Links and Minifeatures 2009 02 10 Tuesday

Cato Institute: Economists against the "stimulus"

Senate passes Obama's economic recovery plan

President Barack Obama's economic recovery plan has passed the Senate and is on its way to difficult House-Senate negotiations. Just three Republicans helped pass the plan on a 61-37 vote and they're already signaling they'll play hardball to preserve more than $108 billion in spending cuts made last week in Senate dealmaking. Obama wants to restore cuts in funds for school construction jobs and help for cash-starved states

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Even so, in the hours before Monday's vote, Republican opponents attacked it as too costly and unlikely to have the desired effect on the economy. "This is a spending bill, not a stimulus bill," said Sen. Lamar Alexander, R-Tenn.

All 36 votes in opposition were cast by Republicans.

Were the Republicans right? It appears so
Stocks plunge as government unveils bailout plan

"The good news is they are going to spend a trillion dollars, the bad news is they don't know how," said James Cox, managing partner at Harris Financial Group.

"They built this up as being a panacea," he said. "There was so much hope pinned on them to do a good job. The expectations have been so high. It's hard to live up to."

Investors also questioned whether this plan, which followed previous efforts in the final months of 2008, would work. Some selling was to be expected, however, as stocks rose sharply last week ahead of the announcement

Were stocks rising last week because the plan looked likely, or because it looked like the Republicans might actually hang together enough to stop it in the senate (possibly with the aid of a few not completely insane Democrats, such as California's Dianne Feinstein, who were making noises about being unhappy with it).

It spends over a trillion dollars, and there really isn't a Plan in it to revive the economy - except the same kind of throwing money around that was discredited back in the seventies.

Geithner's speech "basically puts a spotlight on the fact that the government has no idea how to fix the problem," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. "People bought on rumor and hope, and now they're selling on reality."

That trillion dollars has to come from somewhere. It's a trillion dollars that taxpayers aren't going to have for other things.

Did I say a trillion? What's a factor of three among friends? $3 trillion! _ Senate, Fed, Treasury attack crisis

"It's gone deep. It's gotten worse," President Barack Obama said of the recession at a campaign-style appearance in Ft. Myers, Fla., where unemployment has reached double digits. "The situation we face could not be more serious."

If any more emphasis were needed, Wall Street investors sent stocks plunging, objecting that new rescue details from the government were too sparse despite the huge numbers. The Dow Jones industrials dropped 382 points.

If Obama and the Democrats were trying something that had a track record of success (like tax cuts), or even something that has never been tried before where there's a good reason why it should work, this would not be the case. But instead of solving the problem, they're trying to do a political payoff to all of their special interests and call it an economic stimulus. I could call what comes out of a horse's backside an economic stimulus. That doesn't make it one. The financial markets know the difference, even if most of the electorate does not.

You know, I may have voted for John McCain, but I really did not expect Barack Obama to be this bad. I was hoping that with the experiences and the economics we have learned since the last round of economic failures of anything like this magnitude (back in the seventies). I thought he might be smart enough to respond to issues like this in an intelligent manner. I thought he might be able to bypass political payoffs as long as they would hurt the country this badly. Looks like I was wrong on both counts. Thus far, he has failed every test of his competency he has faced. No, that's too weak. He has aggressively done exactly the wrong thing.

Keynesianism is failure. My first macro course taught Keynesian techniques. The math unambiguously and inescapably led to what mathematicians call a monotonically deteriorating situation - continuing outward shifts in the tradeoffs between unemployment and inflation, where trying to keep them reasonably balanced (the so-called "misery index") generates more of both. When I called the prof (a well known full professor of economics) on this, and asked him in what way this was not merely a lesson in how to lose more slowly, he responded by asking, "Why do you think they call it the dismal science?" Well, excuse me, but if Keynesian economics was a complete and valid picture of the world, we wouldn't ever get the good situation we started with in the first place. It may be what they taught when Obama and I started college, but that doesn't make it right or accurate. Arthur Laffer and other improvements in then-prevailing economic theory have done quite a lot to improve our understanding. The crisis of the seventies lingered and got worse until Ronald Reagan applied the new theories and that was what caused our decade long meltdown to stop.

Why has Obama chosen a Keynesian response given this improved understanding? The best hypothesis I can come up with - the simplest theory that explains the observed facts and is not contradicted by them - is that if you apply Keynesian theory to the current crisis, the response it dictates is what Obama wanted to do. In other words, he started with the answer he wanted, and looked for a way to justify it.

If he continues like this, Barack Obama is going to make Jimmy Carter look good. At least Mr. Jimmy inherited the bulk of his insane economic policy from his predecessors, and at that time it was the best fully accepted theory we had. Barack Obama is trying to change the few things George W. Bush got right about the economy.

FACT CHECK: Examining Obama's job, pork claims

President Barack Obama had it both ways when he promoted his stimulus plan in Indiana and later at a prime-time news conference. He bragged in Indiana about getting Congress to produce a package with no pork, yet boasted it will do good things for a Hoosier highway and a downtown overpass, just the kind of local projects lawmakers lard into big spending bills.

Telling us, "There's no pork in this bill!" while using that pork to "sell" the bill. I knew Obama was a politician, but I didn't know he was this good at talking out of both sides of his mouth at the same time!

Why Obama Wants Control of the Census

President Obama said in his inaugural address that he planned to "restore science to its rightful place" in government. That's a worthy goal. But statisticians at the Commerce Department didn't think it would mean having the director of next year's Census report directly to the White House rather than to the Commerce secretary, as is customary. "There's only one reason to have that high level of White House involvement," a career professional at the Census Bureau tells me. "And it's called politics, not science."

Elbridge Gerry had nothing on Barack Obama.

Social Security Crisis Nearer Than Common Wisdom Holds

In theory, Social Security is supposed to continue paying benefits after 2017 by drawing on the Social Security Trust Fund.

Furthermore, the trust fund is supposed to provide sufficient funds to continue paying full benefits until 2041, after which it will be exhausted. At that point, by law, Social Security benefits will have to be cut by approximately 27 percent.

However, in reality, the Social Security Trust Fund is not an asset that can be used to pay benefits. Any Social Security surpluses accumulated to date have been spent, leaving a trust fund that consists only of government bonds (IOUs) that will eventually have to be repaid by taxpayers.

2017. That's the year the current presidential term ends. What happens when Congress has a choice of continuing to spend as it has and drastically cutting long promised social security benefits, or cutting all the wasteful spending they have committed themselves to in order not to cut social security benefits? They could also do a mixture of the two, but my money is bet upon them increasing taxes, incidentally resulting in even less money collected (cf Laffer Curve)

Leaving behind "politics as usual"? Here's one instance. Since Richard Nixon resigned, opposition research has been done by employees of the political parties or campaign workers. Obama has broken with that "business as usual", and hired an opposition research person at the White House.

Great antecedent there. He appears to be trying for the Johnson-Nixon-Carter trifecta - the worst of all possible worlds.