On the stimulus: Economists vs. Obama

The Obama administration continues to push the "stimulus" bill with the same lines we've heard all along.

Joe Biden: "Every economist, as I've said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs" (December, link).

Obama: "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy" (January 9, link)

Obama: "Economists from across the political spectrum agree that if we don't act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment and the American dream slipping further and further out of reach" (January 3, link)

Rahm Emmanuel: "Everybody, I think, from economists on the left to economists on the right realize that we must make critical investments at this time" (January 18, link).

Obama: "Every economist, even those who may quibble with the details in the makeup of the package will agree that if you’ve got a trillion dollars in lost demand this year and a trillion dollars in lost demand next year then you’ve got to have a big enough recovery package to actually make up for all those lost jobs and lost demand" (February 5, link).

During this entire time, economists "from across the political spectrum" have been voicing their disagreement, but His Hopeness keeps pushing the same line. Even many economists who favor the theory of fiscal stimulus (Feldstein, Sachs, etc.) are against this one because it is not a fiscal stimulus. It is a $1 trillion manifestation of long-time Democrat agendas being called a "stimulus" by its disingenuous proponents.

The word for this is dishonesty. In case Obama's disciples are still, after all this time, believing the lies coming out of his mouth, here are just a few of the economists who disagree with him:

- Hundreds of economists signed the CATO manifesto declaring their disagreement with the President (link).

- Of the IDEAS world's top 20 economists, 6 have opined against the stimulus and only 2 in favor (link).

- Greg Mankiw has been keeping a list, which includes himself, Burt Malkiel, Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales (link), Martin Feldstein, Alice Rivlin, Harold Cole, Lee Ohanion, and Doug Irwin (I'm sure I've missed some).

- Other's I've noticed: Arnold Kling, James Hamilton, Nouriel Roubini, Jeffrey Sachs, and William Easterly (anyone familiar with the development literature knows that a Sachs/Easterly agreement is a big deal).

So, as it turns out, not "every economist" agrees with the Pork Plan, and Obama knows it. So why does he keep being dishonest? Is this Change We Can Believe In?
...Keep reading

Limbaugh, Chinn, Feldstein, and PP on the stimulus

One of the most intelligent statements Obama has ever made was when he urged Republicans to stop listening to Rush Limbaugh. Today I came across economist Menzie Chinn's rebuttal to a recent WSJ article by Limbaugh which contained some pretty embarrassingly faulty economics. Said Limbaugh:

Keynesian economists believe government spending on "shovel-ready" infrastructure projects -- schools, roads, bridges -- is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.

Of course, long-time PP readers know that the case of supply-side economics (as the term is usually understood) is anything but persuasive. Chinn deals with Limbaugh's ridiculous assertions:

I know that proof by repeated assertion without data is a time honored tradition by some individuals, but Mr. Limbaugh's first assertion is truly an amazing. In terms of aggregate demand, while tax cuts might get to the individual households quickly, actual spending will be spread out over time. This is illustrated in the dynamic multipliers from the OECD's macro model.

My take: the problem here isn't about the debate between tax cuts and government spending. The issue is that the Left wants to argue that spending of any kind is necessary as an urgent fix to the recession, even though their proposals will spend the bulk of the money years from now and there is no indication that they are spending in the right places. The Right wants to argue that cutting taxes everywhere and all the time is a solution to every problem. Both proposals will add dramatically to our debt without really solving the problem. The real solution:

1. The "stimulus" package needs to be broken up into two parts: a stimulus, and a long-term Obama Improves America package. Each should be subject to their own, separate debate.

2. For the stimulus portion, we need to have a conversation about the best way to get the economy going. It will likely need to have a combination of temporary, carefully targeted spending and carefully targeted tax cuts. It should have a minimal, temporary effect on deficit spending. I believe that, at this point, Martin Feldstein has the best ideas. He criticizes both the tax cut portion and the spending portion of the current "stimulus."

3. For the long-term portion, Obama needs to give America the conversation it deserves. Future generations will be paying for his plans, so pushing them through under the banner of urgent recession treatment is deceptive and irresponsible. We need to talk about how to really fix our problems - a good list is in my last post - and Obama needs to keep his promises about listening to the experts. Most of all, this plan should be made parallel to a plan for reducing the national debt. No permanent expansions of government should be considered unless we have a binding plan for how to pay for them.

Obama can prove to us that he really is about Change. End the partisan games and listen to the experts to devise a plan that will actually work with minimal collateral damage.
...Keep reading

Porter on America's weaknesses

Last week on Tom Keene's show, HBS professor Michael Porter:

America has some very important weaknesses; we all know what they are: they're public education, they're unnecessary complexity in costs of doing business, they're lack of a credible safety net that helps people through transitions in terms of pensions and healthcare. And we have not made any headway in dealing with those fundamental problems. . . .

Washington is fundamentally broken. There's literally no strategic thinking. There's no capacity to take coordinated long-term action... The stimulus is giving us one more reason not to address the real problems in America. . . .

We're making almost zero progress on all these issues, and yet there's this massive amount of talk and activity going on and all this money is being spent.

Other countries do a better job at this... They think strategically and they have long-term plans. We don't do that.

(transcribed by yours truly; emphasis mine)

Porter also gives the Obama/Dem "stimulus" a C-, and he discusses the weaknesses caused by MBA's not being able to do math.

If you aren't listening to Tom Keene's Bloomberg on the Economy podcast, start now.
...Keep reading

short-term vs. long-term

H/t Greg Mankiw, from a former CBO chief's testimony on the "stimulus":

I believe an important distinction should be made between a short-term “anti-recession package” (aka “stimulus”) and a more permanent shift of resources into public investment in future growth.

This is what I've been saying all along. The current Obama/Dems "stimulus" plan is not a recession package. It is a combination of (1) massive pork projects from its time in Congress (which Yes We Can Man promised wouldn't happen), (2) the realization of decades of Democratic government expansion agendas, and (3) a small amount of long-term growth investment and a smaller amount of actual STIMULUS. Obama's attempt to pass all this junk in the name of fighting the recession is (1) bad for the economy, because we have no chance to talk about the massive increase in US debt and its effects on interest rates and confidence, and the projects haven't met tests of efficiency; and (2) a confirmation that Mr. Changemaster is not the new-kind-of-politician he promised to be, since he is selling us a porkfest but calling it "stimulus."
...Keep reading

Black on Obama foreign policy

I knew the imprisoned Nixon biographer Conrad Black was a fabulous and witty writer (read paragraph #2 of this), but until now I didn't know of his foreign policy analysis skills. In this article, he offers several approaches to Bush's Axis of Evil - basically North Korea and Iran - and suggests, brilliantly, that while Obama and his disciples think the Changemaker is Lincoln reincarnated, emulating Lincoln will not help Obama solve our current problems.

Barack Obama, who quotes Washington and Lincoln with the insight of an historian and not just a leader who has good researchers, could profitably borrow a few pages from Richard Nixon’s playbook. The Father of the Nation and the Saviour of the Union, for all their travails and distinction, never had to deal with such unfeasible characters as Ahmedinejad and Kim Jong-Il.

Black suggests using some linkage politics to persuade Russia and China to put more pressure on Iran. Read the article.

h/t Zach.
...Keep reading