BeyondStageOnePolitics.com
“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.” John F. Kennedy

Voice-over

My recent political voice-over demo. See Contact for manager's information.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Jul 24 2012

Stimulus and Economic Growth?

C.M. Phippen

According to a recent interview with Larry Kudlow, Alan Greenspan admitted that, much to his surprise, the economic stimulus had a negative effect on the economy. The data showed that not only had it not been stimulative, it was actually detrimental to economic growth. Our government spent nearly $1 trillion and it not only did nothing to “stimulate” growth, it actually hindered it.

That makes sense, based on a little statement by Jared Bernstein a couple of years ago. I wrote about it at the time. Bernstein was the chief economic advisor to Vice President Joe Biden and he stated that the consensus among economists was that unemployment would not rise above 8 percent. This consensus ostensibly existed independent of any plans by the administration to pass a stimulus bill that amounted to nearly $1 trillion of borrowed money, as it existed in the fall of 2008 and prior to Obama entering the White House. Apparently the administration was as surprised as Alan Greenspan to find that the stimulus did precisely opposite what our president told us it would do.

One could expect any open-minded, non-idealogical leader to learn from the events of the past few years and change course; reconsider the policies that have stunted economic growth and harmed millions of Americans.

When asked recently by a reporter why President Obama hadn’t met with his jobs council in over six months, Jay Carney’s response was that the President “has a lot on his plate.” Of course, he has attended over 100 fundraisers and is a prolific golfer and entertainer of celebrities.

But back to the economic reality that the rest of the country must face every day, a recent study by Ernst & Young claims that we will experience a loss of over 700,000 jobs if the Bush tax cuts are not extended for upper income earners. If legislation extending those tax cuts for upper earners crosses his desk, Obama apparently will veto it.

On a number of occasions, when confronted with the evidence that raising certain tax rates reduces federal revenue and cutting those rates increases revenue, Obama’s response has been that he would still raise taxes on the rich for reasons of “fairness.” One must assume he just isn’t interested in the effect of such policies on the broader economy.

Then there’s Sen. Patty Murray’s recent comment that if the Republicans won’t cave to the Democrats by helping them to pass legislation that would exempt top earners from an extension of the Bush tax cuts (remember, costing our economy an additional 700,000 jobs) then the Democrats should allow all of the tax cuts to expire. According to Citigroup, if this were to happen we could expect a 4 percent hit to growth in 2013. Even if Congress extends the “middle-class” income tax cuts and allows all others to expire, we can expect a 2.9 percent decline in growth.

This in an economy that has only been growing at around 1.7 percent for the past two years. Either of these options would most likely swiftly throw us back into recession. But of course in this political machination (most likely non-idealogical), I’m sure Pres. Obama and Sen. Murray are only looking out for the middle class and poor, who actually need a job to get by.

Then there’s this remark from Alan Greenspan in the same interview, where he said that the largest problem with our debt (the Peter G. Peterson Foundation has been telling us this for a very long time) is entitlements, specifically Medicare. The solution to the debt problem for this administration was to add to our entitlements, specifically health care, in such a way that anybody who is capable of performing simple mathematical functions is completely aware will cost us multiple trillions of dollars every decade and most likely many times that.

I’m just wondering, after this administration has, through it’s policies of fairness, pushed more working-class Americans out of jobs, decimating the income of the average consumer as well as wiping out much of the tax base, who’s going to be left to pay for it all?


Aug 31 2011

Krugman and Irene

C.M. Phippen

Two weeks ago, Paul Krugman was calling for a fake alien invasion to stimulate our economy. I think he’s almost gotten his wish.

Estimates of damage from Hurricane Irene range anywhere from $13 billion to $45 billion. Think of all the jobs that will need to be filled. Better yet, much of the work that needs to be done will be paid for with borrowed government funds – it’s a Keynesian’s dream.

Rebuilding should keep people busy for a little while, and when they’re done up North they can head down to Mississippi and help the rebuilding effort still going on down there, six short years after Hurricane Katrina.

Of course, this is the same Paul Krugman who suggested that in order to replace the Nasdaq bubble of the late 1990s, “Alan Greenspan needs to create a housing bubble.” He saw this as the solution to the lack of corporate spending; “soaring household spending” was, to him, the answer. In other words, moving money around in the economy by creating artificial growth.

In fact, the White House is now defending the idea that government transfers through extended unemployment insurance actually lead to growth. The assumption is that without those transfers, no money would be spent by unemployed individuals and with the transfers, no incentives for less productive behavior are taking place. If both of those things were true, the Obama economic policy might be preferable to nothing. Unfortunately for Team Obama, they’re not.

According to Alan Krueger, Obama’s newly-appointed economic advisor, extended unemployment benefits (wealth transfers) increase length of unemployment and can lead to more layoffs. Studies have shown that the closer one is to the cut-off point for benefits, the longer time spent actually looking for a job.

As far as the White House’s claim that each dollar in unemployment benefits spending leads to $1.73 in short-term economic growth, false assumptions are made which equate each dollar in benefits with one dollar spent. For every dollar in additional unemployment benefits, only $.55 actually makes it into the economy because individuals tend to reduce their reliance on their own savings if the government will pay them and for married individuals, spouses tend to reduce hours worked when benefits are increased.

The past three years have shown us Paul Krugman and the left’s version of economic growth – government jobs, government “investment” and government wealth transfers with weak economic growth and stubbornly high unemployment (but hey, we’ll all have that “free” healthcare soon!). Forget business investment, product development, innovation, increased efficiency; no, this moving money around thing is just working so well.


Aug 4 2011

Obama and the Never-Ending Recession

C.M. Phippen

With the debt ceiling debate finally over in Washington, it’s time to take a serious look at where our economy is headed and what are realistic expectations for job creation and growth.

The US federal government has borrowed $4.5 trillion, most likely the biggest Keynesian experiment in the history of the world in a peacetime economy, and economic growth apparently hasn’t been much stimulated. Stephen Moore made this point on The Kudlow Report recently. The response of Dean Baker, echoing once again the tired excuse for failure that has become the mantra of the left, was that things would have been much worse without all that “stimulus.”

Baker makes the assumption that the alternative to borrowing and spending (moving around) $4.5 trillion would have been to do nothing. He then went on to say that the current slowdown in the economy is precisely because government spending has slowed down.

Maybe I’m confused, but I thought the purpose of stimulus was to actually trigger growth, not to simply keep money moving around in the economy. The problem is, that’s all Keynesian economic stimulus actually does.

The theory is based on the idea that deficit-financed funds injected into the economy by government (after being taken out through the purchase of government bonds in the first place) will stimulate growth down the line. In tough economic times, individuals horde money just like the left is accusing large corporations of doing. The US savings rate is at its highest point since the late 1990s, even with high inflation. (Nearly 30 percent from 2010 – 2011). The effect then remains the same as if the original investor had simply placed his money in a bank account; only now our government has new, massive amounts of debt we all get to pay back.

Here’s a hint for Baker: There are other alternatives. A relatively straightforward comparison can be made between Ronald Reagan and Barack Obama. The policy differences between these presidents couldn’t be more stark, nor could the effects of their policies on the growth of the US economy.

Reagan began his presidential term with high unemployment (10.8 percent in 1982), double-digit inflation, a poverty rate that rose significantly (33 percent) through the late 1970s into the early 1980s, a 10 percent drop in real-median family income during that same period, and a Dow Industrial Average that was down 70 percent from 1968.

During the seven year Reagan recovery, the economy grew by nearly a third, private sector employment increased 20 percent, real per capita disposable income grew by 18 percent, the poverty rate declined every year from 1984 through 1989, and the stock market more than tripled from 1980 to 1990.

If we compare the first seven quarters of recovery under Obama with those of Reagan, here is what we find, from Peter Ferrara:

…While the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed.

One more illustration:


Aug 6 2010

Unemployment, With or Without the Stimulus

C.M. Phippen

While listening to an interview with Joe Biden’s chief economic advisor, Jared Bernstein, I heard what sounded like an admission that the White House hadn’t necessarily expected the stimulus bill to hold unemployment at a rate any lower than was already the “consensus” estimated rate.  Larry Kudlow, on The Kudlow Report, asked Bernstein about the promise made by the White House that if the stimulus bill were passed quickly, the unemployment rate would not exceed 8%;  it currently stands around 9.6%.

Mr. Bernstein responded by saying that during the fourth quarter of 2008, the consensus was that 8% would be the height of unemployment in this country.  He went on to say, “We were right with the central forecast.  We did not know that the, nor did any other, hardly any other economists, that the unemployment rate was headed up so quickly, that the economy was headed off a cliff . . .”

Okay, I get it.  You spoke before you realized the extent of the recession, and hey, who knew a consensus could be wrong, right?

But wait, Obama wasn’t yet in office in the fourth quarter of 2008.  The president had not at that time even submitted a stimulus plan to be considered by those formulating the “consensus,” had he?

I’ve attempted to contact the White House to for clarification; I’ve rewound my TiVo and watched it again; I’ve emailed The Kudlow Report to see if they can get clarification.  If this administration made a promise to us that unemployment wouldn’t exceed the level they now claim was the “consensus”  maximum even before a stimulus bill, if we would only spend over $800 billion, then we all just got shafted.

Not only did unemployment far exceed the promised 8% maximum, but I can only assume the administration didn’t  have much confidence in the effectiveness of their own bill, the one that just had to be passed right now!  If they did believe it would actually “create or save” a significant number of jobs, it only makes sense that they would have taken the consensus peak unemployment rate and reduced it by the percentage of jobs they planned on saving or creating.  I understand, though, not wanting to overpromise.

On the other hand, the fact that they took the consensus peak and assured us their $860 billion bill to reduce unemployment would keep us below that already assumed high, and then it still didn’t, doesn’t bode well for all of us who weren’t close enough to the administration to get our own big fat stimulus check.  Nor does it bode well for our children and grandchildren, who will be paying for those checks for years to come.

Watch the video here (the portion I reference starts right around 6:10 if you don’t want to watch the full 12 minutes):