Obama economic advisor Laura Tyson has suggested that another “economic stimulus” is needed to prime the economic pump because the first one just wasn’t big enough. Although not officially speaking for the President, Tyson’s sentiment dovetails Vice President Biden’s lament that the “we misread how bad the economy was.” Could another stimulus be in the works? Andrew Wilkow (www.wilkowmajority.com) and I discussed this topic briefly on his show today, but I want to cover it again on the blog.
Obama and his team of “leading economists” told us earlier this year that the $787 billion stimulus was necessary for a 2009 recovery. It is worth noting the most recessions last 12-18 months, so a mid- to late 2009 recovery would have been expected anyway. We were told that most of the stimulus money would be spent in 2009 to create jobs, keeping the unemployment rate below 8%. With unemployment approaching 10% today, some are suggesting that $787 billion package might not have been enough.
This sounds familiar. After spending $15 trillion (estimates vary), progress in the “War on Poverty” has been limited to say the least. Federal, state, and local governments spend an average of about $10,000 annually per child in our public schools, yet we hear that massive additional infusions are still necessary. The problem is a philosophical one. Those on the left believe that government intervention can solve most of our social and economic problems. When a government program doesn’t work, they simply refer to it as a “step in the right direction” that requires more spending to achieve the desired effect. Leftists never abandon the big-government worldview despite evidence to the contrary.
Biden’s comments about the current state of the economy do contain a kernel of truth, however. The Obama administration DID misread the economy in January, which gives rise to 3 questions:
- If the Obama economic team is so talented, then why did they make such a costly mistake?
- What confidence should we have in his team’s current assessment of the economy?
- Did the lingering recession and increase in unemployment really come as a surprise?
The answer to the first question is self-evident. Obama’s far left economic team underestimates the power of capitalism and overestimates government’s ability to engineer growth. This is not a stellar group, and we should have no more confidence in its current assessment than in the original one. Biden left out an inconvenient truth, however. Hundreds of economists saw this coming and went on the record in January 9’s Wall Street Journal (http://www.cato.org/special/stimulus09/cato_stimulus.pdf). The Obama team still does not understand how to fix the economy but will likely continue to spend massive amounts of money we don’t have and until good things happen or we put a stop to it.
Of course, sooner or later our economy will experience some sort of recovery. But the first stimulus has already ballooned the deficit and sowed the seeds of inflation, which will eventually cause interest rates to rise. Keep in mind that low interest rates are needed to spur a lasting recovery in the housing market and we can see how much damage has already been done, and we haven’t even considered the negative effects of a looming health care entitlement expansion yet.
What’s my advice to the President? Stop the assault on capitalism and leave things alone. You’ll be surprised how quickly we can recover.
Dr Parnell,
I’m a physician in Wisconsin that has obviously been following health care reform and the Obama administration policies closely. I’m very impressed with your blog and hope that you continue to get the word out. Your proposal for closing the gap of the uninsured is inspired. You also do a great job of fight through the distractions on the stimulus debate. What do you feel would happen with a capital gains and income tax cut for short term stimulus? How would this impact revenue in the short term? Would the gov’t be able to handle this from a revenue side in the short term? Would massive spending cuts be needed (not that I’m opposed to that, I just know it wouldn’t happen)? Thanks.
A capital gains tax cut would be an excellent idea because it would provide an incentive for potential investors to transact business. An across-the-board income tax cut could help, but this administration would insist that it include checks for those who aren’t paying taxes anyway, which would move us further down the road of wealth redistribution. The (first) stimulus has already created a rational expectation of interest rate hikes as soon as the recovery emerges, so getting the economy moving is only part of the solution. Keeping it moving is the real challenge and that requires a change in leadership philosophy. I’m not a big fan of short term economic stimulus packages anyway, even if they contain tax cuts. What we really need to a serious commitment to solving our long term economic problems (spending, taxes, social security, illegal immigration, healthcare, etc.) with solutions based in reality, not unrealistic entitlements.
The key to economic growth is business activity; many employers lack confidence in Obama’s approach and are leary of coming regulations and inflation around the corner. Until they see signs of stability, they are likely to remain risk averse, which means less investment and less hiring. Putting your capital at risk makes no sense when Washington is likely to limit your prospects for success and tax more of your returns. Rolling back the first stimulus (most of it hasn’t been allocated yet) would be ideal but simply won’t happen at this point. I’d be happy if Obama just committed to TAKING NO FURTHER ACTION on economic affairs.