Saturday, January 26, 2008

Stimulus plan a "lemon"

Over the past three weeks, even Republicans have been forced to acknowledge the nation's growing economic problems and the need for decisive action by the federal government.

It's worth noting that President Bush and his GOP agreed to act only after the downturn hit Wall Street, exacting an unacceptable toll on the Republican Party's financial and political base. As a result, the Fed enacted the single largest interest rate cut in its history and Congress has moved quickly to design a fiscal stimulus package.

For a stimulus package to be effective, it must stimulate spending (demand) quickly. The essence of an effective stimulus package is for government demand (spending) to step in when private spending (consumption and private investment) is declining.

A recent study by the non- partisan Congressional Budget Office (CBO) concluded that extending unemployment benefits and increasing food stamps, policies that get money to folks who will spend it immediately, is the most effective form of economic stimulus.

Even President Bush was forced to acknowledge this. As a result, he temporarily dropped his initial proposal for making his high income tax cuts permanent since it would not have affected the economy until 2011.

So what has the Democratically controlled Congress agreed to? Another round of tax cuts for people who are less likely to spend it immediately!

Paul Krugman writes that the compromise plan is nothing less than a "lemon:"

Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon...

Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective...

The entire column is worth reading


Anonymous said...

Is there still a chance that Democrats in the Senate will be able to amend the stimulus package, to add food stamp and unemployment benefits?

Have there been any persuasive arguments to say why those provisions were left out, in the first place? (I mean by anyone other than John Shiely or T. Herman Zweifel?

Anonymous said...

Is that all you do is spew out Paul Krugman articles? I know you like him, because you quote him all of the time, but he is not some economic god. I hope you subject your students to other economic thought besides him. There are many reputable economists that disagree with Mr. Krugman. His word is not gospel.

The economic package before congress with NOT do anything for the economy. The republicans caved on this. This is just an election time ploy. Any effect that it might have will be short lived, since the economic woes is due to the downturn in the housing and lending markets. Of which most people predicted would happen. (There should have been tighter regulations on the lending industry). We will not spend our way out of this. Oh, I thought the democrats adopted Pay-go, so how is the $150 billion package going to be paid for? I guess, the evil rich will have to pay more.

On a side note, Mr. Shiely was dead on in his op-ed piece. If I were him I would push to move the company out of Wisconsin.

We do need to hold companies accountable for shifting jobs overseas. They either lose any tax breaks that they would otherwise get or pay increase rates. However, it seems that Briggs & Stratton moved their some of their business to Kentucky.

Michael Rosen said...

Paul Krugman is one of the nation's most respected academic economists His work is worth reading although I never said or suggested that his work is gospel.

The entire point of a stimulus package is short term. The problem with the current compromise proposal is that the Democratic House leadership agreed to Republican demands to focus solely on tax cuts, failing to include the most effective short term measures that boost short term spending, extending unemployment benefits and increasing food stamp eligibility. It may be amended in the Senate which was excluded from the negotiations.

Briggs has moved 10,000 jobs out of Milwaukee. It began moving the jobs in the 1980s in pursuit of lower wages in the south. The company's leaders made a conscious decision to compete in high volume, low cost (wage) markets found in the south and overseas, rather than in premium and green markets that rely on high skill high wage labor. This decision cost thousands of hard working people their livelihoods. My article was an attempt to hold Briggs' management accountable.

Mr. Sheily chose to ignore this criticism and engage in personal attacks and distortions in his response. It is an intellectually dishonest method of argument. But it is a method one uses when they can't refute their opponents ideas.