Tag Archives: paul krugman

Brantley and Brummett: Government needs to stimulate economy

John Brummett in his article, “More stimulus? Seriously?,” Arkansas News Review, August 29, 2011, observed:

The general point, though, is simple yet profound: We are in a self-perpetuating fix of serious proportion, and when you have only one tool in the box that might work, you need to figure out how best to use it.

Max Brantley on Arkansas Week in Review on August 26, 2011 said that he agreed with Paul Krugman that we don’t need to cut back on government spending now because the economy needs to be stimulated.

Brantley and Brummett will continue to say that the first stimulus did not work because it did not have enough money, but the private sector will have to get us out of this recession not inefficient government. Over and over you hear about political leaders saying that we must spend our way out of this recession, but that does not work. Below is an excellent article on this:

Is Obama Really Going to Propose Another Keynesian Stimulus?

Posted by Daniel J. Mitchell

Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.

Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank(though it is understandable that many people — including me, I’m embarrassed to admit — initially assumed it was true since he did write that the 9-11 terrorist attacks boosted growth).

 But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.

And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.

We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.

The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.

Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.

In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” – but that’sObama-speak for higher taxes, and we know that’s a damper on job creation and new investment.

As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.

This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.

Daniel J. Mitchell • August 24, 2011 @ 10:44 am
Filed under: GeneralGovernment and PoliticsTax and Budget Policy

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2nd stimulus is a bad idea

Over and over you hear about political leaders saying that we must spend our way out of this recession, but that does not work. Below is an excellent article on this:

Is Obama Really Going to Propose Another Keynesian Stimulus?

Posted by Daniel J. Mitchell

Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.

Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank(though it is understandable that many people — including me, I’m embarrassed to admit — initially assumed it was true since he did write that the 9-11 terrorist attacks boosted growth).

 But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.

And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.

We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.

The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.

Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.

In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” – but that’sObama-speak for higher taxes, and we know that’s a damper on job creation and new investment.

As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.

This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.

Daniel J. Mitchell • August 24, 2011 @ 10:44 am
Filed under: GeneralGovernment and PoliticsTax and Budget Policy

New Deal promises mythical cuts to be carried out in 2013

I am not too happy with the budget deal because I WANT TO SEE REAL CUTS. I knew when I heard President Obama say yesterday 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.

Michael Tanner  notes, “those cuts would not go into effect until 2013, after the next election.  Since the current Congress cannot bind future Congresses, it’s entirely possible – even likely – that those cuts will be rewritten, reduced, or done away with altogether.”

Michael Tanner sums up my views in his article, “A Deal, Not a Solution, August 1, 2011, Cato Institute:

The deal that President Obama and congressional leaders may well be the best deal that Republicans could get – and any deal that makes Paul Krugman this apoplectic can’t be all bad – but it should not be considered a solution to our fiscal problems.  

In the face of a $1.1 trillion budget deficit, a $14.3 trillion official debt, and a real indebtedness of more than $120 trillion, the deal would reduce the baseline increase in planned spending initially by about $1 trillion, or an average of roughly $100 billion per year – less than the federal government will borrow this month.   Moreover, the cuts are unspecific – apparently Congress still can’t find actual programs to eliminate – raising the specter that it will employ the same budgetary gimmicks as the Continuing Resolution last May, that promised $61 billion in cuts and delivered less than $8 billion.  Any cuts that do occur are simply reductions in baseline increases, not actual year-over-year reductions.  And most cuts are pushed far out into the future when they may or may not materialize.

The plan also creates a “”supercommittee – there’s an original idea – to propose an additional $1.2-1.7 trillion in spending cuts or tax increases, but few Washington observers expect it to be able to reach an agreement that could actually pass Congress.   Of course, in theory, if that happens, there would be automatic cuts of about $1.2 trillion, split equally between domestic programs and defense.   However, those cuts would not go into effect until 2013, after the next election.  Since the current Congress cannot bind future Congresses, it’s entirely possible – even likely – that those cuts will be rewritten, reduced, or done away with altogether.   Certainly there is no reason why we should count on them occurring.

The net result of this deal is that – if every penny of the proposed cuts actually occurs – our official national debt will rise to about $20 trillion by 2020.  That it otherwise would have reached $23 trillion is scant comfort.  With our country careening toward a fiscal cliff, Congress has chosen to tap on the breaks, not change direction. 

More troubling, the deal fails to deal with entitlement reform.   It is Medicare, Medicaid and Social Security that are driving this country towards insolvency, but this plan does not include any structural reform of these programs.   They are exempt from the first round of cuts, and the level of cuts that can be proposed by the supercommittee are far too small to encompass anything like the Medicare reforms that Paul Ryan proposed early this year.   And both Social Security and Medicaid are exempt from the across-the-board cuts that kick in if the committee’s cuts do not occur.  In that case Medicare would be trimmed, but only in terms of further reductions in reimbursements to providers.

Certainly, this deal could have been worse.  There are no tax increases (yet).  There are at least theoretical cuts in spending.   We’ve moved a long way from when President Obama proposed an increase in spending as part of his 2012 budget.  But no one should pretend that we’ve put our fiscal house in order.