August 12, 2010
Enough Already: More Stimulants are Bad Medicine
Something must be done. This is something, therefore we must do it. The Obama folks remind me of the panicked line from the BBC comedy ”Yes Minister”. But it is not a joke when they are fooling with our economy. Maybe Obama needs some new ideas.
The recent downturn was the worst since 1982 (see chart). We had serious financial problems at the end of 2008. Everybody agreed that something had to be done. The Obama folks jumped in with something and strangled any criticism by falsely painting the situation as a choice between doing something and doing nothing. They took advantage of the general panic to say that we needed something completely different from everything that went before. But they misdiagnosed the problem and proposed solutions that didn’t work.
In other words, on the whole*, the Obama “something” was the wrong thing to do.
In general, Obama got the problem wrong, which is why is solutions are wrong. The biggest problem during the Bush Administration was a massive expansion of government and government spending. This was not clear because it was masked by the Bush rhetoric and probably sincere desire to make government smaller and less intrusive. But the fact is that Bush’s “ownership society” was effectively blocked in Congress. (The minority party blocking a President’s program is not something invented by Republicans.) With that failure, the practical Bush spending program was not far different from what Obama has been doing. It was just a little smaller.
When Obama ran for president, he attacked an exaggerated caricature of programs to shrink government that Bush had never been able to enact. The medicine Obama prescribed for a bigger and more intrusive government was an even bigger and more intrusive government. He claimed this was needed because of the previous lack of it. But the analysis was wrong. When Obama took office, government was already spending more than ever before.
The government cup was already running over, but Obama claimed it was half empty and dumped in a couple more buckets.
The recent almost unbroken string of bad news shows that this didn’t work. The response from Obama supporters is to dump in even more borrowed money. They are continuing the Bush spending policy but have pumped it up with steroids.
I like the subtle way the analysts at the Fed express it.
“At first glance, it doesn’t appear the stimulus achieved these objectives. In the year after the plan’s passage, the labor market continued to hemorrhage jobs and unemployment climbed above 10 percent. Indeed, the unemployment rate is now higher than it was expected to be without the stimulus plan—and has been every month since the plan’s passage.” link.
In plainer language, the Obama folks didn’t know what the heck they were talking about. The stimulus may or may not have had some short term benefits, but in the long run it did nothing much except drive up the national debt.
Let’s give the balanced account. The Bush folks didn’t really understand or manage the economy well in 2008. In 2009-10, the Obama folks achieved about the same level of understanding and success, only it cost them a lot more to do it and they were more confident.
My conclusion would be that if the big brains in the Bush camp can’t really “manage” the economy AND the big brains in the Obama camp cannot do any better – despite borrowing and spending massive amounts of money - maybe managing the economy is something government cannot really do well. Maybe government should work to create conditions where the people can prosper and leave the decisions to us (i.e. we the people.)
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* Let me explain why I said, “on the whole.” I am not going to do what the Obama folks did and create a binary choice. The world is not like that. On the whole, the steps (started under Bush) taken to shore up the financial system were good. On the whole, the second stimulus that just put money into some people’s pockets by raising more debt – the bailouts - was mostly a waste. Infrastructure improvements probably would be good, but the Obama folks have been so slow off the mark that not much has happened. So we have a mixed, but very expensive bag.
Posted by Christine & John at August 12, 2010 08:42 PMC&J,
First of all, the link cited as the Fed’s opinion is not the opinion of the Dallas Federal Reserve Board let alone the Federal Reserve Board. It is an opinon of one researcher in a publication of the Federal Reserve of Dallas. The relevant disclaimers are well noted in the link.
Second, the cited author clearly states that the stimulus was well targeted, timely and consistent with economic theory in a zero rate interest environment (no room for monetary stimulus). He further concludes that on balance the stimulus was effective and that the economic conditions may have been much worse than initially thought. He goes on to conclude, however, that in his opinion, the short term relief is at the expense of long term economic health due to the “crowding out” problem and long term deficit issues. Fair enough. However, even Alan Greenspan recently expressed surprise at the absence of those expected negative consequences (inflation, evidence of crowding out, higher bond rates, etc.) for that spending. Could it be that the economic problems (private sector debt) are very deep and not amenable to quick resolution?
Now, what has the Fed actually said about the deficit and stimulus spending? In his most recent testimony before Congress on July 21, 2010 Fed Chairman, Ben Bernanke, advised that Congress should not move now to slash spending or boost taxes, or take some combination of both. “I believe we should maintain our stimulus in the short term,” He went on to say that the Fed was prepared to take additional steps if necessary to provide stimulus to the economy. The Fed appears to realize that we won’t get to solve our long term deficit issues if we don’t recover from this recession. In order to do so, it recognizes the need for extraordinary fiscal and monetary stimulus in the short term. It also recognizes that premature withdrawal of the stimulus could set back the recovery.
For all the trillions spent (or wasted), all of the economic indicators are still very anemic (if not worse).
Wow. You’d think things would be much better, eh?
At least, temporarily.
But eventually, there will most likely be a very high price for so much fiscal and moral irresponsibility.
- Total per-capita Federal debt is 705% larger today than it was in the Great Depression (in 2008 inflation adjusted U.S. Dollars).
- Total per-capita Federal debt is 80% larger today than it was in after World War II (in 2008 inflation adjusted U.S. Dollars).
- The total per-capita nation-wide debt is 400% larger today than in year 1956 (in 2008 inflation adjusted U.S. Dollars).
- Inflation is really currently 8% (not 2%).
- Unemployemnt currently is really 22% (not 9.5%).
- GDP is currently really -1.5% (not +3%).
- And the falling U.S. Dollar has been in decline for a decade.
What’s going to happen when more trillions are spent to keep the economy from deteriorating further?
All of that debt of nightmare proportions, and new money created out of thin air may come with a bigger and more painful price than taking our medicine early on.
At any rate, the majority of voters have the government that they elect, and re-elect, and re-elect, at least, possibly, until repeatedly rewarding failure, repeatedly rewarding the duopoly, and repeatedly rewarding FOR-SALE, incompetent, arrogant, and corrupt incumbent politicians in Do-Nothing Congress with 90% re-election rates finally becomes too painful.
Posted by: d.a.n at August 12, 2010 10:26 PMRich
But Democrats want to boost taxes next year. I know the terms are different, but letting the tax cuts expire will mean more taxes, right?
I always like this “could have been worse” excuse. Yes, we don’t know. It could have been worse. And it could have been better. We don’t know.
We do know that the downturn was bad. It was the worst since 1982. President Reagan handled that one well. I suppose that one could have been worse too.
My problem with the stimulus is its poor execution. It is now clear that the Obama folks had no real idea about how to do it. Their goal was to shovel money out the door, IMO, in hopes of making the government permanently bigger. They have no real plan to bring it back down even to the levels of 2007. The good part of the second stimulus might have been infrastructure, but the Obama folks cannot seem to get those projects going. So unemployment remains at around 10%.
Absent any really new ideas, the Obama folks are defending the interests of the past. As Michael Barone points out “What they are giving us is protection of established groups. They are holding up housing prices and the mortgage market, keeping the Detroit auto companies in place, maintaining the lush standard of living of public employee union members (the purpose of the $26 billion the House was summoned back to Washington to approve Tuesday).” link.
Obama promised change. Maybe we should have asked what kind of change he had in mind. Bringing back old ideas was not what most people thought he meant.
This reminds me of the comedy bit about the guy with short term memory loss.
He keeps coming up to the people introducing himself over and over.
C&J cannot see past a year or two. It’s rather inconvenient for the story they tell, rather than memory loss, though.
In a world where history doesn’t matter this is a great argument.
Hi, I’m gergle.
This reminds me of the comedy bit…..
Posted by: gergle at August 12, 2010 10:54 PMGergle it is actual worse than that. C&J and the conservative s at WB are such partisans that they do not care what happens to this country. They know the real problem and the cause but if they acknowledge this they point the finger at all they hold sacred. So instead they try to place the blame on Obama, the new guy at the table as if those with a mind would actually believe the nonsense they spout. It takes a significant amount of conservative kool aid to believe the the message of the last few posts. But don’t take my word for it take the word of a Reagan repub.
http://www.marketwatch.com/story/reagan-insider-gop-destroyed-us-economy-2010-08-10?pagenumber=1
Posted by: j2t2 at August 13, 2010 12:22 AMOooh….the followers of St. R will have to do some fancy shuffling to spin that one around. Can’t wait to hear it.
Posted by: jane doe at August 13, 2010 03:40 AMI just think that if the problem of the Bush times was too much spending, the cure for the Obama times cannot be more spending.
Something went wrong in 2007-8. Americans were willing to try “change”. Obama proposed a change. Unfortunately, that change didn’t work. It was the wrong sort of change, on the whole, because it really didn’t change the thing causing the biggest problem - excess spending. In fact it made it worse.
Nobody is advocating “going back” to what happened in the later Bush Administration. We acknowledge that on the whole, something went wrong, although we are not sure what that was. It is also becoming clear that the Obama cure also didn’t work.
The biggest thing the Bush screw up and the Obama screw up have in common is out of control spending.
So let’s get some change we can believe in, which probably means less spending.
re Reagan and the economy, from 1982-2007 we had a generally growing economy, twenty-five good years, with only two minor setbacks. Inflation remained low. Unemployment levels were low by the standards of the decade that went before and - it looks like the decade after. If Obama could preside over the kind of sustained rebound achieved under Reagan, we would call him a savior.
If the 1982-2007 is what a ruined economy looks like, I hope we can get it back. I am afraid that after the Obama reforms, we will look at those times as the good old days for a long time to come.
Posted by: C&J at August 13, 2010 07:01 AMSomething went wrong many decades ago.
Where we are today did not occur only recently.
The U.S. has been in steady decline for decades, and the voters are culpable too.
Trying to blame ONLY Republicans or Democrats, and incessantly fueling and wallowing in the blind, circular partisan warfare is for idiots, since BOTH are culpable (including the majority over voters and the incumbent politicians that the majority of voters repeatedly reward with 90% re-election rates).
And we seem to have no shortage of idiots these days.
A nation consists not only of its elected politicians, but the voters that elect them (and re-elect them, and re-elect them, and re-elect them … while somehow expecting things to change by repeatedly doing the same thing over and over and over).
The problem is rooted in several categories of short-term selfishness, instead of educated, enlightened, long-term self-interest.
The problem is quite simply too much selfishness, which manifests itself as laziness, greed, lust for power, self delusion, rampant lying and corruption.
When enough voters finally do their part, then there may finally be true reforms.
Education is part of the solution, and the majority of voters will almost certainly likely get their Education one way or another; perhaps when enough of the voters are jobless, homeless, bankrupt, hungry, or victims of abuses what were once considered crimes.
At any rate, the majority of voters have the government that they elect, and re-elect, and re-elect, at least, possibly, until repeatedly rewarding failure, repeatedly rewarding the duopoly, and repeatedly rewarding FOR-SALE, incompetent, arrogant, and corrupt incumbent politicians in Do-Nothing Congress with 90% re-election rates finally becomes too painful.
Posted by: d.a.n at August 13, 2010 09:07 AMBack to the stimulants: they have done nothing except pay off the groups that voted for obamba, ie. unions and busted states.
Posted by: Beretta9 at August 13, 2010 09:37 AMAnd tax cuts for the rich was a payoff for the shrub and republicans.
Posted by: Jeff at August 13, 2010 09:55 AMThe stimulus was not some harebrained idea, and it was not ineffective for its size. Economists from all over the place, and across the political spectrum will acknowledge it.
Of course, the Republicans, who are running on Obama being at fault for an economic collapse and recession that was well underway when he was inaugurated, will not admit any such thing. They have to run on an impossible to disprove negative.
And for good reason: if they ran on their record, their actual record, it would be political suicide.
The Republican alternative would have been more of what Bush did, at the very most.
I just have to ask the question: is there any way C&J will let Bush be held accountable? Whether it’s scapegoating Barney Frank and Chris Dodd, or repeatedly posting the same general argument with the same expressed anxieties about the uncertainty that changing anything in the regulations will do, they have continued to try and claim that the state of our economy now is the result of liberal policies and policy goals, and that nothing the Democrats did made things much better.
Screw uncertainty. The Businesspeople know the parties over. They don’t want it to be over. They don’t want to make less money doing what they’ve been doing, despite the fact that what they did nearly wrecked the economy. The only uncertainty these people have is about how to make an honest buck, after years of both sides of the aisle giving them great gobs of leeway, Republicans especially, and enthusiastically.
The real question is not how we comfort the comfortable here. The real question is how we construct the rules of the road for this economy so that what happened in the latter part of the last decade does not happen again. If we don’t answer that question, America’s economy is going to really sink in the toilet.
You know, you guys had your chance to get this right. You had your chance to show results. You failed. You failed, and now, it seems, you look to create failure, to allege failure on the other side, so you can get back in power and make sure that your party ensures the failure of further change.
I’m sorry you don’t like our economic policy. Americans though, elected us to change it, if nothing else. Americans did not elect us to continue your policy. That much should be clear from both elections. Obama’s worst hits to his popularity have come from where he seems to have insufficiently distanced himself from Bush Policy and Republican special interests.
The irony is, the Republicans are going to use America’s thirst for change to push and agenda of status quo restoration. Me? I think Americans should stick to their original course and not let unfounded, erroneous doubts undermine their resolve to change this country.
Posted by: Stephen Daugherty at August 13, 2010 12:53 PM
Dan is right that this all began years, decades ago. He is also right that the people are to blame for allowing it to happen.
This debate is a perfect example of the truth of the above statements.
One side says, if we spend more it will make things worse.
The other side says, if we don’t spend more the economy won’t recover.
Both sides got us into a mess that this country should not be in.
Republican philosophy supported by the Democrats and done without regards to fiscal responsibility.
If the Great Depression is considered the basis by which we measure the possible cure for our current economic problems then the solution is obvious; we need massive deficit spending comparable to the WWII spending.
If the government piddles around with a little here, a little there, with a goal of helping small business create low income service economy jobs then we are just throwing money down a rat hole, the deterioration of the middle class will continue, the revenues won’t be there to pay off the massive debt and that debt will crush the country.
So if it comes down to massive deficit spending, it had better be extremely purposeful. It must be used to solve the problems that the country has ignored while we focused on greed and selfishness. It must be used in a such manner which will not just produce jobs, but will produce the infrastructure and jobs that will make us competitive in a world market.
It must be used to solve our energy problems and insure the energy we need in the future. It must produce jobs that provide an appropriate standard of living for our future generations. It must address our social safety net and shore it up. By this, I am not suggesting a ridiculous Republican faith based initiative like Bush did with the housing market.
Most importantly, a majority of the people must be on board with whatever is planned. No more cramming it down the peoples throats with another dose of we know what is best. Despite the rhetoric about the education of the people, they are not stupid. Given the opportunity, they are fully capable of helping to decide how this nation will proceed.
C&J, the change that a majority was expecting was about 180 degrees out from where we were headed.
jlw,
While I agree with 90% of what you are saying, why do you think we are not competitive worldwide? We have the largest manufacturing base worldwide, and by far the largest GDP, and highest productivity (depending on how you figure this number we could be #3).
Posted by: gergle at August 13, 2010 04:00 PM
Gergle, by competitive I mean without sacrificing a large chunk of the middle class. Yes, we are still number one in manufacturing, but our capacity has shrunk to below 1990 levels while our population has grown by more than 60 million since then. The private sector service economy has not replaced all of those jobs and those jobs, for the most part, pay less. In addition, the high tech jobs that were promised aren’t materializing.
I am not ready to proclaim doom, but I think you know that the Republicans are going to continue to resist change to their vision of laissez-faire, free market, faith based initiatives and the tea party is supporting even more reactionary right wing candidates. The Republicans stand a good chance of retaking at least half of Congress and that will only encourage them more.
It may seem like the Democrats control the Senate, but the reality is that the corporations and their quasi-conservatives control it. That is why we have a health care bill that in all likelihood will not control escalating health care cost in any significant way.
With this stalemate in Congress, band aids are probably the best we can expect.
Posted by: jlw at August 13, 2010 04:50 PMjlw, your comments are simply a series of “If” such and such is true, “Then” such and such is the solution. The “If’s” are all false and the “then’s” are all about massive government spending.
Your comments featuring solutions are nothing more than a “wish list” to be fullfilled by the magical fairy. Unfortunately there is nothing but fluff in your comments with no actual plan for accomplishing anything except for spending more money.
Here’s just one example of the “wish” listing…
“So if it comes down to massive deficit spending, it had better be extremely purposeful. It must be used to solve the problems that the country has ignored while we focused on greed and selfishness. It must be used in a such manner which will not just produce jobs, but will produce the infrastructure and jobs that will make us competitive in a world market.”
Could you elaborate please?
Posted by: Royal Flush at August 13, 2010 07:00 PMJlw
It was not only the spending in the war; it was also the war that pulled us out of the Great Depression. Lots of Europe was destroyed; millions of workers were killed. It was like a disastrous forest fire. After the fire, things grow rapidly and new things get a chance to grow. But the price is very high and I don’t think we want to pay it again.
Our country is several times richer and much more advanced than we were in the 1930s. Our industrial and agricultural base is just very different. No more do we have the big industries employing masses of men in very similar jobs. The big inputs of money just don’t work the same way. Watch them build a road. When I was a kid, there were hundreds of men employed building a mile of road. My father got lots of overtime, since he worked at a cement company when the Interstates were built. Today a few men driving big machines make the roads and they do it much faster. Back at the cement companies, gravel pits and asphalt plants, it is the same thing. Sometimes a couple of guys can do the work that used to require dozens or hundreds. All this means that the power of government stimulus, never as powerful as we thought, has lost much of its punch.
Today government must create consistent and predictable conditions for Americans to make their own ways. The days of the POLITICAL-economy are waning. Today physical capital and human capital are merging. The government cannot quickly build human capital and it cannot provide it to anybody. It is always owned by the person himself. Government must incentive people to employ it; it cannot be forced. This is a truly difficult situation for politicians, who like to be in charge but cannot be.
I don’t agree that the “problem” started years ago, because I don’t believe we have a problem. The word PROBLEM implies a solution. There is no solution. We have an ongoing, ever changing situation and we must constantly adapt new solutions. There is no finish line. I would add that our current problem set is not bad compared with those our fathers faced. We don’t need to go way back to the depression. Our situation today is better than it was in 1982. I know everybody likes to talk about the big drops of recent times, but today we were much better off when we started.
Posted by: C&J at August 13, 2010 09:22 PMStephen
Did you not read the post. I wrote that Bush screwed up. I have written words to that effect in several posts now. He didn’t, of course, do it by himself. People like Frank and Dodd played important roles. As is the case with the Obama screw ups. It is not only him. They economy is too big for that.
I am trying to find a common threat in the ostensibly very different Bush and Obama screw ups. The only thing that they both have done is spend way too much money. It seems that excessive government spending, whether by Democrats or Republicans, is a cause of trouble.
The funny thing is how roles get quickly reversed. You are calling to “stay the course” even when it clearly is not working as predicted by the Obama folks or hoped for by Americans. Nobody advocates “going back” to the Bush policies, although I bet that most people would be unable to actually accurately describe the policies they wouldn’t want to go back to. Bush expanded government and government spending. I don’t want to go back to that. But then Obama has done even more of both. I prefer not to go back to that either. Maybe we try some change.
Posted by: C&J at August 13, 2010 09:23 PMSD et al
Good news!!
Bobby Gibbs and Cindy Sheehan are having a pee off. You guys got a golden opportunity to join the 1st annual piss off directly from the WH.
It will make more sense than that crap you guys keep spewing even when those that oppose you are not taking any side in the race. Those that oppose your position have consistently said Bush screwed up. What more do you want from the opposition. Your hearing aids are in the mail. From your non-republican resident constitutionalist, Terrible Tom.
Posted by: tom humes at August 13, 2010 10:12 PMTom That’s the platform the Democrats are running on BUSH screwed it up because they can’t run on anything else.
Posted by: MAG at August 13, 2010 10:54 PMC&J
There is no finish line. I would add that our current problem set is not bad compared with those our fathers faced. We don’t need to go way back to the depression. Our situation today is better than it was in 1982. I know everybody likes to talk about the big drops of recent times, but today we were much better off when we started.
Sounds very wrong. I know there’s a story to go with this. In what way is our situation better than 1982? Are you simply using a % GDP drop as your measuring stick?
Posted by: gergle at August 13, 2010 11:21 PMgergle
I know people fool with statistics in all sorts of ways to show we are richer/poorer. Adjusted for inflation, all American groups have more purchasing power today than they did back then. Some complain that the rich got rich faster than the poor got rich. It is true that inequality grew. I am not sure that bothers me. Individuals move through the income quintiles.
Speaking for ourselves, C&J were earning in the lowest 20% in 1982. We have moved through all the quintiles and are now in the highest 20%. We will retire in a couple of years and then move back down a couple of levels in income. A figured out or MEDIAN income over our working lives and we are almost exactly at the median American income right now. I expect that in the year before retirement, we will exceed it and then go back down.
Incomes are dynamic. Many of the rich folks today were not the rich folks 20 years ago.
I think we also need to account for technological progress. Our society encourages innovation and its spread. In pre-free market societies progress was slow. Thing didn’t change much for thousands of years for most people. in our lifetimes, things have improved remarkably.
I am working on a computer that is better than almost ANY computer at any price in 1982. I am watching a flat screen TV in high definition, for which I paid a couple hundred dollars … about the same as I would have paid for what today would be a piece of crap TV in 1982. My Honda Civic hybrid gets 42 miles to the gallon and requires almost no maintenance after six years. Compare that to an inexpensive car you owned by in 1982. How about that Gremlin? I went to Europe for the first time in 1979. I saved all year and it cost me around $450 for the flight to Germany. I did a quick search on Internet, something I couldn’t do back then. Now a flight to Germany is $433.
There is really no comparison. What people who want to complain about today do is project their current lifestyle back to the “good old days”.
If you want, I bet you can still buy that portfolio of products you had back in 1982. If you look at estate sales and junk yards, you can find that Commodore computer, get that heavy old TV. Maybe a big Betamax. Drive the unreliable Gremlin to work. Remember there is no computer at your desk. You don’t have a mobile phone. Life is better now. More choices.
Posted by: C&J at August 14, 2010 10:28 AMC&J
Adjusted for inflation, all American groups have more purchasing power today than they did back then.
Actually, I don’t think that’s true unless you are only talking about electronics and certain other technology advances. The thing is, do people really need flat screen TV’s? Is it worth blood minerals? I don’t own one. Is that what you are basing this on? I think this is a rather false metric.
I had a computer in the eighties and even 70’s. Of course there was no real internet back then. They did have connected systems at the college I went to. I never used them, though. I thought the Gremlin was a piece of junk when they came out. I had a Dodge Dart, Toyota Corolla, Maverick and MGB (all used). I bought a VHS machine in the seventies, because I knew Beta wouldn’t win the market. I owned a TI-99 and TRS 80. In the eighties some contractors had mobile phones, but we usually either used job site land line phones or ran to the nearest pay phone.
I do think the internet is important for kids and if you want to be well informed, but most libraries have internet access, and access to newspapers and magazines. I think computer literacy is important for job skills these days.
I’ve always bought things on the edge of technology, but that’s because of my interest in them, not their relative importance to the average person or buying power. I remember a relative asking my dad what you could use a computer for. He later asked me how one can explain the potential to someone with zero knowledge of technology. It’s just a different mindset.
I just bought a blackberry. I like how it notifies me when I get email, and allows me to respond easily in the field. It’s handy in organizing contacts and schedule reminders. The internet service kind of sucks. I bought it because it’s handy and I got it fairly cheap, and my regular cell phone bit the dust. It’s handy, but not essential.
I paid nearly $700 for my first VCR. It turned out I didn’t really want to watch stuff I recorded all that much. Most of the time I wait until something has been out a bit, so that the price drops and it becomes clearer what the dominate technology will be.
Posted by: gergle at August 14, 2010 09:12 PMGergle
I still have clothes from the 1980s. I don’t believe in buying too much stuff. The point is that such things exist if you want them. If you want to live at the level of 1982, you can do that with a low income. The equivalent of of the product of those times are very down scale and cheap.
As you mention, the price drops on these goods.
But you know that if we gave the poor exactly the kinds of buying power (and quality of goods, medical care etc) that a working class person had in 1982, we would be seriously depriving him.
I know that I have more choices now. I don’t spend much on daily living. It is just inexpensive.
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