Tuesday, October 12, 2010

Obama has a fevah, and the only cure is more spending!

obamaspeakingapjaechong As reported here yesterday, El Presidente is out and touting a new, $50 billion stimulus lite round of government spending.  He’s asking for immediate action by Congress.  But, given the log-jammed calendar of the lame duck session, the Senate probably wouldn’t be able to take up the measure until sometime in December.

And, in case you may have forgotten, the Bush Tax Cuts are set to expire on January 1, 2011.  Gee…  I think we see how  the regime might like to finance the latest incarnation of failed fiscal policy.

How about we flip-flop that?  How about extending, perhaps even expanding those tax cuts instead of piling on more debt and wasting more money on projects that don’t create jobs and don’t spur the economy?

Speaking to reporters in the Rose Garden, Obama pitched the plan as a benefit to the economy — though he also alluded to the politics of the moment, noting the steadfast Republican opposition to most of his plans.

In a "season of choices," Obama said, one of the decisions Americans must make is between "decline and prosperity."

The administration also issued a report estimating the spending program would create a raft of middle-class jobs in manufacturing, construction and retail. The report said more than half of the new jobs would come in construction, where unemployment figures are higher than 17%.

First unveiled on Labor Day, the plan figures into the election picture for Democrats, who are under pressure to show how the economy will improve under Obama's stewardship and theirs.

I also pointed out that the $50 billion isn’t going to be enough for liberals in Congress.  There’s pork in them thar spending bills, and piling it on is a no-brainer.  What goes in as a $50 billion proposal comes out as (at least) a $150 billion behemoth that, of course, we’ll have to pass before we see what’s in it.

The $50 billion price tag isn’t big enough for liberal legacy media cheerleaders like Ezra Klein, either:

Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago – or is likely to go five years from now. So what do you do?

If you're thinking like a CEO, the answer is easy: You invest. You get it done. Happily, that's what the administration is proposing to do. But its plan is too modest. The $50 billion bump in infrastructure spending it has proposed is only for surface transportation. The infrastructure bank envisioned in the proposal is also likely to be limited to transportation. And as for our water systems, our schools, our levees? This is not a time for half-measures. It's a rare opportunity to do what we need to do and to save money doing it.

Too modest?  Half-measures?  What political winds are these people sniffing?  Maybe they really do have a fevah.

Klein doesn’t think as much like a CEO as he thinks he does.  Businesses don’t make capital investments without a much clearer picture of the potential return on that investment.  His advice is akin to a penny stock hawker urging the investor to buy a few thousand shares of a company selling at $0.40 a share with two reverse stock splits in the last six months and a one-year outlook of “we’ll see.”  Only a fool would sink money into an “investment” situation like that.

The regime’s crack economic team has fully embraced the eight decades old Keynesian model of fiscal policy.  The $787 stimulus plan, this year’s “small business” spending plan and the new, $50 “infrastructure plan” are all geared towards driving aggregate demand.  None of them were, or will be, paid for.  They’re all financed on the back of your children’s income.  And as any reasonably sane economic historian will demonstrate, rarely have the long term costs of the debt service been justified by the short run boost in aggregate demand.  It’s not new, and it doesn’t work.

If you embrace the Keynesian fiscal policy model, then what of tax cuts?  Dispense with silly notions of “fairness” or “income equality,” since tax policy does nothing to affect any perceived injustices therein.  Focus on the fact that in the same Keynesian theory embraced by the regime, tax cuts have the same impact as a spending increase, but with three major differences that John Maynard Keynes didn’t anticipate:

  1. Market forces are much more efficient at allocating scarce resources than political forces.
  2. Tax cuts are stimulative measures that keep on giving—enact them once and they deliver economic stimulus until repealed or expire.
  3. Fiscally stimulative tax cuts (across the board, no targets, with capital gains cuts) have historically delivered greater long term tax revenues to the Treasury.