Reasons to dislike the stimulus package:

1) The magnitude. The US government will spend approximately 922B of our money. This is approximately $300,000 per job created (assuming that it creates 3M completely new jobs). This is approximately $25,000 per citizen (assuming 360mm citizens), and about $75,000 per household. I'll stimulate the economy myself if you would just give me the money, while also making it easier for households to deleverage. It would help retailers, real estate prices, car companies, and banks, allowing consumers to put their money where THEY need it to be fixed. GM will survive if people buy their cars with the 25k, and not based on how good they are kissing a Senator's ass.
2) The composition. The stimulus package isn't being used to pave roads and educate our children. We already pay taxes for that, and we spend nearly the most money in the entire world on education. Instead we're spending money on broadband internet in rural areas (7.5B), giving money to the Census bureau for cost overruns (1B- and zero jobs created), and there are dozens of other little projects like this.
3) We're putting further pressure on US debtholders, and putting further downward pressure on the US dollar, eroding our purchasing power.
4) While not a big concern now, actions like this put further pressures on the monetary base, and seed the soil for inflation and inflationary expectations. Inflation acts as a hidden tax eroding our purchasing power.
5) The long-term costs of such a bill, and the amount of capital and investment that the federal government is using, is obvious to both supporters and opponents. Supporters say that the cost of inefficiency is worth the short-run improvement in unemployment. Opponents do not agree, or find this tradeoff is not acceptable when considering the above shortcomings.

Liberals in Congress would do well to engage these objections if they wish to actually garner bi-partisan support, but I suspect that is not the goal. Instead, the goal is to push through a bill that you like, and try to work the PR so you look good whether the economy recovers or not. As an example, I believe liberals used to call this "scare-mongering:"

“If we do not move swiftly,” the president said, “an economy that is in crisis will be faced with catastrophe.” He added, “Millions more Americans will lose their jobs. Homes will be lost. Families will go without health care. Our crippling dependence on foreign oil will continue. That is the price of inaction.”

First: I really do want to emphasize that I'm green when it comes to economics and that I'm really trying to refrain from expressing personal opinion. I'm trying to hear from both sides on a daily basis (usually check out what Krugman and the CATO guys have to say). If I come across as trying to advocate an ideology, I apologize, it's more the result of trying to be parsimonious with words than to be persuasive.

I also don't want to come across as being anti-government. It has it's place, especially in public goods where there is no incentive for the private sector to jump in because of lack of profits (public transit for example). So, like I said, I'm not opposed to using this stimulus for infrastructure, both because I think we need improved infrastructure and that I believe improved infrastructure has short and long term economic benefits. (Ok, so that paragraph is personal opinion, but I'm comfortable enough with this area to have a clear idea and to be willing to defend it).

I'm not saying there's no place for tax cuts; the payroll tax cut in the package seems like a valud add. But the research is pretty solid that public spending delivers more stimulus than tax cuts.

I don't want to say, I disagree with this statement, because that implies ideology, but from the reading I've done, I haven't reached this conclusion. If you've any recommendations for reading that hammers this point home, I'd appreciate it.

I think one thing I have to keep in mind is that I'm naturally inclined to favor a long term solution and don't see much value in the "need for swift action" rhetoric. So in that sense, the idea of the private sector banking whatever percentage of tax cut proceeds isn't entirely a negative to me. I understand that takes money out of the immediate circulation and only a percentage of that can be invested by the banks (and I understand the public aversion to investment banking at this point).

One aspect of this whole debate that really interests me is how different segments of the population are reacting (specifically by age). Like I said, my natural disposition is to spurn the need for quick action in lieu of a long term fix (although I'm sympathetic to a multi-tiered approach). One fear I have is that because of that huge AARP aged voting bloc, that we are rushing into this whole stimulus package. But then, I also see why those people want/need an immediate fix and are, perhaps (not trying to vilify here), willing to sacrifice long term prosperity for an immediate market uptick.

A lot of caveats in what I wrote and I don't want to turn this into my personal information session, so feel free to ignore anything that requires a long response or to just completely ignore anything that is obviously inane (in this or any future posts on economics). I'm really just making my first legit foray into understanding economics (I dropped my finance major when I couldn't get over the feelings of wanting to fight all the d-bags in finance classes and I spent most of my economic classes staring at the girls and stimulating the 20 some year old libido). I'm predisposed to the idea of free market economics from the political philosophy that I tend to gravitate to (Nozick), but I'm trying to remain as open as possible and to not advocate anything strictly out of an ideological reaction, so don't be surprised if my opinions morph dramatically over time.

FTN wrote:By creating an index fund, you'd just be reallocating existing shares of a company, not adding to its capital.

ie, you set up an index fund and buy the shares. You've basically just purchased shares of companies like Wal Mart, McDonalds, Exxon, etc etc, from other institutions. It doesn't really add money into the system, it just reallocates existing funds.

If I understand what you're suggesting

Thanks for the response. I'm going to have to do some more reading on index funds, because I was under the impression that they added capital.

dajafi wrote:But this is a doubly faith-based argument. First, it implies that "the private sector" will spend it out, rather than save it. Second, it implies that all spending is essentially of equal value--that you get as much from a nationwide pizza party as from infrastructure repair, or R&D, or aid to states.

There's also the fact that the private sector doesn't provide public goods. If we want to see roads fixed or transit lines developed or schools improved, we have to do it.

1) Infrastructure is done through the normal budgetary process.
2) Government spending replaces private spending across time, whether you like it or not.
3) Aid to states who are going bankrupt due to ineptitude is of questionable value.

"We" in the latter case being government; remember, they're us. That's the point of a democracy. The hating on government from the likes of Tom Coburn is essentially a lizard-brain reaction at this point; I doubt he could tell you exactly why government is bad, he just "knows" that it is. This is the mindset that both gives us the comprehensive incompetence of George W. Bush, and makes it so hard to believe that public spending can deliver value. Our grandparents didn't have this hangup fifty years ago.

Strawman or ad hominum argument, I forget which. Also George Bush's ineptitude doesn't make Congress's spending look any better. Also, our grandparents learned the meaning of government waste by living through it.

There just doesn't seem to be much of a sense of the moment from opponents of this package. Their essential phobia of "creeping socialism" is an irrational indulgence right now. (To be fair, one probably could say the same of many Democratic supporters, who are using the contingency of crisis to try and jam through things they'd support in any circumstance. My view is that this is a good time to invest in things like education, for the reason that Pearlstein articulates, but I'll admit that's my own bias and I see the other side of that argument.)

Sensationalism and dramatics are something that the Bush administration used to push through harmful programs. This is why it's so easy to recognize!

I'm not saying there's no place for tax cuts; the payroll tax cut in the package seems like a valud add. But the research is pretty solid that public spending delivers more stimulus than tax cuts. Right now this isn't about ideology, it's about generating economic activity. We should do whatever's most likely to do that, and then pull back as growth resumes. (Which is where I wish the Republicans would concentrate their energies. But again, this isn't really a serious party right now.)

Your arrogance is unattractive.

kruker wrote:

FTN wrote:By creating an index fund, you'd just be reallocating existing shares of a company, not adding to its capital.

ie, you set up an index fund and buy the shares. You've basically just purchased shares of companies like Wal Mart, McDonalds, Exxon, etc etc, from other institutions. It doesn't really add money into the system, it just reallocates existing funds.

If I understand what you're suggesting

Thanks for the response. I'm going to have to do some more reading on index funds, because I was under the impression that they added capital.

An index fund is essentially a basket of stocks. Mutual funds offer index funds but all they are doing is buying existing shares of a company. The only way to add new shares is for the company to issue more shares.

Yea, I see where I made my mistake now on that. Thanks.

kruker wrote:First: I really do want to emphasize that I'm green when it comes to economics and that I'm really trying to refrain from expressing personal opinion. I'm trying to hear from both sides on a daily basis (usually check out what Krugman and the CATO guys have to say). If I come across as trying to advocate an ideology, I apologize, it's more the result of trying to be parsimonious with words than to be persuasive.

No, I hear you. I'm sort of trying to better educate myself on this topic on the fly as well, and I probably come into it with more of a bias... which I think is fine; opinions are free, but it's good at least to be aware of your own leanings. It's when you become so enamored of your ideology that other arguments can't penetrate at all that there's no point.

kruker wrote:

I'm not saying there's no place for tax cuts; the payroll tax cut in the package seems like a valud add. But the research is pretty solid that public spending delivers more stimulus than tax cuts.

I don't want to say, I disagree with this statement, because that implies ideology, but from the reading I've done, I haven't reached this conclusion. If you've any recommendations for reading that hammers this point home, I'd appreciate it.

Well, here's one I found quicklythat was done by a guy who advised McCain last year. See the chart on p. 9. Basically the least stimulative spending measure in the plan (aid to states, $1.38 for every $1 spent) has more of an effect than the most stimulative tax measure (payroll tax holiday, $1.22 for every $1 cut).

kruker wrote:One aspect of this whole debate that really interests me is how different segments of the population are reacting (specifically by age). Like I said, my natural disposition is to spurn the need for quick action and effect in lieu of a long term fix (although I'm sympathetic to a multi-tiered approach). One fear I have is that because of that huge AARP aged voting bloc, that we are rushing into this whole stimulus package. But then, I also see why those people want/need an immediate fix and are, perhaps (not trying to vilify here), willing to sacrifice long term prosperity for an immediate market uptick.

But it isn't necessarily an either/or. Last night I read this piece by David Leonhardt, a New York Times economics reporter who hasn't been focusing so much on immediate measures as how to set the foundation for long-term growth. He writes about health care and education reform in this article, among other subjects, and makes the case, which I happen to agree with, that ultimately improving educational attainment (especially the number of people attending and completing college) is the single best way to ensure sustained, broad-based prosperity.

As it happens, though, steps that also provide short-term stimulus--aid to states so they don't have to lay off teachers or otherwise cut education budgets, retrofitting of schools so they stop overpaying for energy, tuition assistance for current college students--help that long-term goal as well. Those things just don't meet the commonly held idea of "shovel-ready projects."

(Leonhardt also had an interesting point in the NYT Economix blog about the 2008 Bush tax cut stimulus, which he thinks might have been more usefulthan a lot of us have given them credit for. In general, that blog is pretty good, and written for the lay person.)

Thanks dajafi, I'll read all that later on after I hit up the gym.

Let's go through the nonsense.

Werthless wrote:1) Infrastructure is done through the normal budgetary process.
2) Government spending replaces private spending across time, whether you like it or not.
3) Aid to states who are going bankrupt due to ineptitude is of questionable value.

The "ineptitude" of states that suddenly find themselves with more obligations than resources perhaps deserves to be punished in Free-Market Fairyland, where there are no consequences, democracy has no relevance, every man is Alan Greenspan as a superhunk and every woman is Ayn Rand as a megababe. Here, though, there are costs to doing nothing.

Actually, that's an important general point. Outside of your fellow libertarian superheroes, pretty much everyone else seems to believe that, yes, this is really a crisis, and yes, short-term action would be helpful.

Strawman or ad hominum argument, I forget which. Also George Bush's ineptitude doesn't make Congress's spending look any better. Also, our grandparents learned the meaning of government waste by living through it.

You're the perfect example of a myopic economic elitist who surely believes that whatever you have is due solely to your virtues, with no thanks to a good public school you might have attended, social arrangements that supported your stable and happy upbringing, the roads or transit you use to get to work where you seem to have ample time to spout Free-Market Fairyland propaganda.

That's government. It's your ideological blindness that conditions you only to see the waste, not the value.

Sensationalism and dramatics are something that the Bush administration used to push through harmful programs. This is why it's so easy to recognize!

Again, you're pretty much the only voice that doesn't seem to think something dramatic is going on, and/or that the economy is so cold-bloodedly rational that what government does has no impact on markets. But in your better-than-everyone worldview, I guess this is exactly the same as the Iraq War.

Your arrogance is unattractive.

Note no engagement with the argument, but just the cheap shot. And you calling anyone "arrogant" is pretty spectacular.

Man, the economics thread peed in my politics thread.

Three good pieces of news for House Republicans electorally over the past 24 hours. Fmr. Rep. Steve Chabot is going to run again for his Cincinnati seat that he lost in 2008. He'll be our best candidate in possibly retaking it, and depending on the environment, it probably starts out as a toss up.

Rep. Allen Boyd (D - Florida) is facing a serious primary challenge. He's a Blue Dog Dem who represents a GOP leaning district up in Northern Florida by the panhandle. Him having to vote more liberally, or if he gets knocked off by this black state senator who is challenging him, would improve our chances of being able to target that seat in 2010.

Finally an early poll in Gillibrand's seat puts the better known GOPer, Assembly Minority Leader Jim Tedisco, leading the likely Dem choice 50-29%. Obviously that will get closer as Murphy starts spending money, but it's a nice starting point.

If we can pick up that seat, it'd put us 3 for 3 in the early Obama era, with us holding LA-4, Dollar Bill Jefferson losing too. That would be nice. We're going to need to make big strides this election to get people in place before redistricting if we're going to have any chance of retaking the House next decade.

For kruker and anyone else interested--here's an interesting take on the other side, from Greg Mankiw:

[L]et me reiterate what I would do right now if I were the fiscal king.

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid.
...
Any further federal spending projects should be evaluated on the basis of cost-benefit analysis. That analysis would take time, but it would ensure that the projects are not a waste of taxpayer dollars.

He goes on to offer another take on the spending vs. tax cuts question, and suggests that fiscal policy alone won't fix the economy; the real need is "fixing the banking system and trying to come up with a better process for homeowners and banks to work out mortgage loans in default." Those last two points at least, I don't think anyone disagrees with.

But even Mankiw, no liberal by any stretch, says "Any fiscal stimulus, such as the one I propose above, is only an attempt to mitigate the symptoms. Those symptoms are severe, so mitigation is fully appropriate."

edit: Mankiw's blog is pretty cool. Here's an old post of hison the differences between right- and left-leaning economic thinkers.

j-hoya, I posted the Pearlstein op-ed which triggered this latest run of posts because IMO the stimulus debate is a political issue right now more than an economics one. But I can move all this into that thread if it's confusing or distracting.

No, it's fine. I realize it's a relevant political issue at the moment. I'm reading articles on it myself. I'm mostly just skipping the back and forth catfights on here though.

Thanks for the Mankiw link.

On the bailing out the states issue, I'm really torn. I live in a very poor state that happens to have a relatively healthy budgetary outlook, at least for the time being. In part, that's due to a prudent budget process. (Thank you Gov. Huckabee.) On the one hand, our infrastructure kind of sucks, but on the other hand, we have little debt service. So, while it's a tough budgeting year, we're not looking at anything like what's happening in California, Florida, and other states. But these states are far more affluent than we are. We have high taxes as a portion of income, which probably makes us less competitive overall. So, I would like to see state aid distributed not in accordance with the size of the relative budget shortfall of a state, but rather according to a demographic based formula, that takes things like income into account.

jerseyhoya wrote:Man, the economics thread peed in my politics thread.

Three good pieces of news for House Republicans electorally over the past 24 hours. Fmr. Rep. Steve Chabot is going to run again for his Cincinnati seat that he lost in 2008. He'll be our best candidate in possibly retaking it, and depending on the environment, it probably starts out as a toss up.

Rep. Allen Boyd (D - Florida) is facing a serious primary challenge. He's a Blue Dog Dem who represents a GOP leaning district up in Northern Florida by the panhandle. Him having to vote more liberally, or if he gets knocked off by this black state senator who is challenging him, would improve our chances of being able to target that seat in 2010.

Finally an early poll in Gillibrand's seat puts the better known GOPer, Assembly Minority Leader Jim Tedisco, leading the likely Dem choice 50-29%. Obviously that will get closer as Murphy starts spending money, but it's a nice starting point.

If we can pick up that seat, it'd put us 3 for 3 in the early Obama era, with us holding LA-4, Dollar Bill Jefferson losing too. That would be nice. We're going to need to make big strides this election to get people in place before redistricting if we're going to have any chance of retaking the House next decade.

Well glad to see our priorities are in order

What does that even mean?

I know I'm going back in time a little as far as what is relevant to current news...but regarding the Iraq budget surplus resulting from oil.... All the news stories seem to deal only with the surplus dollar amount and how it affects Iraq. What oil companies are benefiting from this? Who is actually drilling this oil?

Werthless wrote: I was guessing it was because the House answers to districts, as opposed to entire states.

Well, so long as you're excepting South Dakota

While doing the dishes, I realized how to characterize the stimulus plan, and how to accurately describe WHY I am against it.

Everyone seems to like calling the US a "consumption-based" economy. Something around 70% of the country's economic activity is related to some sort of consumption. And this economic contraction, or fall in economic activity, is due to a reduction in consumption due to credit opportunities drying up. I think most people agree so far. The stimulus plan is a way for government to "aid" consumption. In a way, the stimulus is government consumption. Because when you sit back and think about it, the majority of the items in the emergency bill are not essential long-term investments. They're short-term projects. Infrastructure investments, road-building, and bridge inspections are something that is part of every Congressional budget. We all accept that these items will be paid for, in good times and bad. If an emergency funding of the bridges needs to be done, fine, spend the $50B and get it done. It's essential.

But by including items in the stimulus bill because "we need to spend money, and we need to spend it quickly," all it seems like we're doing is forcing the American people to borrow $900B (because we dont have the cash now to pay for the stimulus) and spend it on stuff that the Senators choose. That was my point before. Right now, people aren't spending because they 1) have little money, and 2) they have little access to credit. You only need to alleviate one of the two causes for people's wallets to open. The US government is throwing trillions at the banks to improve the credit markets, when I think they would be better off addressing the problem directly. If the government *really* needed money to be spent for money's sake, they could just give every 3.5K. Boom. People are no longer short money. As a bonus, consumer credit quality improves, likely opening up lending opportunities. Because as the saying goes, the only time a bank is willing to lend you money is when you don't need it.

jerseyhoya wrote:What does that even mean?

It means you shouldn't be thinking about something as trivial as elections now. WE'RE IN A CRISIS SITUATION, JERSEY. Stop focusing on politics, in the, erm, politics thread.

Werthless wrote:Reasons to dislike the stimulus package:

1) ....I'll stimulate the economy myself if you would just give me the money....

You might. Unfortunately too few others would.

2) ....Instead we're spending money on broadband internet in rural areas (7.5B), giving money to the Census bureau for cost overruns (1B- and zero jobs created), and there are dozens of other little projects like this.

you've enumerated about 1% of the package. Dozens of others? Must be in smaller denominations, else you'd have led with bigger deals (presuming build compelling arguments like others conventionally do).
[/quote]

Government spending replaces private spending across time, whether you like it or not.

whether you like it or not, across time we are all dead. (& I'm not a poster boy for Keynesianism)

Werthless, this sere mode of discourse doesn't seem up to your standard. Ordinarily you'd provide at least a hint of alternative approaches, beyond "just give me the money & I'll do the right thing with it myself, & oh by the way you're not allowed to call the minority party's antics into question".

EDIT: damn - I would post just after your "after-dinner-dishes" recap