With All Due Respect Mr. President......
"There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."
~PRESIDENT-ELECT BARACK OBAMA, JANUARY 9 , 2009
With all due respect Mr. President, that is not true. There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy. Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.
MP: Thanks to The Cato Institute, this appeared last week as a full-page in the New York Times and Washington Post, and is scheduled to appear in the Los Angeles Times, Chicago Tribune, and Washington Times. The full text with the 200 economists (including Nobel laureates) who signed the statement is available here. Here's another version, with an additional 100 economists.
15 Comments:
To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production.
NO ONE IS SPENDING!! I don't care if you set the capital gains tax to 0%, I AM NOT INVESTING IN THE STOCK MARKET! Nor is anyone else. I don't care if you remove all regulations and all taxes. That is not going to get anyone to spend or invest! Companies are cutting back because they have no confidence because they see no demand for their products. 0% tax rates is not going to change this.
Also, if you are worried about the large deficit, the deficit will increase with or without the stimulus because of falling tax revenues.
So, I guess President Obama should have clarified his statement by saying
"There is no disagreement among economists, who haven't made outrageous predictions and ridicilous statements on Larry Kudlow's show, that we need action by our government, a recovery plan that will help jump start the economy."
Paul Krugman is right, this really is the Dark Age for economists. A time where ideology triumphs over facts and reasoning.
"I AM NOT INVESTING IN THE STOCK MARKET! Nor is anyone else"...
There you go again, making those blanket statements...
I've got to wonder if this is why some people are staying out of the market?
Sen. Obama outlined a plan Thursday to raise tax rates on capital gains and dividend income from 15% to 20% for individuals and families making more than $200,000 and $250,000, respectively...
The stimulus bill is actually all earmarks. Nice job, Congress.
I've got to wonder if this is why some people are staying out of the market?
This is actually one of the most hilarious statements I hear conservatives make. That simply the fact that Obama and the media are negative is making the economy tank. This comes from the same people who are against any regulation against bankers who take too much risk or worse try to pull of fraud.
Well, if it is true that one man simply being negative on the economy can cause the economy to tank, we don't just need regulation of the economy, we need a CLAMP DOWN on the economy.
Unfortunately, I can't find the story now, but a couple month ago an economist in some Eastern European country was arrested for making negative statements about the economy. Perhaps that country was on to something?
Paul Krugman has a point despite being the proverbial kettle calling the pot black. Unfortunately, the more partisan economists tend to gravitate toward the Op Ed pages and talk shows and reflect the level of partisanship of the country as a whole.
The case for stimulus is supported by consumer and business retrenchment as you describe and the failure of the Fed & Treasury to contain the liquidity crisis. There are several drawbacks to the stimulus, namely, the tendency for powerful interest groups to game the system, the delay in getting the money into the economy, and future higher taxes which will be required to pay for this massive spending assuming that the alternative of inflating the money supply is inconceivable.
A recent article by David in the NYT raises some interesting questions.
"This is actually one of the most hilarious statements I hear conservatives make. That simply the fact that Obama and the media are negative is making the economy tank"...
Said exactly like person who isn't betting his OWN money on what Obama his cronies have been saying for the past year...
NO ONE IS SPENDING!! I don't care if you set the capital gains tax to 0%, I AM NOT INVESTING IN THE STOCK MARKET! Nor is anyone else. I don't care if you remove all regulations and all taxes. That is not going to get anyone to spend or invest!
Hi Mach!
I am continuing to put 15% of my income into retirement savings which is 100% stocks. I am still saving 10% of my income into a savings account. In fact, I am about to SPEND $18,000 on a used car that I SAVED up for over the last year and a half. My spending has not decreased, and I have gotten raises, so I am actually spending slightly more.
BTW: I have friends who are doing the same things as I am on a range of incomes from $35,000 per year to $200,000 per year and just about every spot in between.
Anon.,
Kudos for buying a used car and continuing to meet your savings goals.
Mach,
Government spending often can produce beneficial results for example the GI bill after WWII ensured that the U.S. lead the world in education for several decades and still holds the lead for technological innovation.
There are certain items of the proposed stimulus like 1. "Buy American" steel protectionism which will inflate construction costs for infrastructure limiting the number of projects and therefore, the # of jobs that can be created 2. millions to be used for coupons for DTV converter boxes when only about 5% of TV viewers use aerials and of these, most have newer TV sets using the oldie as a 2nd TV. How does this temporary change over to create long-term jobs? 3. Christine Romer's multipliers used to promote the President's plan are much higher than analysis by the CEA.
... the belief that American consumers as a whole have been living beyond their means is a myth. Wall Street was massively overextended, but on average, consumers are not.
It's true that certain groups of individuals were allowed to take on unreasonable levels of debt—mainly speculators and lower-income people. But taken as a whole, when compared with Wall Street, individual American consumers are the soul of prudence.
Consider the hard data. At the end of 2007, consumer debt stood at $2.6 trillion, which translates to $8,500 per person. That number includes car loans, student loans and credit cards, but not mortgages.
Mortgage debt, meanwhile, more than doubled, from just under $5 trillion in 2000 to more than $10 trillion in 2008. But during this time, rates were also stable and low, much lower than the double-digit rates of the 1970s or 1980s, for instance. So while the absolute dollar figures of debt increased, the percentage of income that households spent to service their debts—including mortgage payments—nudged up only a small amount, from 13 percent in 2000 to 14.3 percent in early 2008.
In the middle of 2008, household net worth was $59 trillion, including homes, pensions, stocks and cash. Total debt was about $13 trillion, and even though that household net-worth figure has been sharply reduced in recent months, the debt-to-worth ratio was never even 1-1.
Read it all
Don't worry, Obama's going to correct America's prudence by piling a massive amount of government debt on every household.
That is $1.7 trillion in future taxes. Nobody knows exactly when the tax hike will come. It might even be that we shall try to foist the costs on our children. Still, those planning their financial futures should account for the dramatically higher taxes that will be the result of this year’s policies.
Suppose the government eventually decides to allocate the bill according to the latest distribution of taxes. In 2006, for example, people with incomes between $50,000 and $75,000 paid about 10 percent of all income-tax revenue. As a thought experiment, how much would those people’s taxes go up if Uncle Sam raises 10 percent of $1.7 trillion from them?
If you run the numbers for that and other income brackets, you’d better sit down. Our spending policies are not digging a hole, they are conjuring up a Stygian abyss.
If your family income in 2006 was between $75,000 and $100,000, the extra taxes that you will have to pay at some point in the future add up to about $14,000.
If your income was between $100,000 and $200,000, your future tax hike will be about $28,000. If your income was between $200,000 and $500,000, then your future tax bill just went up by $90,299.
Everybody Pays
While our tax system is heavily tilted against the rich, even those with relatively low incomes will eventually have to pay. The extra tax bill for someone with 2006 income between $25,000 and $30,000 will be about $2,500.
These numbers are in present value. If government puts off sending you the bill -- and thus must pay interest between now and then -- the bill will be higher. How much higher? If the government waits 10 years to collect the $14,000 from the person with income between $75,000 and $100,000, the bill a decade from now will be about $22,800.
Contemplate the rest of your future here
Anon,
You make some very persuasive arguments about the levels of debt of U.S. households however there is also the U.S. savings rate to be considered
which went negative in 2005 according to The Commerce Dept.
Agree that the stimulus spending is on a massive scale which is a very real concern. As David Leonhart writes, one also has to factor in economic growth:
Growth is the only way for a government to pay off its debts in a relatively quick and painless fashion, allowing tax revenues to increase without tax rates having to rise. That is essentially what happened in the years after World War II. When the war ended, the federal government’s debt equaled 120 percent of the gross domestic product (more than twice as high as its likely level by the end of next year). The rapid economic growth of the 1950s and ’60s — more than 4 percent a year, compared with 2.5 percent in this decade — quickly whittled that debt away. Over the coming 25 years, if growth could be lifted by just one-tenth of a percentage point a year, the extra tax revenue would completely pay for an $800 billion stimulus package.
If you divide 72 by the rate of economic growth, you get the number of years that it takes for an economy to double in size. My concern with the stimulus is that it may be spent on pet projects or special interest groups rather than stimulating future economic growth which will be required to meet debt obligations as well as Medicare and Social Security.
Three contractors are bidding to fix
a broken fence at the White House in DC: One is from New York ,
another is from Tennessee and the third, is from Florida.
All three go with a White House official to examine the fence
The Florida contractor takes out a tape measure and does some
measuring, then works some figures with a pencil.
"Well," he says, "I figure the job will run about $900:
$400 for materials, $400 for my crew and $100 profit for me."
The Tennessee contractor also does some measuring and figuring,
then says, "I can do this job for $700: $300 for materials,
$300 for my crew and $100 profit for me."
The New York contractor doesn't measure or figure,
but leans over to the White House official and whispers, "$2,700."
The official, incredulous, says, "You didn't even measure like the other guys!
How did you come up with such a high figure?"
The New York contractor whispers back,
"$1000 for me, $1000 for you, and we hire the guy from
Tennessee to fix the fence."
"Done!" replies the government official. And
that, my friends, is how government contracting works!
Thank the Heritage Foundation for the repeated warnings: Huge bailouts a drop in bucket next to unpaid bill for retirees ...
Unless Congress acts, paying all promised retiree benefits would require:
Doubling all tax rates.
Eliminating all other federal programs, including defense and education.
Running massive budget deficits that eventually would capsize the economy.
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I have two tenets regarding politicians. This current kneejerk “stimulus” package confirms it. It is a theory I had many years ago....1. Most politicians are failed businessmen and women. 2. A person is as only as good as the people he surrounds himself with. Taking those two tenets, our good president, only 1 month in office, would at least selected the top and brightest to assist and advise of the 200 economists that posted the petition in the paper for advise or get them all together to come up with a plan. How can one create a stimulus package, or whatever euphemism you tag it with, in 1 month for an economy the size of the US? That is like starting a major construction project like the Alaska Pipeline without enough planning and engineering and just breaking ground and moving ahead with schematic plans. The whole thing is a joke. B. Hussein Obama true intelligence is only being revealed in the first month and we have 4 more years to go. The US has the top minds in economics you would think these people would consult with them and come up with a plan after putting in a reasonable amount of time to properly plan. This proves the democrats are not grasping the concept of team (US), where one assembles top people to provide answers. Coupled with their lack of business skills (failed businessmen) their egos won’t allow someone else to come up with any ideas. This is their baby. A baby that will grow into Baby Hughie
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