The economy sputters on. Meanwhile, our elected leaders debate what to do about it, in fact, much of the ongoing midterm campaign centers on it.

The Democrats, being in power, have already played their hand. The stimulus package of early 2009 was a grab bag of spending and tax cuts. [Not really the point of this post, but I’m so tired of the counterargument that “the stimulus failed, because they promised that unemployment would peak at 8%.” Any thinking person understands that the meaning of that presentation back in those days was that the stimulus package would lower the peak unemployment rate by about 1.5%. At the time, they estimated it would peak at 9.5% if no action was taken; hence, the stimulus would lower the peak rate to 8%. Instead, the recession proved to be much more severe, and so it peaked at 10%, versus 11.5%. Either way, every economic analysis supports the contention that about 3 million more Americans would be out of work today without it. Every counterargument I have ever seen is ideological, not economic.]

Republicans, being the minority party, have played the role of critic. As far as I can tell, the only policy prescription they have supported is the extension of the Bush tax cuts for the wealthy. There is also a lot of talk about “cutting spending” and “balancing the budget,” but I severely discount that talk. I discount it because: (1) cutting spending will weaken the economy in the short run. Spending discipline is a crucially necessary solution for the long term, but harmful in the short run — why, after all, do people think Congress never cuts spending? Because all the benefits are long term and all the short term impact is negative; and (2) I have watched the Republican party increase federal spending every time they have held power over the past 30 years, so, yeah, I don’t believe it. Anyway, that leaves the Republicans with tax cuts as their sole credible policy option.

Into this policy debate wades the intrepid CBO. They have analyzed 11 separate policy prescriptions. Of the eleven, extending the Bush tax cuts ranks dead last in terms of short term economic benefit. Why is this? Because tax cuts for the wealthy are a supply-side solution. The current weakness in the economy is based on low demand: people just ain’t buyin’ stuff. Tax cuts for the wealthy have little impact on consumption, because they tend to save the additional money, not spend it.

Think about it this way. The Republican argument is that economic growth depends on small business; that is where jobs are created. True enough. But why exactly does a small business owner hire the next employee? Because his tax rate is lower? No. Because he has more customers to serve. Period. I myself started a business in 2003, and now it has about 1000 employees. I can tell you that never once did we set our hiring plans around federal tax policy. “Hey, Bush cut my personal taxes… let’s go hire a few more people.” Nonsense. We hire whenever demand for our services outpaces the capacity of our current team to meet it. So, you fix the economy by creating more customers. Tax cuts for the wealthy fail to do that, so that is why it scores so dismally on the CBO analysis.

Back to the March 2009 stimulus package. Every Republican out there campaigning that the stimulus failed, and arguing instead for tax cutting policies, needs to explain why the $250 billion in tax cuts provided by the government in the stimulus package failed to work, and why more tax cuts would work the next time. Personally, my conviction is deep that the stimulus did exactly what it was supposed to do. Find me the maintstream economist who says otherwise.


Does anyone seriously believe that the vast current level of deficit spending is anything other than stimulative? The criticism – that, because unemployment is going to crest at a higher level than first thought, the stimulus has failed to do what it was supposed to do – makes no sense whatsoever. It is akin to arguing that, because the New Orleans levies failed, they shouldn’t have been built. That’s asinine. They, just like the stimulus so far, were insufficient to fully turn aside the storm. Whatever the depth of this recession, find me a serious economist who thinks it would have been less severe without the stimulus. For the life of me, I cannot understand why Administration voices are not pushing the truth of this message.

Of the stimulus package passed earlier this year, the tax cutting part is already implemented and the spending part has just begun. If one is to draw the conclusion that the stimulus package has failed, it is only because the tax cuts, among the largest in US history, have failed to stimulate the economy. Remember that when Republicans begin campaigning for 2010.

The real success of Obama’s actions, so far, has been in restoring normal function to the credit markets in a remarkably short time. Yes, there are genuine concerns from the actions of government in the past six months (and even more so in the past six years) – more debt, higher deficits. But that the stimulus has failed is not among them.

I have been having a very thoughtful exchange with another blogger about these tea parties, and what they represent. It finally dawned on me why I am vaguely mistrustful of the tea party movement, even though I support its basic message. I suspect I differ from most tea-party folk in terms of our understanding of what the ramifications of such a movement will mean.

Much anger is directed at frivolous, wasteful and excessive spending. By all means, let’s light the torches and demand an end to all that. But, once all of that has been taken away — all the Congressional perks, all the earmarks, all the unambiguously pork projects — what do we have? An annual deficit of maybe $700 billion instead of $1 trillion.

People have to be ready for the cold, hard reality that this means large-scale reductions in government services. This may mean that Social Security and Medicare start at 68, not 65. And that grandma has to live in the spare room instead of the nursing home, due to Medicaid cuts. And that I have to fork over $700 for a laptop for my highschooler, because the schools don’t have enough computers. And that expressways become tollways because of cuts in federal transportation funding. And that food plants are inspected less often. And that national parks are closed from November through March. And that we withdraw precipitously from Iraq and Afghanistan. And that the cost to ride Amtrak or mail a letter goes up by 50%.

The list is endless, and more importantly, it isn’t painless. In fact, it will be extremely painful.

Government may be broken, but WE broke it. Candidates told us we could have all these services, and pay less in taxes, too! Glory be! Sign me up!!! We got exactly what we asked for.

There was no betrayal, except of ourselves, by ourselves. We are not the victims, we are the perpetrators. And the pain of restoring order will be our pain, not theirs. I pray that people get that.

In this moment when the news is dominated by stories about tea parties, presidential bows, tax cuts and stimulus packages…

In this moment when it is so hard to find solid ground…

I think this: the great conflict in this moment is not between the “right wing” and the “left wing.” It is not between conservatives and liberals.

It is between pragmatists and ideologues.

The Democrats: Punch the accelerator. The intent is to make the recession shorter and less severe. But the risk is that our economy may have a hard time absorbing the costs of the massive intervention, and long term growth is lessened if the Democrats cannot find the brakes after the crisis has passed.

The Republicans: Slam on the breaks. Their intent is to let the recession run its full course, so that the economy that emerges afterwards is best positioned for long-term growth. Their budget plan projects, for example, jobs increases beginning in five years. The risk is measured in terms of how much additional economic damage is done if Republicans cannot find the accelerator after the crisis has passed.

I think it is important to understand that both approaches are supported by lots and lots of highly intelligent, thoughtful, competent people. Conservatives shriek about the Democrats’ plans because they are ideologically anathema to conservative doctrine, but not necessarily because they are bad policy. Liberals shriek about the Republican alternatives because they are anathema to liberal doctrine, but not necessarily because they are bad policy.

At the end of the day, we, the voters, get to decide whether to put our chips on “red” or “blue,” to use a modified roulette analogy. Neither is a sure bet; either carries huge risks.

This is my open letter to the Republican Party. I need to know if you are insincerely pandering as a minority party, or if you are being serious this time.

Republicans in Congress and elsewhere have been launching a furious attack on Obama’s economic crisis plans, and his budget proposal. There are, apparently, grave concerns about the budget deficit, the level of government spending in relation to the economy as a whole, and to the inevitable build-up of the federal debt. Bloggers and the radio folk add a polemic element, calling all of this “socialist” or even “Marxist.”

Should we expect and hope that the economy will right itself over time? There is some credible thinking along those lines, but the vast majority of credible economists conclude that government intervention is necessary to shorten the duration and lessen the severity of the recession.

Should we cut taxes? Is there an argument to be made that it is in the nation’s best interests to increase the budget deficit and increase our federal debt by reducing federal tax receipts?

Should the government intervene in a more targeted way? For example, is there something narrower that should be done to end the slide in home prices, and cope with the attendant avalanche of foreclosures? Something to prompt liquidity in the credit markets? Something to ease the hardships being felt by the unemployed, the underemployed, the business owner clinging by his fingernails?

Can you explain to me the Republican budget plan that was recently announced? []. If we were to vote for you now, or next time, we will we get:

  • …a budget that “cut(s) overall nondefense spending by reforming or eliminating a host of wasteful programs deemed ineffective by various government entities”?
  • …”a simple and fair tax code with a marginal tax rate for income up to $100,000 of 10 percent and 25 percent for any income thereafter, with a generous standard deduction and personal exemption”?

You controlled the White House and Congress from 2001 through 2007, and you never proposed any of this.

Your budget document calls for reducing taxes, reducing deficits and reducing federal debt. I do not understand. Doesn’t reducing taxes add to deficits and therefore debt? On the subject of debt, you write, “The debt held by the public will exceed 50 percent of GDP this year and increase to 82 percent of GDP ten years from now. History tells us what governments do with such levels of debt and what happens to their citizens.” In fact, almost $9 trillion of the current $11 trillion of federal debt came under Republican presidents. Is this a change of heart on your part?

Can you explain to me your party’s support of bailouts in September 2008, and your opposition to them now?

Finally, can you provide me with an honest reckoning of this: How much of the Obama spending is an unfortunate necessity, arising from the huge spending increases, deficit and debt growth, off-budget spending on the Iraq war, and credit market oversight laxness of the last ten years?

In short, convince me that your President right now wouldn’t be doing exactly the same things, given current economic conditions and your party’s own history of reckless spending.

Thanks. I’ll be looking forward to your reply.

We, the people own 80% of AIG. It is time to stop acting like babies, and start acting like owners. Billions of dollars flow through our company every month. The reality is that, in the first quarter of 2009, our company has either made or lost many billions of dollars. I have no idea which. I do know that the answer to that question matters about 10,000 times more than how much it paid in bonuses.

When management has to present quarterly results to Warren Buffet, do you think he tunes out HUGELY important things like revenue growth and net profit and operating income, and skips right down to page 382 to ask about bonus payments??? I don’t think so.

To give a different example, the government now owns a 36% stake in Citigroup. That company recently announced that it is estimating a profit of $8.3 billion in the first quarter. Be happy people: we own 36% of that profit — $3 billion for us! Just one company, and that is far, far, far, far more than the AIG bonuses being kicked around.

Stay focused on the important things.