Tag Archives: michael d tanner.

Stimulus did not work earlier and will not now (Part 1)

Government Spending Doesn’t Create Jobs

Uploaded by on Sep 7, 2011

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In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t create new employment.

Video produced by Caleb Brown and Austin Bragg.


When I think of all our hard earned money that has been wasted on stimulus programs it makes me sad. It has never worked and will not in the future too. Take a look at a few thoughts from Cato Institute:

Feeling Spent

by Michael D. Tanner

This article appeared in The New York Poston September 13, 2011. 

On Thursday night, the president laid out his plan for job creation, a $447 billion stimulus proposal, most of which we have seen before. After all, if Congress passes this new round of government spending, it would be the seventh such stimulus program since the recession began. George W. Bush pushed through two of them, totaling some $200 billion, and Obama already has enacted four more, with a total price tag of roughly $1.3 trillion.

The result: Three years and $1.5 trillion of spending later, we are back to the same gallimaufry of failed ideas. Among the worst:

1. Temporary Tax Cuts. The president wants to extend and expand the temporary reduction in the Social Security payroll tax that Congress enacted last December. The president also called for a grab-bag of tax credits for businesses that buy new equipment, hire veterans or even give workers a raise. There is obviously nothing wrong with letting workers keep a bit more of their money. And some of the tax breaks might encourage businesses to speed up otherwise planned hiring or purchases, providing a short-term economic boost. But neither people nor businesses tend to make the sort of long-term plans needed to boost production, generate growth and create jobs on the basis of temporary tax changes. This is especially true when businesses can look down the road and see tax hikes in their future.

If government spending brought about prosperity, we should be experiencing a golden age.

2. Further Extending Unemployment Benefits. The president wants to spend $49 billion to provide another extension of unemployment benefits to 99 weeks. Of course everyone can sympathize with the plight of the long-term unemployed. But, the overwhelming body of economic evidence suggests that extending unemployment benefits may actually increase unemployment and keep people out of work for longer. In fact, many economists believe that current extensions of unemployment benefits have already extended the average length of unemployment by three weeks or more.

Liberals like Krugman and Brantley want another stimulus

Max Brantley posted on the Arkansas Times Blog the words of Paul Krugman, “As the stimulus has faded out, so have hopes of strong economic recovery…” (Arkansas Times Blog, June 3, 2011).

The video clip above by Dan Mitchell goes over some of the past attempted stimulus plans as does the article below. Every stimulus plan in the history of man has failed but we keep on TRYING TO MOVE MONEY FROM THE PRIVATE SECTOR TO THE PUBLIC SECTOR AND SOMEHOW WE THINK IT WILL NEXT TIME. IT ALWAYS FAILS.

Stay on Vacation

by Michael D. Tanner

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Added to cato.org on August 24, 2011

This article appeared on National Review (Online) on August 24, 2011.

As the economy continues to teeter on the precipice of a double-dip recession, there is a growing demand for the president and Congress to rush back from their vacations and do something. But why?

What is it that we really think the president can do?

While the president’s latest economic plan remains a deeply held secret until after his vacation, pretty much everyone in Washington expects him to call for … drumroll please … a stimulus plan.

Now why haven’t we thought of that before? Oh, that’s right. We have.

We’re not the first country to rely on this stale brew of Keynesian economics.

In fact, we have now had at least five — or is it six? — stimulus plans since this recession started.

The first of these came back in February 2008 under the Bush administration: a $152 billion measure, featuring a $600 tax rebate, several incentives for businesses, and loan guarantees for the housing industry. Then, as the recession picked up steam in September 2008, Congress passed the $61 billion Job Creation and Unemployment Relief Act of 2008. This bill pumped money into federal “infrastructure projects” and extended unemployment insurance.

And of course, immediately after taking office, President Obama pushed through the giant $787 billion stimulus. He followed that up with an additional $26 billion bill in August of 2010, aimed at helping states retain teachers and make Medicaid payments. On top of that, in September 2010, Congress created a $30 billion fund to provide small businesses with low-interest loans. Finally, the December compromise that extended the Bush tax cuts included another extension of unemployment benefits and a reduction in the Social Security payroll tax, both heralded at the time as stimulus measures.

We’re not the first country to rely on this stale brew of Keynesian economics. When Japan’s asset bubble collapsed in the late 1980s, its economy went into freefall. In response, Japan pursued three major fiscal-stimulus packages, totaling 6 percent of GDP, between August 1992 and September 1993. When those failed, Japan tried still more stimulus, a total of eight different packages over eight years. The Japanese government has spent $6.3 trillion on construction-related projects alone. It also increased subsidies and social-welfare payments.

Japan began the 1990s with a budget surplus. A decade later it had a budget deficit equal to 7.9 percent of GDP. Today, its budget deficit is 8.3 percent, and its debt exceeds 200 percent of GDP. The result has been minimal economic growth. For all this spending, Japan’s industrial production in 2008 was only 2.9 percent larger than it had been in 1991. Over the past decade, Japan’s economy has grown by less than a quarter of one percent.

Now President Obama prepares to call for another extension of unemployment benefits, more infrastructure spending, and an extension of the payroll-tax cut.

The real drags on our economy have nothing to do with the failure of government to spend enough. The federal government is now spending roughly 24 percent of GDP. State and local governments are spending another 10 to 15 percent, meaning government at all levels is spending around 40 percent of GDP. If government spending brought about prosperity, we should be experiencing a golden age.

The reasons we are not growing are simple and clear:

Debt: Several studies show that high levels of government debt slow economic growth. The seminal study by Carmen Reinhardt of the University of Maryland and Kenneth Rogoff of Harvard concluded that countries with a debt totaling more than 90 percent of GDP have median growth rates 1 percent lower than countries with a lower debt, and average growth rates nearly 4 percent lower. Our national debt now tops 102 percent of GDP.

Taxes: Businesses are forward-looking. They hear the president and congressional Democrats calling for tax hikes, and they become worried about taking the risks inherent in investing, expanding, and hiring. Even if the president doesn’t sock them with any new taxes, they are facing some $569 billion in new taxes by the end of the decade as a result of Obamacare. And virtually everyone acknowledges that our corporate tax rates, the second highest in the developed world, are putting American businesses at a competitive disadvantage.

Regulation: Obamacare is coming, including a mandate for businesses to provide workers with health insurance. Making hiring more expensive is not an inducement to increased employment. The EPA is planning new carbon-emission regulations. The NLRB is telling Boeing where to locate its plants. This is not a pro-jobs agenda.

Here’s a different idea. More than two centuries ago, Adam Smith wrote that “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

President Obama could try that approach — and he wouldn’t even have to come back from vacation.

I wish the Republican Presidential Candidates will give us specifics concerning where they would cut spending

I am not too happy with the budget deal because I WANT TO SEE REAL CUTS. I knew when I heard President Obama say that there would be no cuts during this sensitive time that meant till after his Presidency was over. That means these are mythical cuts that are scheduled for 2013 and may never happen.

Ron Paul seems to be the only Republican Presidential Candidate that gives us specific examples of where he would cut spending. Why can’t the others give us any examples.

I would like to start by eliminating the Dept of Education and then reducing the weeks a person can draw unemployment. 99 weeks is a crazy amount!!! How did we ever get to that point?

Here is an excellent article below that got me to thinking.

Now Answer Some Questions

by Michael D. Tanner

This article appeared on National Review (Online) on August 17, 2011.

Wth the Ames Straw Poll behind us, the race for the Republican presidential nomination is starting to pick up speed. That means it is more important than ever that we know just where the candidates stand.

Unfortunately, we can expect much of the media attention over the coming weeks to be focused on the “horse race” aspects of the campaign. Will Perry or Bachmann become the conservative alternative to Romney? Is there a dark horse out there somewhere? Who will make the next gaffe?

The candidates are not likely to make things easier. If what we have seen so far is any indication, we can expect lots of Obama-bashing, promises to be the most conservative candidate in the race, and platitudes about American greatness.

So, with that in mind, here are a few questions I’d like to see them answer:

What three programs (at least) would you cut or eliminate? Every Republican candidate has called for balancing the federal budget. Every candidate is also, justifiably, opposed to raising taxes. Since the federal government will spend $1.1 trillion more this year than it takes in, that means spending will have to be cut. Of course, everyone is against “fraud, waste, and abuse.” But the last time I looked, there is no line item called “fraud, waste, and abuse” in the federal budget. Across-the-board spending cuts are another type of cop out. They preserve worthless or wasteful programs, albeit at lower levels, while cutting programs that are actually useful. Balancing the budget without raising taxes is going to require cutting specific programs, so tell us which ones you would cut. And promising to “go through the budget line by line” or the equivalent doesn’t count. Surely by now you have figured out some specific programs that you are willing to cut — even if it means offending that program’s supporters.

How would you reform entitlements? Answering the first question was actually the easy part. Domestic discretionary spending makes up less than 20 percent of the federal budget. If you eliminated it all — the Department of Education, the Department of Commerce, the FDA, the FBI — we would still be running a deficit. Ultimately, dealing with our deficit and debt requires dealing with entitlements, particularly Medicare and Social Security. But so far we’ve heard little more than vague generalities. Do you support Paul Ryan’s plan for Medicare reform? If not, what would you do? What about Social Security? Would you cut benefits? Should young workers be allowed to save a portion of their payroll taxes in personal accounts?

Are you a fair-weather federalist? Republicans have become fond of quoting the Tenth Amendment recently: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” But we’ve heard that before. President Bush was all for states rights until a state did something he didn’t like, such as legalize medical marijuana or physician-assisted suicide. What happens now if a state, say, chooses to permit gay marriage? Already former Pennsylvania senator Rick Santorum has attacked Minnesota congresswoman Michele Bachmann and Texas governor Rick Perry for even hinting that states have that authority. And Bachmann and Perry have started to go wobbly on the issue.

Are there any limits to our military commitments? We are now fighting at least three wars, not counting drone attacks and covert actions. We have troops in more than 100 countries and are still guarding South Korea from North Korea and Germany from, well, something. Are all these military commitments still necessary? Under what circumstances would you commit U.S. troops to combat? It’s not enough to say you would protect U.S. vital interests. What are those vital interests? Promoting democracy? Human rights? Fighting every last terrorist in any country that they pop up in? Ensuring “stability” in every area of the globe?

What is the proper role of government? It’s not possible to think of every possible issue that may come up during your presidency. That’s why it’s so important to know your animating principles when it comes to government. Is it government’s role to “create jobs”? Should government enforce moral values?  What things can only government do, and what should be left to civil society? Is there anything that you think is a good idea, but still shouldn’t be government policy?

Cutting spending is the way to balance the budget despite what liberals say

President Obama really believes that we must raise taxes in order to balance the budget. Nevertheless, conservatives argue that the bloated federal spending should come down to a level where he can balance the budget. Take a look at the excellent article “Unbalanced,” by Michael D. Tanner 

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Added to cato.org on August 10, 2011

This article appeared on National Review (Online) on August 10, 2011

During his brief media appearance on Monday responding to S&P’s downgrade of the U.S. credit rating and the subsequent stark market plunge, Pres. Barack Obama once again renewed his call for a “balanced approach” to debt reduction, combining modest entitlement reform with tax increases. This was the same formulation repeated endlessly by the president, Democrats in Congress, and much of the media throughout the recent negotiations over raising the debt ceiling.

But beyond raw ideology, there is no reason to believe that coupling tax hikes with spending cuts would solve our debt problems.

President Obama usually couches his call for tax hikes in terms of fairness. How, he asks, can we cut programs that help people without also asking the wealthy to “sacrifice” something as well? Setting aside the fact that this formulation establishes a false moral equivalence between giving less to people who have not earned it and taking more from the people who have, this ignores the fact that the wealthy in America already pay a disproportionate share of taxes.

The richest 1 percent of Americans earn 20 percent of all income in America but pay 38 percent of income taxes. The top 5 percent earn slightly more than one-third of U.S. income while paying nearly 59 percent of income taxes. At the same time, roughly half of Americans pay no federal income tax. One might suggest, therefore, that the wealthy already pay their fair share, and then some.

Of course other taxes, such as payroll taxes, property taxes, sales taxes, and the like, tend to be more regressive. But even if you include all types of federal, state, and local taxes, the wealthy pay a considerably higher proportion of taxes than their share of income would warrant.

Others less prone to moral posturing argue for including tax hikes along with spending reductions on the grounds that it is “impossible to balance the budget through cuts alone.” But the evidence strongly suggests that cutting spending alone may be the only way to really balance the budget. Indeed, by including tax hikes, we slow economic growth, thereby making it harder to balance the budget.

Simply look to those European countries today that have adopted such a “balanced” approach to debt reduction. Britain, Greece, Portugal, and Spain have all included major tax hikes as part of their austerity packages. The result across the board has been anemic economic growth and scant progress toward debt reduction. Britain, for instance, imposed a new 50 percent top income-tax rate, hiked the capital-gains tax rate from 18 percent to 28 percent, and increased the VAT rate from 17.5 percent to 20 percent. The result: During the first quarter of 2011, the British economy grew at just 0.5 percent, barely enough to offset the 0.5 percent decline during the last quarter of 2010.

Paul Krugman and others have argued that it was the spending cuts, not the tax hikes, that slowed economic growth. Others more plausibly have suggested that the continuing shocks that are buffeting the world economic system have reduced economic growth generally and made it difficult to judge the effectiveness of any particular policy or group of policies.

But the body of evidence from outside the current economic crisis tends to confirm the hypothesis that additional taxes would slow economic growth, making it harder to reduce the debt. For example, a study by Harvard economists Alberto Alesina and Silvia Ardagna looked at more than 100 debt-reduction efforts in 21 countries between 1970 and 2007. They found that a combination of spending cuts and revenue reductions was actually more likely to result in debt reduction than a combination of spending cuts and revenue increases.

History shows us that countries as divergent as Canada, Ireland, New Zealand, and Slovenia successfully reduced the size of their governments relative to their economies and lowered their debt burden substantially. They did so by controlling spending, not by raising taxes.

In this country, look to the end of World War II. The U.S. government cut spending by nearly two-thirds, from $84 billion in 1945 to just $39 billion in 1946. While the country ran a budget deficit of nearly 21 percent of GDP in 1945, it was running a surplus by 1947. At the time, many economists predicted that cuts of that magnitude would destroy the U.S. economy and bring about Depression-era levels of unemployment. Instead, civilian employment actually grew, and an era of economic expansion began that would last throughout the 1950s.

All this implies that we should find a way to cut spending. And that brings us back to President Obama’s press briefing. At the end of his remarks, the president once again laid out his plans for the future, and called for more spending: more spending on education, more spending on unemployment insurance, more spending for an infrastructure bank, more, more, more.

Perhaps that, and not a mythical “balance,” is what really lies behind his calls for higher taxes.

Brantley wrong again, Harry Reid’s austerity turns out to be fiction

Max Brantley on the Arkansas Times Blog today asserted:

Politico notes that Democratic Sen. Harry Reid’s budget plan cuts spending more than Republican John Boehner’s plan. Boehner’s two-step plan is calculated on providing a highly politicized two-step plan for raising the debt ceiling.


After a closer look at Harry Reid’s plan, it is evident that his “austerity” turns out to be fiction. I do admit that the Republican plan is not much better, but it is false to claim that the Reid plan cuts more.     “Some Austerity” by Michael D. Tanner of the Cato Institute examines Harry Reid’s plan closely: 

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Added to cato.org on July 27, 2011

This article appeared in the National Review (Online) on July 27, 2011.

“It is clear we must enter an age of austerity,” House minority leader Nancy Pelosi mourned as she endorsed Harry Reid’s proposal for raising the debt ceiling. Austerity? Really?

The Reid plan would theoretically cut spending by $2.7 trillion over ten years. Even if that were true, it would still allow our national debt to increase by some $10 trillion over the next decade. But, of course, the $2.7 trillion figure is mostly fiction. About $1 trillion of the savings would come from the eventual end of the wars in Iraq and Afghanistan, savings that were going to occur anyway. Senator Reid might just as well have added another $1 trillion in savings by not invading Pakistan.

Another $400 billion comes not from cuts but from assuming reduced interest payments. And, of course, there are $40 billion in unspecified “program-integrity savings,” meaning the “waste, fraud, and abuse” that is the last refuge of every phony budget cutter. The plan rejects any changes to Medicare and Social Security, despite the fact that the unfunded liabilities from those two programs could run as high as $110 trillion. But those liabilities generally fall outside the ten-year budget window, so Reid — unlike our children and grandchildren — doesn’t have to worry about them.

[U]nder both the Reid and Boehner plans, actual federal spending will continue to rise.

That leaves about $1.2 trillion in discretionary and defense spending reductions over the next ten years. Let’s put that in perspective. This year the federal government will spend $3.8 trillion. Our deficit is roughly $1.6 trillion. Our national debt exceeds $14.3 trillion, not counting unfunded entitlement liabilities. We are talking about raising the debt ceiling to $16.9 trillion. This month alone the federal government will borrow $134 billion. Reid’s cuts would average roughly $120 billion per year.

This is austerity?

Of course, the House Republican plan as announced by Speaker John Boehner is only marginally more austere.

Boehner proposes a two-stage increase in the debt ceiling, with each stage accompanied by spending cuts. The first $1 trillion debt increase would be accompanied by $1.2 trillion in spending cuts over ten years, pretty much the same as Senator Reid’s plan. The big difference is that instead of Sen. Reid’s phony Iraq and Afghanistan savings, the speaker’s plan would appoint a commission — now there’s an exciting new idea — to propose $1.8 trillion in savings from entitlement programs. To be fair, Senator Reid would also appoint a commission — because that’s what Washington does — to recommend additional deficit reductions, presumably including entitlement changes. The difference is that the Boehner commission has teeth. If Congress rejects its recommendations, the president doesn’t get a second $1.6 trillion hike in the debt ceiling.

But $1.8 trillion in entitlement savings over ten years is still too small to encompass real structural reforms of the type envisioned by Rep. Paul Ryan and others. It is much more likely to simply be more tweaking around the edges, perhaps raising the eligibility age or changing the way the cost-of-living formula is calculated. True, changes such as these will have a real impact out beyond the ten-year budget window, but they fall far short of what is necessary to deal with the shortfalls to come.

Making matters worse, both Reid and Boehner are using the time-honored Washington dodge of “baseline budgeting,” meaning that the proposed cuts are not actual reductions in spending from year to year, but cuts from projected future increases. Thus, under both the Reid and Boehner plans, actual federal spending will continue to rise.

With the clock running out, we are now down to fifth- or sixth-best options. But let’s not pretend that this is austerity.