EFFin’ Unsound

- posted by demo kid

So according to FWC, the stimulus package has been a “failure”:

As democrats start talking about yet another stimulus package (since all the previous stimulus packages attempted anywhere in the world have failed), let’s consider, again, the simple reasons why stimulus spending never works.

I’d say that the stimulus probably hasn’t worked exactly as intended. We haven’t really dispersed much in the way of actual stimulus money, given the way that the package was structured, meaning that the effect hasn’t really leaked into the economy yet. Other economists, most notably Paul Krugman, are arguing that the first stimulus just wasn’t big enough to have the intended effects.

Still, I have the feeling that a nuanced discussion of policy is not what he has in mind…

In order for the economy to expand and create new jobs, we need to invest capital (money, labor, and expertise) into it. That capital comes from three sources: the available capital that people have, the capital they can raise through investment, and the capital they can borrow.

Ugh. Economics FAIL, FAIL, FAIL. It’s like he’s reading the fourth-grade picture book version of A Monetary History of the United States. I could poke many, many holes in where he’s going with this. Among other things: public goods provided by the government are one source of capital that is being funded by the stimulus, the economy is not a static function but is actually dynamic, overinvesting in capital or allowing it to remain unused is bad, families need to eat during short-term economic upheavals, there is a psychological effect associated with having the government appear to take some active role, etc. etc. He’s being a reductionist and ignoring man,y many other economic principles that are relevant to this discussion.

The stimulus package failed because it did nothing to increase the capital people have, the capital they can raise through investment, or the capital they can borrow. In fact, it decreased all three rather dramatically.

Not exactly. Investment in infrastructure increases capital, as does actually putting people back to work so they have something in their bank accounts to invest. Even if you can argue that borrowing reduces the ability to invest later, it can be seen more as a means of spreading out investment to points in time when it can make the most difference. Economies are not static entities, but Jonathan sees fit to ignore the effect of time in his arguments.

How can spending money decrease capital? It’s simple once you understand that the government gets its money through force and coercion.

Again with this canard. Quite frankly, I’m sick of it. Blah, blah, blah, “holding people at gunpoint”. We get it. Most people, though, even conservatives, don’t believe this lie. They just want government to work better.

* Governments raise money through taxes. This sucks capital out of all three areas.

* Governments borrow money with a promise to pay with future taxes. This depletes current capital because people hand over their capital to get the interest rate and stability only the government can offer, but also limits their future because they know eventually they will be taxed to pay that very interest.

And then the government takes all that money, puts it into a pile, and burns it, providing absolutely no one with benefits from tax revenue, including those businesses that would benefit from public infrastructure like highways and public education.

Governments also limit the usefulness of capital through regulation. This depletes capital in all three areas with the stroke of a pen. They can also limit capital if they decide to compete directly in the market, such as by providing health care.

We absolutely have the right to limit the usefulness of capital through regulation or competition with the government. Airplanes would be far more “useful” if you didn’t need a license to fly one… but that sure as hell wouldn’t make me want to be a passenger. Owning your own fire engine would be a great investment if governments didn’t provide fire protection, but I’m not inclined to help those folks out by eliminating fire departments. An overriding public purpose is sufficient to get the government involved in the private market.

A true stimulus package would look like this:

1. A massive tax cut, particularly on interest and investment, but also on production.

This is where FWC just comes across as a liar. This isn’t a “stimulus”, unless he proposes that taxes be increased later. This is a means by which he can push his own agenda. Of course, the next time an economic downturn would come along, he’d be stuck carrying a toolbox with no tools in it.

2. A massive spending cut, especially in areas such as social welfare, Medicare, and Social Security, where government is directly competing in the market. (Note that the military doesn’t compete in any market.)

Social welfare is “competition”? Pardon me while I try to find the company that provides food stamps that’s being priced out of the market by the government. It may “compete” by increasing spells of unemployment as folks have more time to search for the best job they can find, but promoting the ability for people to find good jobs doesn’t really seem like a downside for the economy. (Likewise, I would assume that being able to eat while you’re unemployed is a good thing.)

As I’ve said many times before, Jonathan might as well line up poor and unemployed folks and shoot them. It would be more humane.

3. A truly balanced budget to end government borrowing now and forever.

In my world, that would be true, but qualified. Governments should not borrow in strong economic periods. A good counter-cyclical model for economic policy would increase taxes, reduce government spending and strive for surpluses in up markets, while cutting taxes, increasing social spending and running up slight deficits in down markets.

But Jonathan’s goal isn’t rational economic policy, of course. He’s actively trying to court an economic apocalypse.

4. Massive de-regulation of the economy.

Thirty or forty years ago, I could follow this line of reasoning. Now? As it is, we’ve seen the problems with deregulating certain industries to the point where they have no oversight. But thinking that allowing market bubbles to run even further with even less government oversight is good policy? I don’t buy it.

These three changes will dramatically increase the capital available to invest in the economy. This capital will instantly be used to reinvest in the economy, creating jobs, perhaps even before the changes take effect.

I have no doubt that this would result in a remarkable shift in the economy. However, at what cost, exactly? The effect of a complete disinvestment in public infrastructure and social support networks would have effects that would take years to manifest, and would devastate our long-term potential for growth. Likewise, what Jonathan proposes would be a one-shot deal: you eliminate all of this, and then wild swings in the market without the possibility of government intervention become the norm. Depressions and massive overinvestment in infrastructure become standard.

Unfortunately, this kind of stimulus package would destroy the Democratic Party. The Democratic Party has become dependent on the government to raise its money to spend on its constituents, both the poor and needy but also the rich and greedy.

As opposed to massive cuts in social welfare, which would benefit the rich while having a devastating effect on the poor? Seems that this would truly benefit the Republicans to me.

But then again, there are always idiots that advocate for cutting social welfare, when they don’t seem to understand what exactly it is:

This entry was posted on Thursday, July 9th, 2009 at 9:59 am and is filed under Demo Kid. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.