Feasible Stimulus Politics ?
Obama proposes an additional $ 50 billion for infrastructure. He ignored my proposal to mail a $ 500 check to every US family this month. The proposal is better policy than my proposal. If implemented it wouldn’t help Democrats in November, since it would start next year.
My guess is the plan is to have Republicans block the bill, scream about the deficit and insist on extending tax cuts for the rich. I think Rich vs non-rich is much better politics and that the vast majority who don’t know they already got a tax cut in the ARRA (stimulus) would notice a check in the mail.
At least the Obama administration is seeking a fight. Until recently, they were embracing the idea of a payroll tax holiday. This is also fine policy, but it is a Republican proposal.
The article by SHERYL GAY STOLBERG notes that Rahm Emanuel won another battle “The idea for an infrastructure initiative, and in particular an infrastructure bank to leverage public money for private investment, is one that the White House chief of staff, Rahm Emanuel, has been promoting for some time within the West Wing.” He is promoting himself not the President. Just one more reason to fire him.
Robert, I doubt if the Reps will bite. there will only be approximately 3 weeks to pass any legislation before the election, and trying to pass this after will make no political sense.
They will not argue against it for deficit reasons, but failure of the current stimulus’ infrastructure spending to stimulate. An easy argument.
Arguing against is biting. It is hard to argue for tax breaks for oil companies. I agree that the argument against infrastructure spending is much easier than the argument against a rebate. That was the point of my post.
Of course I am convinced that ARRA stimulus spending and/or tax cuts stimulated. The amazing change in GDP growth from pre ARRA to 2 and 3 quarters later the (the greatest in 30 years. there hasn’t been such an upturn under a Republican President since I was born in 1960) convinced me.
Just a question, do you know how often the quarterly rate of growth of GDP has increased that much since 1945 ?
“is much better politics”
Oh joy. And there I was hoping that economic policy might be decided by what was good economics rather than what was good (or bad) politics.
And there are people out there who insist that I’m some sort of weirdo for arguing that we shouldn’t let politicians anywhere near economic questions: I argue that they’ll only do politics with them and the counter point is that yes, this is a good idea.
The stimulus didn’t stimulate enough because Republicans and Blue Dogs argued that it had to be kept below arbitrary figures and devoted half to unproductive tax cuts. And their sympathizers in the WH simply caved. (Thanks Larry!!) We don’t know what a $1.2 trillion stimulus bill with 75% devoted to infrastructure would have done, but that is exactly what the economists on my side of the fight insisted would be needed (Krugman, Baker, DeLong, Romer).
Republicans demanded we replace strong ale with 3.2 beer and now are complaining they can’t taste anything or feel any alchohol effects so the ale wouldn’t have done the trick anyway. They call this special pleading.
And Robert, payroll tax holidays are terrible policy, they simply feed into the idea that the programs they finance are in and of THEMSELVES drags on employment. It is thinking like that that destroyed private pensions in this country and now looks to take down public ones as well.
(Back in the earlier years of the Industrial Age miners had to pay for their own lights and drill bits. The Masters of the Universe seem hell bent on returning us to that model.)
put it much nicer than I would. a payroll tax holiday is stupid policy. it is the sort of thing that would be thought of by the people who can only think of one thought at at time: “oh goody! lets put money in the pockets of poor people to end the recession.” never mind that the money you are fingering is their retirement money.
THEIR retirement money. Remember when “most economists agree that the employers share of the payroll tax is “really” the employees money”? that was back in the good old days when the stockmarket was soaring and they wanted the workers to feel put upon because their social security was “only” earning two or three percent, real, risk free, if you counted the employer contribution as “really your money.”
but now that the stock market is not soaring and they need another lie to fool you with, all of a sudden the payroll tax is really the government’s money that they can shower on the people to stimulate them to go out and buy a beer, or a plastic toy they can keep around to remind them of why they don’t have Social Security any more.
The pathetic thing is that it is so damn easy to fool even liberal economists. Just promise them something for nothing.
I made this graph to illiustrate the relative sizes of the Bush tax cuts (2001/2003-2010), Bubble Debt (2002-2007), and ARRA (2009-); I think it is quite illuminating.
Bruce said: “We don’t know what a $1.2 trillion stimulus bill with 75% devoted to infrastructure would have done, but that is exactly what the economists on my side of the fight insisted would be needed (Krugman, Baker, DeLong, Romer).”
Of course we know! It would have delayed any GDP growth by about 18 months, cost the states and localities those jobs saved by the current stimulus, and lowered total unemployment a couple of more points. We can see from the chart below the 12 month delay in GDP impact the infrastructure spending had.
Also from the chart notice what had the immediate impact. There’s a very good study here: http://www.princeton.edu/economics/seminar-schedule-by-prog/macro-s09/monetary-fiscal-policy-co/schedule/additional-participant-pa/GovtInvest.pdf
Robert said: “Of course I am convinced that ARRA stimulus spending and/or tax cuts stimulated.” (My emphasis.)
I’m not sure we can say the stimulus actually stimulated much. It does appear that nearly all the GDP growth was related to immedaite stimulus spending, in particlular the tax rebates, cuts and cash for clunkers. you can see that from the Deutsche Bank chart below.
What is clear is that there is almost no sustainability to the stimulus impacts. Any GDP growth looks like it relates dollar for dollar to stimulus spending, and that is ending. Almost no job growth can be traced back to the spending.
My analysis of the short term politics. Voters are sick to death of more spending. Conservatives are going to jump on the delay in impacts associated with implementing infrastructure spending and actually getting it into the economy. The current proposal will be panned which will also over spread the original stimulus bill. Few Dem Congress critters will actively support the new infrastructure spending bill. Voters already not happy with Dems will show it at the mid terms.
Robert asks have ever had such an GDP increase in a couple of quarters, but he seems to forget that late in 08 Bush had a $180-200B tax cut stimulus bill passed. That coupled with the $280B Obama tax cuts/incentives stimulus, increased entitlements and grants/contracts/to a smaller extent infrastructure spending has front loaded stimulus spending by ~4.8-5% of 2009 GDP.
But all that spending was borrowed. All that spending has not added any jobs. All that spending has not stimulated the private sector economy, as we are seeing an almost dollar for dollar gain then drop in GDP with stimulus spending.
Many voters sense the failure of the stimulus and other Fed spending, and are rejecting the party responsible. All the arguments: it wasn’t big enough, are falling on an increasing number of voters who have stopped listening.
So, Robert playing political games with spending bills is exactly the wrong move. Almost any argument against the bill the Repubs put forward will be postively received by a majority of voters. Krugman’s/Bruces’s argument that the stimulus was too small is falling on infertile ground.
Expect a blood bath in Nov.
actually, i tend to agree with you. but as for the “voters are sick to death of more spending”… how would the voters even notice unless they were told to be sick to death by people who do not have the voters interests at heart.
you often say that half the voters don’t even pay taxes. and the other half don’t pay enough to pay the bills. so how can the spending affect any of them?
however, playing political games with spending bills is stupid to the point of evil. you might have noticed that the Bush tax cuts did not prevent the economy from tanking. there is no particular reason to suppose that further tax cuts will do any good. this is the economics of brain dead economists and cynical politicians. there are times when tax cuts would be a good idea. this is not one of them.
as for spending cuts, i’m all for them… after the bills are paid.
we don’t need a tax cut. we need a tax increase. and we probably need a federal jobs plan, but it better be a good one.
President Obama cracks me up. The President will attend a Washington, D.C. area ribbion cutting ceremony in about two weeks to brag about a highway project completion that he will say was funded by his stimulus bill. The problem is that is simply a lie. The ribbion cutting ceremony is for a project that was funded prior to his election to office and has been completed recently. Another highway project (a cloverleaf) tied to the completed project (a highway) that is to be funded by the stimulus bill does not break ground until 2012.
Watch this phony White House public relations gimmick fly right over the WaPo reporters and those spring loaded heads at MSNBC, FOX, and CNN.
“At least the Obama administration is seeking a fight.”
Really? We shall see.
“Until recently, they were embracing the idea of a payroll tax holiday. This is also fine policy, but it is a Republican proposal.”
Versus Obama the Reps fought tooth and nail against Republican proposals, like “death panels”. 😉
money may be fungible… if it is yours. otherwise what you are describing is called embezzelment or theft.
if the government can replace the money in the trust fund out of general funds, why bother taking it out of the trust fund in the first place.
all you are doing is aiding the perception that the payroll tax is a “jobs killer” which it is not, unless you think wages are a jobs killer.
the point of the payroll tax is not to get money for government, but to save the workers own money for his own retirement.
there doesn’t seem to be any natural connection between buying gas and saving for retirement.
the military spending has a multiplier of 3 (rounding), so let us tax everybody 33% and use the money to spend on the military. look ma! i just invented perpetual motion!