$145 Billion Like Manna from Heaven

How horrible is our economic news coverage? Bush offers an economic stimulus package in the amount of $145 billion (approx. 1% of GDP) and trying to find any reporting as to where that money will come from is like trying to find a needle in a haystack. Of course, this allows it to be pimped as good news — yeah, each individual and family can expect $800 and $1,600, respectively, to just fall in their laps. Worse, we’ll call it a “rebate.”

How it can be a “rebate” when we don’t have a surplus is simply beyond me. But, hey, it’s Bush and the media dutifully reports rebate alongside clean water, clean air, sustainable forests, etc. Additionally, this plan is being spun out as good news when we don’t even have all the specifics of the plan which will certainly include more patronage payouts to Bush cronies.

The money is likely to come from two sources – the Social Security fund (you know, the one you, me and Gore wanted in a lockbox) and deficit financing. Reporting this, however, takes the sheen off of the feel-good “let’s give everybody some cash” storyline.

The first is problematic because Americans don’t want the government dip into the social security fund. The second is problematic because the Republicans do not believe – as an ideological matter – in deficit financing. In fact, they believe in a Constitutional Amendment banning such activity.

Every presidential candidate – both Republican and Democratic – needs to be asked not only whether they support Bush’s economic stimulus package (all are likely to say yes because who wants to tell the voters they can’t have some cash during an election) but how they would finance the package – expect the Republicans to generally claim “spending cuts” without giving $145 billion in specific cuts.

For my part, I’m not totally against a plan pumping money into the hands of American consumers in the face of a recession and funded solely by deficit financing. I wish we would have engaged in more spending on economic infrastructure at a much earlier point as well as some mix of putting some money back in the hands of American consumers. But this plan is better than nothing.

In any event, it appears that the World is not impressed. The European and Asian markets plunged today on fears of a US recession. Apparently, they don’t have alot of confidence that Bush’s aid package will stave off the problems that will occur as a result of an artificially inflated real estate market and years of engorging ourselves on credit spending.

5 Responses to “$145 Billion Like Manna from Heaven”

  1. alex says:

    I really enjoy reading your blog, it always has great insight. But I am very frustrated with the media’s lack of questions to the presidential candidates about global warming.

    The Daily Green just put an article out talking about how the presidential candidates are not being asked where they stand on the issue of the climate change – this is surprising to me considering its such a MAJOR concern to people. I just saw a poll on http://www.EarthLab.com that says people care a lot what their next leader thinks about global warming (after you take it they show you the results). Does anyone know of another poll or other results about this subject?

    If not, go to http://www.earthlab.com/life.aspx and take their poll to see which way the results go. This is a pretty legit website; they are endorsed by Al Gore and the alliance for climate protection and they have a carbon footprint calculator. No matter which political party you vote for this is an important issue for our environment, our economy and for homeland security.

  2. Mark says:

    The Republicans were, at one time, against deficit spending. That has not been true for some time. While there are still some Republicans like Jeff Flake and to a lesser extent John McCain who are appalled by the idea, Republican leaders have been privately and publicly disavowing the balanced budget amendment for a good 6 or 7 years now. In early 2003, for instance, I attended a seminar by a Republican think-tank dedicated to creating new Republican leaders; at the seminar, one of the speakers (who was well-plugged in to GOP conventional wisdom) spoke at length about how the concept of a balanced budget was a bad idea. Let’s be honest – the Bushies haven’t exactly been fond of balanced budgets since they took office.

    Anyways, both the Bush and Dem proposed stimulus packages are Keynesian in both concept and practice. But a big part of the problem is that Keynesian stimuli typically demand surpluses during preceding economic expansions; we’ve been running massive deficits during the last 7 years of expansion. This is something Kip Esq. argued a week or so ago:
    http://kipesquire.powerblogs.com/posts/1200683497.shtml

    The fact is that recessions happen, the economic cycle exists, and oftentimes recessions are extremely short-lived; by the time the stimulus reaches the people, the recession may already be over or at least on the way towards a conclusion. An economic stimulus package that is not timed exactly right and structured in exactly the right way can actually make things worse rather than better.

    Economist Alex Tabarrok had a pretty cogent argument against any stimulus at all about 2 weeks ago, here:
    http://www.marginalrevolution.com/marginalrevolution/2008/01/against-fiscal.html

    As Kip said- the best economic stimulus would be to end the Iraq War, with the $250 billion we spend on it every year (well over $1000 per taxpayer per year).

  3. Macswain says:

    Mark,

    Great comment. The issue with decreased spending in Iraq is tricky for me. While I favor it, I also favor increasing our commitment in Afghanistan … so I would use some of the savings there. Any further savings would only go to decrease the deficit and would not necessarily spur growth unless we shifted the savings to some other spending, e.g. public works, infrastructure, etc.

    As I think we are look at big long term problems, I don’t think we should just ride this one out. I think a plan implemented quickly can still have some positive effect.

    Aren’t we all Keynesians now?

  4. Mark says:

    ….Well, I’m not one (a Keynesian, that is).

    But the bigger point is that if you are a Keynesian, that usually requires a pre-existing budget surplus during periods of economic growth. Like it or not, the Bushies have managed to run a massive deficit over the last 7 years of relative economic growth. Bush’s initial fiscal stimulus package back in 2001 was justifiable on Keynesian grounds thanks to the budget surpluses of the Clinton years; but that hasn’t been the case in recent years.

    As for shifting some of our Iraq resources to Afghanistan, I’m personally in favor of that, but I would like to see the majority of those resources come home entirely as soon as possible.

  5. Macswain says:

    Can we have another holiday to keep the market from opening for another day?

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