The Fiscal Stimulus Will Pay For Itself

[Wetzelbill]

The Fiscal Stimulus Will Pay For Itself


Rachel Maddow gets it. Economists and Republicans don't.

I watched Prof. Jeffrey Sachs on Rachel Maddow's show the other day. She asked whether the fiscal stimulus would work. "No" he said emphatically, it would not. "No one has the tools....to fix this......the fiscal hole will cripple us for the long-term."

She tentatively mentioned 'the multiplier.' He brushed this aside with a counsel of despair. "We might have a few more jobs in the short-term but a massive deficit in the long-term..."

Scant consolation for 13 million unemployed and underemployed Americans. Their lives could be transformed by this fiscal stimulus.

And anyway, as Keynes once noted, in the long term we're all dead.

Sachs's analysis is overwhelmingly shared by mainstream economists. And by Republicans. These have been whipping voters into a frenzy with talk of 'generational theft.' Future generations, they argue, will be paying for this fiscal stimulus for decades to come. That is simply not true, as I will show below.

Meantime, these points are truly rich coming from the Republicans. Readers no doubt know that during the Bush-Cheney years the US national debt doubled from $5,700bn in 2001 to $10,700bn today. Others may recollect that Mr. Cheney said in 2001: "Reagan proved that deficits don't matter."

So let's not hear any more from Republicans about deficits mattering or about 'generational theft.'

But to get back to history. The fiscal stimulus of the 1930's was positive -- both in the US and the UK. It dramatically lowered unemployment after 1933.


http://www.huffingtonpost.com/ann-pettifor/the-fiscal-stimulus-will_b_167119.html

[FrenchieCat]

1. That's what I was hoping.....

I'm sure that is what the President is hoping too!

It works like this. Government invests in labor-intensive programs e.g. $40 billion in energy efficiency and renewable energy programs, including $2.9 billion to weatherize modest-income homes. $27 billion for highway and bridge construction and repair and $11.5 billion for mass transit and rail projects; $4.6 billion for the Army Corps of Engineers; $5 billion for public housing improvements; $6.4 billion for clean and drinking water projects.

The energy efficiency/transportation/public housing programs hire American workers - some highly skilled, some not so skilled. These programs also purchase materials - from factories. Some foreign, but mostly American.

Next, something called 'the multiplier' kicks in. It's the ABC of economic science and works like this.

The workers get pay checks. They use the income to pay taxes - direct to the US government. So immediately the government can use these tax revenues to fix the budget. Then workers purchase goods and services - boosting the economy. Companies hire more workers to deal with demand for materials from stimulus-sponsored programs. More employed workers equals more taxpayers.

Ever-rising tax revenues drop into the Treasury's coffers.

Because government spending is financed by bank money or credit, income increases. Eventually savings are generated to match the original stimulus expenditure - so there is no 'crowding out' by government. But savings too can find a way back to the US Treasury, because savers could end up investing in US Treasury bonds.

http://www.huffingtonpost.com/ann-pettifor/the-fiscal-stimulus-will_b_167119.html

[Wetzelbill]

2. Yes, I think it will move in that direction

I am not 100 percent sold on it, but I think she is basically right.

[FrenchieCat]

3. It kind of has to.......

or we are royally screwed.

[Wetzelbill]

4. well I hope we won't

:)

No I think even if it pays halfway for itself we're still looking ok and I'd say that's a given. I am hesitant to say I totally buy her argument because some of the tax cuts in the bill are deficit busters, but overall I'd say she's on to the right idea. I'm just cautious. A bigger bill or another spending bill focused more on infrastructure spending etc, would pay for itself almost for sure. So I think we should end up in solid shape on this bill, my only complaint is I would have liked to go bigger.

[ColbertWatcher]

5. The Great American Thinker (Feeler?) Dr. Stephen T. Colbert, D.F.A. reminds us that ...

... the GOP-controlled media sells doubt.

Some people might believe what they're seeing is "skepticism," but don't be fooled--it's doubt.

The main idea propagated is doubt and the only product sold is doubt.

All this talk on the GOP-controlled media from the GOP and economists is to push doubt.

They have no ideas; it's all about doubt.



http://www.wikiality.com/Doubt

[aikanae]

6. Except TAX CUTS are long term deficits

What I don't get are the tax cuts because they seem counter-productive since they reduce income generated from people going back to work = less ability to pay off the deficit.

Usually I'd just say, "well it'll get paid off slower" but in this case it seems critical to bring it down at the same time (almost impossible) because it's large enough to be threatening to stability.

What the article also doesn't point out is that there are multipliers with trade as well. I'm not clear on how those work enough to explain them, other than as our economy improves, others do too - which enhances our trade further - and so on.

Obviously I'm not an economist.

The rest of the world are using similar stimulus plans. I don't think that's an accident and it makes sense to me that there would need to be a global response to a global crisis. Even the IMF has come out in favor of stimulus packages: "This is the first time in 25 years that the IMF managing director has called for an increase in fiscal deficits and I regard this as a recognition of the gravity of the situation that we face."

That makes the GOP seem even more like party first, rubber-stampers who really have no idea what they are talking about.

There's recent examples of what works and what doesn't during economic crisis: Iceland and Argentina are two. FDR's new deal produced immediate results, but the conditions weren't entirely the same. The US didn't have as big of a deficit at the time was just one of them. Another was that figures weren't kept on some of the stuff we've got now - or the need for credit.


I don't understand the role of tax cuts in Obama's plan.


The End of the Age of Milton Friedman by Jeff Madrick http://www.huffingtonpost.com/jeff-madrick/the-end-of-the-age-of-mil_b_94228.html
The undeniable shift to Keynes, Financial Times http://www.ft.com/cms/s/0/c4cf37f4-d611-11dd-a9cc-000077b07658.html?nclick_check=1

[Wetzelbill]

7. the role of tax cuts as far as I can tell

Is almost solely political. He mostly got what he was planning to do with his middle class tax cut campaign pledge, but some of that I think is definitely political. It stems from the Right framing the debate for so long around tax cuts, it's good politically to have some. However, policywise, it makes not much sense outside of using them to get immediate money in people's pockets to augment the longer term spending stimulus. Even then, those tax cuts are not as nearly effective as other options. It's kind of like giving out candy to somebody to eat for dinner. It's quick and easy but has no real value to it and has it's negatives. It might taste good at first, but it isn't all that good in the end.

[Oregone]

9. Exactly....

To be absolutely honest, Id prefer to see tax raises used pay for a greater stimulus in infrastructure and other areas that do stimulate large production changes (and hence, are subject to a 'multiplier factor'). Essentially, if people are hoping we will borrow our way out of this, and more so with the tax cuts, they are sorely mistaken.

[Romulox]

8. "The war will pay for itself...They will greet us in the streets with flowers!"

[ihavenobias]

10. Thanks, I'll check this out.

It feels great to have a functioning computer again!