When all else fails in DC and Richmond, I can always thank God that I live in Chesapeake and have someone like Rep. Randy Forbes as my congressman. Here’s what Forbes says about the so-called Economic Stimulus Bill.
He’s got some good points, especially at the end where he talks about a significant amount of stimulus money going directly to the hands of the people to do with as they see fit. Instead, we’re getting a $400 tax credit per worker for the next two years, which supposedly should put a little less than $34 per month in the pockets of American workers. While this will help me more easily pay the increase in my mobile phone bill that I’ll see after this weekend’s trip to the T-Mobile store, it’s not going to do much for the personal economies of Americans. I hope it will help the economy collectively.
Where I think the GOP goes wrong is its outcry about government spending. Not only is the argument inconsistent with that they did while the majority party, it ignores something I believe we should have learned from our past. We need the collective buy in, financially, intellectually, and emotionally, on necessary public projects that will not only move the nation forward quickly, but will put people to work. Massive infrastructure projects, including technology, transportation, and energy, is what we’re needing right now.
Hopefully the combination of tax credits to individuals and an increase in funding for infrastructure projects will help the private sector with cash flow, and allow them to recover as well.
I don’t see where the package is holding the private sector back.
This potentially holds the private sector back because much of this spending will “crowd out” private investment and labor. This is particularly true because most of the spending wont happen until a couple years down the line when we are likely in recovery anyway. The theory behind fiscal stimulus states that it should be targeted towards idle resources (unemployed people and idle plant and equipment). The problem is that the bulk of the spending is targeted towards things like health care, energy and education. These areas are places where there is currently little unemployment. So in the short run this only transfers people who are already employed in the private sector to the new public driven areas. There is not new growth, just a transfer. Also, all the money that is borrowed is 800 billion taken out of the private capital markets. Thats 800 billion that is not used for private sector investment. Now without getting too technical, there is an argument that this effect will be minimal because we may be in what is called a “liquidity trap”, but beyond the immediate time period when most of this spending is done anyway, it will only take money away from new start up companies, business expansion, private home buying and everything else. This is why even obama’s economic team’s paper on the bill estimates that overall, spending about 7% of GDP will only create about 3.2 % of gdp in growth. About half is simply redistributing, not creating new output. And this is from obama and when I read the details, they use a very generous assumption on what is called the keynsian multiplier. It likely will create even less growth. And this new debt will continue to be a drag for years unless we actually pay it off, which we won’t because congress will never hold back spending enough to do so, and even if they do we are just end up paying for growth now with less consumption in the future. There are many economists out there despite what obama states that do not agree with the notion of fiscal stimulus, but even for those who are hard core Keynesians, this is a very poorly designed package. Stimulus is supposed to be temporary, targeted and quickly implemented. Much of this bill is permanent new spending, its not targeted at the high areas of unemployment, and it is not spent quickly. This is not a good bill. I myself am an economist, and me and my entire office of other economists who span the entire political spectrum all dislike this bill for one reason or another. Its just really bad and amounts to nothing more then pend up spending desires of the current congress.