Wednesday, July 8, 2009

Recall the stimulus! (2)

A little over a month ago I argued that we should recall the The American Recovery and Reinvestment Act. It was poorly designed, bloated, and wasteful. If Obama and the Congressional Democrats had specifically tried to put together a mix of policies and projects that would do as little as possible to help the economy in the short run, they couldn't have been more successful. You can't stimulate an economy by taking money from one person and giving it to another. It doesn't make sense, and it's never worked before. The list of failed, Keynesian pump-priming "stimulus" packages is long and growing. When will politicians learn they are futile?

What they should have done instead is to focus on things that change the dynamics of the economy on the margin. They only way to stimulate an economy is to increase the incentives to work, invest, and take risk. That can be done very quickly and easily by cutting or eliminating the corporate tax rate, cutting or eliminating the capital gains tax, or cutting and flattening personal income tax rates and reducing or eliminating deductions. All of these things could have been done without "spending" more than the $800 billion that will eventually (they've only spent 10% so far) be dumped down the "stimulus" drain. And these measures would have taken immediate effect, rather than trickling out over months and years. Change people's taxes today, and they will change their behavior and their plans tomorrow.

By acting in haste, by allowing Nancy Pelosi and Harry Reid to design the stimulus bill, by arguing that the urgency of the situation required immediate action rather than thoughtful debate, Obama set himself up for failure. He doesn't understand how economies work, and his every thought is colored by a conviction that smart people like him can move the levers of the economy to everyone's advantage. He can't propose another spending bill similar to the first, because that would expose the failure of his first. The first failed because a) it wasn't designed to be stimulative, it was designed to advance a spending agenda and to redistribute income, and b) very little of the money would be spent up front.

So why not recall this monstrosity of a stimulus bill before it wastes more money? Why not replace it with a genuine stimulus bill?

8 comments:

alstry said...

NOW YOU ARE TALKING!!!!!

But why stop yourself with a few hundred billion dollar stimulus package when we should be trying to reverse out the EXTRA THREE TRILLION of annual government spend created under the Bush era.


Anyone can complain about a few hundred billion dollar BS stimulus package created under idiotic Democratic policies. But to reverse out $3 Trillion of annual insane spend created under a Republican presidency would truly be an accomplishment in the right direction.

It is amazing how people focus on the pennies when the dollars get flushed down the toilet.

Donny Baseball said...

Scott-
Well said, but aside from the futility of this bill, the administration is actively hurting the business climate on many fronts, almost as if they wanted the economy to grind down. Antitrust policy is getting aggressive. Corporate tax policy is uncertain and likely to be anti-growth. Safety regulation is being ratcheted up with no clear pressing need. The feds are reneging on nat gas drilling leases and looking to prohibit a drilling technology that has made these massive shale plays economical. The minimum wage is going up. Cap and tax on the way. The Gulliver that is the US economy is being tied up by numerous Lilliputian efforts to hamstring it. It is so crazy that it has to be a conspiracy - liberals can't believe that all of these things make sense, especially when taken together.

Scott Grannis said...

Donny: I love the Gulliver analogy. The issue before us could be likened to whether the Lilliputian strings are strong enough to keep Gulliver down. No one has a surefire way of answering that question.

I have to believe that all these crazy efforts will be exposed as such. You can't do all the things Obama has done in such short order without making a lot of mistakes. There are literally thousands of bad news items out there waiting to hit the tape. That's got to have some negative impact on Obama's ability to continue the madness.

Paul said...

They're already talking about stimulus II. Behold the whiz kids behind Obamanomics. Next up: healthcare.

alstry said...

Scott,

Schwarzenegger plans 20% pay cuts for hundreds of thousands of workers.

How many of those workers were even saving 10% of their incomes?

America is shutting down based on the current Zombulation policies.

Alcoa's sales are down OVER 40%.
Auto sales are down OVER 50%.
New home sales are down OVER 75%.
Country Clubs are shutting down.
Restaurants are shutting down.
Neighborhoods becoming ghost towns.
Shopping becoming ghost malls.
Box Stores becoming ghost boxes.
Bank Closures growing rapidly.
Foreclosures so no sign of abating.
Loan defaults reaching new highs.

And here are some fun y/y retail numbers:

BJ's June same-store sales down 7.5%

Macy's same-store sales down 8.9% in June

Dillard's June same-store sales down 14%

Aloca sales down 41%

German exports fall 25 percent in May

Limited Brands June same-store sales fall 7.9%

The Limited June same-store sales down 12%

Children's Place June same-store sales down 12%

Destination Maturnity: June comp. sales down 10.7%

Costco June same-store sales fell 6%

Hot Topic June same-store sales down 7.9%

American Eagle June same-store sales down 11%

Gap June same-store sales down 10%

Abercrombie & Fitch same-store sales off 32%

Scott Grannis said...

alstry: It doesn't take a genius to list all the things that are down. Everything is done, obviously. That's what happens in recessions. You're not contributing anything to this discussion. You've got to look for what is changing on the margin, not for what has already happened.

Brian said...

Undo massive government expansion? Are you crazy?

Mark A. Sadowski said...

Scott,
Replace it with what?