It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe,” Obama said. “Only government can break the vicious cycles that are crippling our economy -- where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”Those are not words of a pragmatist. Those are not words of someone that wants to do "anything that works". Those are words of a classic economic liberal that believes in populist demand side policies.
Specifically, embedded in his massive stimulus bill is several hundred billion in new government spending. Obama believes the best way to stimulate the economy is through massive new expansion of government including public works, green projects, and other funding for local projects. Now, whether this works or not, no one can argue that there is anything pragmatic about this. No one can say that Obama wants to try anything that works. Barack Obama is an ideologue.
Even his so called tax cuts are classic economic liberalism. First, there are no tax cuts. Rather, Obama wants to cut government checks and send them to people. That's not a tax cut but rather a welfare check. Furthermore, included in these checks will be about forty percent of the population that pays no income taxes. Furthermore, the checks stop for anyone making $200,000 a year and more.
Even the business tax cuts are all populist economic liberalism. They are only for small businesses. He isn't cutting corporate taxes. Furthermore, he gives away his aversion to tax cuts by making them last only two years.
As such, all spending and tax cuts are centered on folks that are either poor or middle class. When I say demand side what I mean is government programs designed to provide consumers, poor and middle class, with extra money. The theory is that those folks will then spend more and demand will stimulate. As such, we have demand side policies.
The flip side would be supply side policies. Such policies would include corporate tax cuts and tax cuts for wealthier folks. The theory is that if you cut the tax burden on the suppliers, or job providers, they will invest in their businesses and thus stimulate the economy. Thus, you have supply side economics.
Taking aside which of the two works, if Barack Obama were truly pragmatic and about "what works", he would have found a mix. You would have seen him give some sort of break to corporations and/or the wealthy so that they could spawn investment. His only tax cuts are to small businesses and they only last for two years. It remains to be seen if Obama's policies will work, but it is no longer debateable that on the economy at least, he is a classic ideologue.
4 comments:
From the NY Times.
Are you sure Obama is not going to make tax cuts?
"In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.
It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support....
As to what really works to help the economy-
"Mark M. Zandi, chief economist at Moody’s Economy.com, a forecasting firm, told a forum of House Democrats this week that the “bang for the buck” — the additional economic activity generated by each dollar of fiscal stimulus — was highest for increases in food and unemployment benefits. Each dollar of additional money for food stamps yields $1.73 in additional economic activity, Mr. Zandi estimated, and each extra dollar in unemployment benefits yields about $1.63.
By contrast, Mr. Zandi estimated, most tax cuts produce less than a dollar for each dollar of stimulus, especially if the tax cuts are temporary, because people save at least some of their extra money."
Mike, I think you need to revisit your supply side theories favoring tax cuts for the wealthy based on the erroneous assumption the wealth would "trickle-down".
It hasn't worked. It is not working. And it wont work in the future. Why?
Because the wealthy will invest their extra money where they can get the best return, which in an age of global outsourcing, is often going to be overseas or in emerging markets.
None other than Warren Buffet himself has said the best way to stimulate the economy is to put more money in the hands of the poor and lower middle class because they will actually spend it.
It seems the only ideologue is you.
As to the first part of your piece, the important part is this
"It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support...."
temporary as in ones that end two years after they start. Bush's tax cuts ended ten years after they started because Bush believes in tax cuts.
Like I said in my piece, Obama's aversion to tax cuts is shown in his making them so temporary
As for the second part, I don't really care what Zandi said because none of this makes his stimulus anything but economic liberalism.
Supply side worked under Reagan, it worked under JFK and it worked in Ireland when they cut the corporate tax rate.
So, it is you that needs to revisit your theories. Supply side economics has a history of working. Demand side economics has never worked in the past.
As such, you, along with the President Designate, are the two idealogues.
Supply side economics -
Well....we have the last 8 years to guide us on that one. The proof of the pudding is in the eating.
Since Bush took power in 2001, every US social indicator has worsened. Between 2000 and 2008, median household income has declined by 1 per cent, while corporate profits have surged by 70 per cent, and the gap between rich and poor is larger than at any time since 1929. The number of families living in poverty has jumped by 20 per cent, as has the number of people without health insurance. The cost of insurance for those fortunate enough to have it has, meanwhile, jumped by 90 per cent.
Bush inherited a $240bn budget surplus, but bequeaths Barack Obama a deficit in excess of $1.2trn. The trade deficit has surged, and the dollar has weakened – and that was before the economic meltdown. In his campaign, Obama rephrased Reagan's famous question of a generation before: are you better off than eight years ago? The answer from Americans was an overwhelming, thunderous No.
Bush isn't totally to blame, of course. Foreign deficits were growing before he took over, as was risky mortgage lending. But his laissez-faire attitudes, and the withering of the regulatory agencies that he tolerated – some say, encouraged – made matters far worse. Wall Street behaved badly, but never was an administration so deeply in Wall Street's pocket. And now the great advocate of untrammelled markets has been forced to mount the biggest government intervention in the economy since the Depression.
Economic liberalism is here for at least the next 4 years. Get used to it.
Blaming supply side economics for the current crisis is silly. That's just economically brain dead. Bush also inherited a recession and it was the well timed tax cuts that got us out of it. There was also a war on his watch that Clinton didn't deal with. Finally, Bush spent like drunken sailor. That's not supply side economics.
To proclaim that supply side economics is dead because of the last eight years is to be economically brain dead because nothing that has happened badly in the economy over the last eight years has anything to do with supply side economics.
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