For Many Economists, Stimulus Falls Flat

Declan McCullagh: Amid Loud Calls For Economic Rescue, Skepticism Abundant

(CBS)  An unusual aspect of the recent debate in Washington is the lengths that supporters have gone to marginalize anyone who questions the so-called stimulus plan.

Robert Reich, Bill Clinton's labor secretary and member of President Obama's transition team, claims "almost every economist will tell you the stimulus has to be massive." Nobel laureate and New York Times columnist Paul Krugman accuses skeptics of "making totally non-serious arguments."

Sen. Chuck Schumer, a New York Democrat, says "economists agree" that doling out large sums to state governments is "effective." Vice President Joe Biden says that "every economist that I've spoken to" believes the spending package "has to be big."

Perhaps the vice president should broaden his social circles. The truth is that, instead of being uniformly in favor of the massive spending bill, which is being championed by congressional Democrats with Obama's support, economists remain divided.

You may have heard that respectable economists, including Nobel laureate Joseph Stiglitz, say stimulus spending should be high or higher. But some news organizations have been less than diligent in telling you that other respectable economists are deeply skeptical of the idea, flatly oppose it or favor competing proposals such as additional tax relief.

The University of Chicago's Gary Becker, another Nobel laureate, warns that "the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies." Becker says that in that case, spending could do more harm than good.

Naturally, the process of porkification already is underway. An analysis by taxpayer group Americans for Limited Government shows the $825 billion bill includes $200 million for beautification of the National Mall and millions for new cars for federal bureaucrats. Then there's the flap over contraceptive-related spending. If cars and condoms qualify as emergency "stimulus" spending, what doesn't?

Some of Becker's colleagues are more emphatic. John Cochrane, a finance professor at the University of Chicago's business school, published a detailed paper this week on the topic. He sketches an argument for lower taxes right now - instead of higher spending - while simultaneously whittling down the budget deficit.

Another option, he says, would be for the Federal Reserve and U.S. Treasury to print more money and issue more bonds. Cochrane writes: "Some economists tell me, 'Yes, all our models, data, and analysis for the last 40 years say fiscal stimulus doesn’t work, but don’t you really believe it anyway?' This is an astonishing attitude. How can a scientist 'believe' something different than what he or she spends a career writing and teaching? At a minimum policy-makers shouldn’t put much weight on such 'beliefs,' since they explicitly don’t represent expert scientific inquiry."

New York University's Thomas Sargent says, according to the Chicago Tribune: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

The Cato Institute, a non-partisan think tank that takes broadly free-market views, was frustrated enough by the conventional wisdom in Washington that it took out a full-page ad on page 11 of the New York Times on Wednesday. The ad, which will also appear in Roll Call magazine and Thursday's Washington Post, is signed by scores of economists and says "we do not believe that more government spending is a way to improve economic performance."

Greg Mankiw, a Harvard economics professor who was chairman of George W. Bush's Council of Economics Advisors, is a self-described stimulus skeptic; he recently pointed out the Democratic Congress' own budget office says that only 8 percent of the proposed "stimulus" spending will take place in the 2009 fiscal year.

I could go on, but you get the idea. These statements add up to an important conclusion that has received too little attention: Many of the nation's top economists believe the deficit spending Washington is rushing to enact simply will not work. Instead of proving to be a potent stimulus, the legislation could prove to be a mild depressant.

Remember, the stimulus cash has to come from somewhere. If taxes are raised, people will be poorer. If the money is borrowed, it must be paid back with interest, and anyone lending to the U.S. Treasury has less to spend on other items. As in other parts of life, there's no free lunch.

Don Boudreaux, the chairman of the economics department at George Mason University and contributor to CafeHayek.com, pointed out in an interview this week that economists still agree on many topics, such as the benefits of free trade and the harmful effects of price controls.

"Keynesianism was in fact not a good theory," Boudreaux says, referring to the theories of the late economist John Maynard Keynes that encourage government spending. "In the profession, Keynesianism was almost dead until the past few months. It was never dead in the popular mind. It's a flat Earth kind of theory. People look out and see the Earth looks flat, so it must be flat. By and large, macroeconomists rejected at least the standard Keynesian line. Now it's back and that's a real mystery."

He adds: "I think one of the fears is that the perception of the size of the downturn is so intense that even among professional economists, a lot of prudent, careful thought has gone out of the window: 'Geez, we have to do something...' The problem is not some kind of sudden lack of consumer confidence. The problem is that the bubble burst."

Boudreaux and the other economists who are skeptical of stimulus spending may, as I tend to believe, be right. They may be wrong. But the arguments are not as one-sided, and the truth is more complicated, than stimulus proponents would have you believe.

---

Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is [e-mail]

These counter-thought economists will do and say anything to prevent investment here in America for strengthening the middle-class and so the do the "journalists" that quote them like Decalan McCullagh.

Let''s look at John Cochrane''s comments - which are highlighted in this article. He basically assumes there is no global economy -
"Every dollar of increased government spending must correspond to one less dollar of private spending" - as if he doesn''t know that most private spending has been in Asia building their economies with US dollars.

OR "the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift." He fails to mention that most forklifts were bought in Asia.

He also assumes that money spent on the midde-class does nothing to raise its fundamental earning capacity "If you know that new debt will cause your taxes will go up in the future, the right thing to do with a stimulus check is to buy government bonds so you can pay those higher taxes."

Clearly, he knows better. One has to ask why he would make a partial argument out-of-context.

[ioweign]

For Many Economists, Stimulus Falls Flat
Declan McCullagh: Amid Loud Calls For Economic Rescue, Skepticism Abundant


#####

Are these the same ones that advised McCain in September 2008 that the fundamentals of the economy were "strong"...

[pdchapin]

AS USUAL THE FEDS HAVE IT BACKWARD. THE GOVERNMENT SHOULD PRINT MONEY; SEND IT TO PEOPLE. PEOPLE BUY THINGS. JOBS ARE CREATED. REVENUE AND PAYCHECKS GO IN BANKS. DEMAND DEPOSITS ARE CREATED. LOANS ARE MADE.

Actually, people are too scared to spend money. They''ll just sit on it in case these lose their jobs. Usually giving money to the middle class and poor is a good stimulus but probably not now.

Giving it to business is even more of a waste. With no demand, they don''t have anything to spend it on.

Direct spending insures that it has some impact, but whether it simply disappears after the first spending is unclear. With luck the jobs directly created will encourage other people to be less fearful and more willing to spend. Otherwise it will have no more impact that the last stimulus check.

[glenn_lewis]

AS USUAL THE FEDS HAVE IT BACKWARD. THE GOVERNMENT SHOULD PRINT MONEY; SEND IT TO PEOPLE. PEOPLE BUY THINGS. JOBS ARE CREATED. REVENUE AND PAYCHECKS GO IN BANKS. DEMAND DEPOSITS ARE CREATED. LOANS ARE MADE.

[kansas1946]

For Many Economists, Stimulus Falls Flat
Declan McCullagh: Amid Loud Calls For Economic Rescue, Skepticism Abundant
********************************

Yeah, probably the same group of hand picked economists that had Bush''s ear, or maybe Hoover''s, if they are still alive.

[mediawatch50]

Gosh, an opinion article that cites a bunch of Chicago School and other supply-side freak economists. Shockingly (not really), they all hate the stimulus plan! Amazing! (not really)

It''s too bad that there just wasn''t any space in the article to point out that these bozos have all been just about 100 percent wrong about everything. They are not economists, they are right-wing ideologues who believe that tax cuts work in good times, bad times, any times at all, and that government spending is always, always wrong.

How''s that been working for all of us so far?

[lindh4]

To me, the major problem is the fact that Congress has done nothing to prevent the continuation of credit swaps, marginal or bad loan packaging or any of the rest of the bad practices. Even if bargains come up, I''m not about to buy stocks because I don''t trust any brokerages not to go belly up. What was going on in the last 5 or 8 years continues today at full speed ahead.

I find this remarkably curious that it''s business as usual with no or little regulation.

[gaye5]

And didnt it also fail before the depression.. it didnt work then so why would it work now???

[noloyalisti]

The Republican party has completely marginalized themselves from the people of the US. They are essentially obsolete. The Democratic party has enough right wing extremists in it, we only need that one party now.

[greeneyes222]

From cricketbeers - He''''s working on solving the problems handed to him by Bush & Co. Give him a little credit. He''''s just getting started. Don''''t criticize everything just yet - unless you''''re an expert in economics and such.

----------
I''m somebody who knows the value of a dollar and that you don''t fix problems by throwing billions of them into unrelated pork. I''m someone who knows everything you borrow has to be repaid.

This stimulus reminds me of the housing scam - we are borrowing more than we can afford. It was wrong then; it''s still wrong. Voodoo economics has never worked.

We''ve had a Democrat-led Congress for the past two years who did nothing but pack every bill with pork. We now have the same Democrat-led Congress packing the stimulus bill with even more pork. Pelosi and Reid backed the Bush stimulus that didn''t work; now we get the second edition and it''s more of the same.

Is Obama a slow learner? Pelosi''s lapdog? Devoid of all common sense? Whatever, this is business as usual Bush-style, not change.

[ubrew12]

taxguydave said: "Liberal economist Paul Krugman predicted that this would happen"

At this point, I think we should do anything Krugman and Stiglitz tell us to do. The rest of the ''economists'' were apparently just fine leading America off a cliff.

[taxguydave]

labrat--

Liberal economist Paul Krugman predicted that this would happen, and correctly predicted the factors that led to the collapse.

That could have something to do with why he was awarded the Nobel Prize in economy this year.

You can read his columns at the New York Times website.

[ioweign]

My fellow Americans this isn''''t a "stimulus" bill.

It''s an "IOU" bill from the liberal Democrats in our Do Nothing Democrat Congress to all their thousands of special interest groups.

Just the facts.............

Posted by perceptions5 at 08:52 AM : Jan 29, 2009


The last 8 years have been nothing but an IOU...

[cricketbeers]

From greeneyes222 -- This is a defining moment for Obama, who apparently falls into the category of party drone not leader. Where is the change he promised us? Where is the courage to stand up to these idiots in his own party and do what''''s right for the people?

For all the bickering and arguing about this stimulus bill, perhaps you people have a better idea? Just WHAT, exactly to you propose will work to stimulate our economy, get stocks back up, put money into the working man''s pockets and get jobs back?

It was okay for Bush & Co to pump billions into Iraq for a BS war that drove us to record debts. But when the new administration wants to try to pump money into our own economy and try to spur jobs, etc., everyone complains.

As for this "change", Obama has been in office for 9 freaking days. Just what kind of change do you expect to happen in 9 days?

He''s working on solving the problems handed to him by Bush & Co. Give him a little credit. He''s just getting started. Don''t criticize everything just yet - unless you''re an expert in economics and such.

[perceptions5]

My fellow Americans this isn''t a "stimulus" bill.

It''s an "IOU" bill from the liberal Democrats in our Do Nothing Democrat Congress to all their thousands of special interest groups.

Just the facts.............

[ubrew12]

labrat9999 said: "where were all these brilliant economist when the economy was failing in front of our eyes?...It is always interesting to see these people come out of the woodwork after the problem has happened "

Exactly. We need an accounting of:
1. Who in the Main Stream media REALLY took a critical view of the Iraq Invasion BEFORE it happened and tried to communicate that view to the people BEFORE we spent $1 trillion in Iraq turning a corrupt Sunni regime into a corrupt Shia regime? (Who, other than Knight Ridder News Service)
2. Who in the Business media (other than Warren Buffet) took an active role WARNING America of the dangerous housing and mortgage derivatives bubbles created by the Greenspan interest rates, Bush tax cuts, and Bush ''let the invisible hand ride'' economic philosophy of 2000-2008? The one leading to a $1 trillion banker bailout.

America is continually being misled and we can''t afford it anymore. Who are these powerful media voices that are getting so well paid for getting it SO WRONG? (and who is paying them for getting it wrong?)

[greeneyes222]

"the lengths that supporters have gone to marginalize anyone who questions the so-called stimulus plan. "

Because people like Nancy Pelosi and Harry Reid and Chuck Shumer prize obedient party slaves, not anyone with a brain who actually thinks about the problems.

It doesn''t take a rocket scientist to see that this stimulus package is a gross mistake, dressed up in fancy pr. It''s loaded with pork, just like the last one which they backed wholeheartedly and which flat out didn''t work for anyone but the bank executives.

This is a defining moment for Obama, who apparently falls into the category of party drone not leader. Where is the change he promised us? Where is the courage to stand up to these idiots in his own party and do what''s right for the people?

[aztecdakota]

Stimulus? Me, nor any of my relatives, friends, their friends has seen a penny of any stimulus. We are still struggling to survive and bread is still $2.50 to $4.00 for ONE LOAF!

[catlady1412]

Well this article has quite the hysterical tone. Trying to whip people into a frenzy? Some of us already know it could get worse. Some of us even know about worse as it happened to us. All these pointless articles about what could happen, should happen, and nothing useful in any of them.

[incog-nito]

Why are banks not lending out money after getting a bailout, even to people with decent credit and even after repeated government prodding? The answer is very simple: they know the economy is in VERY bad shape and is getting worse. They know that even with the bailout money they may very well go under. That is why they are hoarding money to conserve cash. They hope to have enough cash to ride out the storm, to be the last few standing when (or if) it''s all over. There is no other rational explanation. The economy is in a lot worse shape than people realize, and this time, it might NOT come back.