to disappear again...minimally stimulative to the broader economy as they largely substitute government-based jobs for true private-sector jobs.
--Jim DeMint, Senator, South Carolina

"Now is the time to protect health insurance ...and to computerize the health-care records of every American...Now is the time to save billions by making 2 million homes and 75 percent of federal buildings more energy-efficient, and to double our capacity to generate alternative sources of energy within three years. Now is the time to...upgrad[e] 10,000 schools with state-of-the-art classrooms, libraries and labs...and [bring] the dream of a college education within reach for millions of Americans. And now is the time to create the jobs that remake America for the 21st century by rebuilding aging roads, bridges and levees; designing a smart electrical grid; and connecting every corner of the country to the information superhighway."

The only way [the government] can pay these individuals is by taxing others who are still generating real wealth. By doing this, the government weakens the wealth-generating process and undermines prospects for economic recovery...The only way fiscal stimulus could "work" is if the flow of real savings (i.e. real funding) is large enough to support (i.e. fund) government activities while still permitting a positive rate of growth in the activities of the private sector...If, however, the flow of real savings is not large enough, then, regardless of any increase in government outlays, overall real economic activity cannot be revived...thereby retarding, not promoting, overall real economic growth.
--Frank Shostak, "Can Fiscal Stimulus Revive the U.S. Economy?"

"These are the actions Americans expect us to take without delay. They're patient enough to know that our economic recovery will be measured in years, not months. But they have no patience for the same old partisan gridlock that stands in the way of action while our economy continues to slide.

So we have a choice to make. We can once again let Washington's bad habits stand in the way of progress. Or we can pull together and say that in America, our destiny isn't written for us but by us. We can place good ideas ahead of old ideological battles, and a sense of purpose above the same narrow partisanship. We can act boldly to turn crisis into opportunity and, together, write the next great chapter in our history and meet the test of our time."

So if not a stimulus, then what?

"The first step is to stop chaotic interventions. Who would buy bank stock, lend long term, or buy securitized debt, knowing that the government might rewrite the rules at any point?" --John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?"

"Capitalism is in the end reliant on the efficient deployment of capital, and when the blunt hand of government distorts this process, the certain result is less capital for all manner of new business entrants... [W]ithout access to capital, the entrepreneur 'cannot become an entrepreneur'... In short, the answer to these difficult times isn’t more government, but instead a humble government that simply allows producers to produce"
--John Tamny, "Government Solutions are Slowing the Economy" 1-15-09, RealClearMarkets

"Rather than spending money we don't have, I wish Obama would use his political capital to change the parts of our political system that are dysfunctional--our entitlement programs that are demographically bankrupt, our broken budge system, our Byzantine tax system, our financial system that is in disarray. these changes would be more likely to create the confidence and trust that our economy needs to get healthy again rather than borrowing and spending. Borrowing and spending is how we got into this mess. Let's look in a different direction.
--Russell Roberts, "Stimulus just digs debt hole deeper" 02-02-09, Boston Globe

The ultimate solution, of course, is economic freedom: free trade and private property. Successful ventures would retain their profits as the just reward for the efficient use of resources in satisfying real market demand. Inefficient and unsuccessful businessmen would be allowed to fail, and to try again. Free men, protected by the government from fraud and the initiation of force. Free to work, save and spend according to their individual judgment and to the best of their abilities. Free to trade to mutual advantage through voluntary exchange. In other words, ...simply Capitalism.

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