The words “economic stimulus” have a certain appeal to them because, after all, who wouldn’t want the economy to be stimulated?
But, as the country is nearing his inauguration on Jan. 20 and the inevitability of President Barack Obama’s stimulus project looms, many in the news media have neglected to determine the who, what, when, where, why and how much aspects of the stimulus.
Even before Obama is able to sign a economic stimulus package into law, as most are expecting, the Congressional Budget Office is reportedly expecting a $1 trillion deficit, more than double what it had forecasted in September, according to an article in the Jan. 7 Wall Street Journal.
And despite the staggering deficit figures, some are spreading fear that the economy will come crashing down if immediate, drastic – and expensive – action is not taken. One example is New York Times columnist and Nobel Prize-winning economist Paul Krugman, who in his Jan. 5 column detailed his “nightmare scenario”:
“It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious,” Krugman wrote. “As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.”
“So this is our moment of truth,” Krugman continued. “Will we in fact do what’s necessary to prevent Great Depression II?”
‘Creating or Saving 3 Million Jobs’
While the pundits have wanted the government to shoot first, then ask questions later, they’ve sounded the theme of restoring jobs to rescue the ailing economy.
Obama has repeatedly said he sees the stimulus as a means of “saving or creating 3 million jobs.” Even on Jan. 7, at a press conference naming Nancy Killefer the Treasury Department’s first “chief performance officer,” a position created to track government spending, he told reporters the stimulus, or “economic recovery and reinvestment plan,” would require “dramatic investments to revive our flagging economy – save or create 3 million new jobs, mostly in the private sector.”
However, only a report by ABC’s Jake Tapper on the Jan. 5 “Good Morning
“Obama’s team is pitching a plan that will cost between $675 billion and $775 billion, one that creates three million jobs, 80 percent of them in the private sector,” Tapper said. “But they will face skeptics.”
It’s difficult for some to imagine how 600,000 jobs could be created out of thin air. Conservative talk show host Rush Limbaugh theorized that one possibility could be the reinstitution of the draft on his Jan. 5 radio program.
“Barack Obama says he’s going to create three million new jobs, 80 percent in the private sector, which means 20 percent will be government jobs. That’s 600,000 government jobs. Where is he going to be able to do that real quick? Where could you do this in a matter of months? I said you could reinstitute the draft.”
Understanding the Scope – Government’s Role in the Economy
As Tony Strika explained in a post for Seeking Alpha back in November 2008, government does account for a percentage of gross domestic product (GDP) – the standard by which the economy is measured. However, the notion government can create wealth through job growth is one often misunderstood by the media.
“Well, it’s not the way it usually works, a president-elect trying to push a legislation through Congress two weeks before he's even sworn in, but this is no ordinary time,” “CBS Evening News” anchor Katie Couric said on her Jan. 5 broadcast. “And with the economy in crisis, Barack Obama went to Capitol Hill to meet with congressional leaders and urge them to approve a stimulus package he can sign soon after he takes office. The cost of the plan could run as high as $775 billion. It would include $300 billion in tax cuts. All this aimed at creating or saving three million jobs.”
“Governments cannot create but merely redirect,” Schiff wrote. “When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.”
And the same is true for job “creation” by the government – as Schiff noted. Government’s interference in the labor pool by competing with private-sector jobs or by propping up inefficient jobs through acts like the auto bailout would disrupt the marketplace and further damage the economy.
“Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector,” Schiff continued. “And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.”
$300 Billion Tax Cuts or Redistribution of Wealth?
Another key components of Obama’s economic stimulus, which the media have often alluded to, is the $300 billion in so-called tax cuts.
“Later this week, he [Obama] will be delivering what aides are calling a major address on the economy and what to do about it,” Tapper said in his Jan. 5 “GMA” report. “But first, he's coming here to Capitol Hill to talk to Democratic and Republican leaders about the stimulus package, which could include up to $300 billion in tax cuts.”
But are they really tax cuts? Depending on who benefits, they’re not, according to economist Thomas Sowell, They’re really “welfare” if given to those who don’t pay taxes, the senior fellow at the Hoover Institute at
SOWELL: Well, insofar as that's true, yes, but sometimes you’re giving tax cuts to people who don't pay any taxes. And that’s not giving them back their money. That's simply handing out welfare.
COLMES: But you said not federal taxes, but they pay other taxes. They pay Social Security taxes. They pay other kinds of tariffs and taxes. You’re just talking about federal income tax.
SOWELL: Well, but if that’s the case, then – then you can cut down on the Social Security tax. If you really want to give back people the taxes they’re paying. Otherwise, you're giving out welfare and calling it a tax cut.
The Ultimate Cost
Congress and the incoming Obama administration have not settled on a total price tag for the stimulus. Obama declined to assign a specific cost when ABC correspondent Jake Tapper asked him to at his Jan. 7 press conference. According to Tapper’s question, the newly branded Obama economic team has the estimated price ranging from $675 to 775 billion. But Tapper noted that an Obama memo stated that economists are pushing for the stimulus to range from $800 billion to $1.3 trillion. However, Obama told it would be on the “high end” of their estimates.
NBC White House correspondent Chuck Todd suggested the cost would be “close to $1 trillion” on the Jan. 5 “NBC Nightly News” and explained that Obama would make the case that it is “urgently needed.”
“While today was all about getting congressional leaders on board, Obama will take his campaign directly to the public with a speech on Thursday, outlining why a massive stimulus package, which may cost close to $1 trillion dollars, is urgently needed,” Todd said.
However, the urgency expressed through the network media has lacked an explanation of where the source of the financing for a $1 trillion stimulus might come from. As Arthur Laffer, founder and chairman of Laffer Associates and a former member of the Reagan administration’s Economic Policy Advisory Board, explained – the money has to come from somewhere and that what a lot of people are missing, especially the media.
“You can’t bail someone out of trouble without putting someone else into trouble and the federal government doesn’t have a tooth fairy,” Laffer said on CNBC’s Jan. 5 “Fast Money.” “And every dollar of tax rebate or stimulus, whatever you want to call it has to come from the taxpayer sooner or later. And that’s going to hurt the economy.”
Laffer blamed both sides of the aisle for not making this realization and noted just how much the national debt has expanded.
“And frankly, they’ve pushed this national debt – it’s not just the Democrats, it’s the Republicans as well, they’ve been sort of clamoring for this as well,” Laffer said. “They’ve pushed the national debt to almost 100 percent of GDP.”
Although they have not gotten a lot of broadcast network media coverage, there have been some alternative options for economic stimulus.
Laffer has proposed an across-the-board income tax holiday, which he claimed would stimulate economic growth.
“If you wanted to do a temporary targeted stimulus package, why don’t you do this – the national income tax, federal income tax is about $1.4 trillion projected for next year, a little less than that,” Laffer said. “Just imagine if we said for the next six months – Jan. 15 through July 15 – there will be no income taxes on anybody who earns income during that six month period – could you imagine the boom that we’d have during that six month period? That’s what you really want to do, is make tax rate reductions, so people want to work more, produce more hire more and buy more during that period.”
Some critics argue that wouldn’t be an effective stimulus, just as those that oppose the Obama tax cuts, because not everyone pays income taxes. Rep. Louie Gohmert, R-Texas, proposed a two-month tax holiday, which would include not just personal income taxes, but also FICA (Federal Insurance Contributions Act) taxes – Social Security, Medicare, etc.
That proposal won the favor of former GOP House Speaker Newt Gingrich, but there are doubts as to whether or not Gohmert’s plan would work. Business & Media Institute adviser Dr. Gary Wolfram, the William Simon Professor of Economics and Public Policy at
Repeating Japan’s Mistakes
The media should be showing how government stimulus doesn’t work, as
At the end of the 1980s, the Japanese economy experienced an asset bubble, which resulted in the crashing of their economy. To remedy the situation, the Japanese government employed a Keynesian strategy to stimulate their economy.
“Between 1992 and 1995,
As Powell explained, the Japanese remained persistent with their repeated efforts to stimulate their ailing economy.
“Finally, in October 2000,
It didn’t work, as former senior vice president and director of research for the Federal Reserve Bank of San Francisco Michael Keran explained in a release issued by House Minority Leader John Boehner’s office on Jan. 7.
This has gotten very little attention from the broadcast network media, with exception of former Bush adviser, Fox News Channel’s Karl Rove, who appeared in an interview on NBC’s Dec. 2, 2008 “Today.” “Today” co-host Matt Lauer referenced a Nov. 28, 2008 Wall Street Journal piece Rove wrote that used the Japan example and asked him if he thought Obama’s stimulus was destined to fail.
“He [Obama] laid some broad outlines, giving money to states in infrastructure spending and couple of other items,” Rove said. “And look, federal highway dollars, one out of every four federal highway dollars are spent in the year that they’re appropriated. Three out of four are spent years and years later.