Posted by GOP Leader Press Office on December 22nd, 2008
Since putting out the call for outside economists’ opinions on President-elect Obama’s proposed $1 trillion economic “stimulus” spending plan, we’ve been contacted by dozens of economists and academics eager to add their name to the list of stimulus spending skeptics. Below you will find selected entries from experts that agree that tax relief for families and small businesses, not more government spending, will help to get America’s economy moving again:
Any stimulus package should consist of permanent tax cuts rather than spending increases. The (limited) available evidence suggests that tax cuts are at least as effective as spending increases in stimulating the economy. Tax cuts help reduce the adverse incentives caused by high tax rates. And spending increases are likely to include numerous projects that do not pass normal cost-benefit criteria and are instead merely pork (e.g., repairing bridges to nowhere).
I worked 7 years as a Federal Reserve staff economist and have done research in and taught macroeconomics for 27 more years. There is no convincing evidence that stimulative fiscal policy is either feasible or effective. The recognition and action lags (ancient terms from the bygone Keynesian era) alone virtually always mean that the stimulus arrives after the recession is over, thus causing an undesirable distortion that impedes recovery…These aspects of fiscal policy have been known for more than a quarter century. However, if one does not like old evidence, Greg Mankiw on his blog recently cited more recent scholarship showing that Keynesian theory is inconsistent with the data. This I am strongly skeptical of President-elect Obama’s plans. Both theory and evidence are against them. What else do we require to reject them?
Michael Keran
Retired, Former Sr. VP & Director of Research
Federal Reserve Bank of San Francisco
Japan in the early and mid 1990s engaged in major fiscal stimulus focused on infrastructure projects with deficits equal to 7-8% of GDP and a cumulative Debt/GDP of almost 150%. None of this led to economic recovery until the late 1990s when the Bank of Japan engaged in quantitative easing of monetary policy and the Government of Japan finally introduced a taxpayer bailout of the banks. The Fed and Treasury in the US have already taken such actions. The Japanese experience suggests that additional fiscal stimulus will only add to the Debt without helping the economy.
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14 Responses to “Stimulus Spending Skeptics Speak Out”
[…] be casting about wildly. With his own Rolodex under strain, House Majority Leader John Boehner has put out a public call for any economist who could give some rationale for opposing the Obama stimulus package. The […]
Once again, you embarrass us from Ohio. Instead of finding someone to provide ideas and solutions, you look for political ways to oppose. We are tired of this type of fighting.
Come up with answers, like Neal Bortz in Atlanta’s flat tax. I am an independent and I am seriously intrigued by this if someone can explain this to me.
Offer a trade response to the manufacturing situation that does not attack unions. When Reagan did what he did it was necessary, but now republicans are overreaching and not thinking about the ramifications to the middle class.
Stop finding ways to fight for power and influence and find solutions to this mess your party has created for all of us>>>>>>
Everything the government is doing to stimulate the economy is exactly the opposite of what should be done. All money spent on bailouts has first to be acquired or created. Those yielding the money to the government through added taxes or purchasing federal debt have less to spend on goods and services, and the businesses they would have patronized are hurt, offsetting any stimulus from the federal spending. Rent-seeking for bailout money and costs of administration make it a negative-sum game. Inflation is a tax on cash balances. Instead, the government should (1) reduce expenditures at least 40%, liquidating departments like HEW and Ecucation. (2) reduce tax revenue by 25%, and (3) use the surplus to pay down debt. That would supply an enormous influx of cash to the financial system.
Everything the government is doing to stimulate the economy is exactly the opposite of what should be done. All money spent on bailouts has first to be acquired or created. Those yielding the money to the government through added taxes or purchases of federal debt have less to spend on goods and services, and the businesses they would have patronized are hurt, offsetting any stimulus from the federal spending. Rent-seeking for bailout money and costs of administration make it a negative-sum game. Inflation is a tax on cash balances. Instead, the government should (1) reduce expenditures at least 40%, liquidating departments like HEW and Education. (2) reduce tax revenue by 25%, and (3) use the surplus to pay down debt. That would supply an enormous influx of cash to the financial system.
The so-called stimulus from federal spending is a contradiction in terms. By borrowing or creating money and spending it on nonproductive infrastructure or bailouts, the money is wasted and the loans remain. Increasing the debt of the government reduces overall GDP because the money is not free and this delays the recovery.
Government must reduce spending and taxes and stop supporting companies that are effectively bankrupt with bailouts.
This is supposed to be wide bi-partisan support for stimulus alternatives? It’s laughable. And one of the objective acclaimed economists is from the Cato Institute - which has never exactly been known for its progressive democratic values.
200 economists signed and sent an open letter to Congress opposing the first $700 billion bailout.
Did you get it?
The reasons for not stimulating are laid out clearly and logically. We are in deep trouble if you are unable to stop this economic lunacy being foisted on us by the big NYC banks.
Please search your archives and call upon the academics who signed the letter to testify before Congress.
Lots of good names on the list, but most of the “hard core” people didn’t sign, because we were uncomfortable with some of the wording, particularly on part #2 (which could be read to support some kind of TARP if the objectives are clear and there is strong oversight).
Look, just ask any Austrian economist. They have predicted the current mess. They know that it is doomed to fail.
AND they know that any attempt to interfere with the free market with government bailouts will just make things worse.
They will guarantee you that government bailouts and stimuli will make things worse. They have never been wrong about this. They have hundreds of examples to back up their arguments.
Just read the letter if you are truely serious about knowing who thinks Bernanke and Paulson and Krugman are mistaken. In fact horribly, terribly, awfully mistaken, such that they are dooming the world to fiscal hell.
Please read some Friedman, Hayek, and Mises. This is serious. We are not talking about economic problems for our kids but rather problems for Americans in the next two years if not sooner. Major serious currency collapse problems through hyper inflation. We are talking about the US dollar collapsing through inflation.
As a Republican conservatives, I think we really do need to wake up and quit trying to win elections by telling people what they want to hear. We need leaders not crowd followers. More people acting like you with this forum, i.e. real statesmen would be refreshingly new things in DC. We have never needed them more.
Thanks for soliciting input. DC has never needed to hear it more than RIGHT NOW.
The Japanese tried huge public works spending, and it failed to rescue their stagnant economy. That is because the money goes to wasteful, over-priced, and inefficient projects. These projects are pork barrel and subject to politics. They harm the economy by diverting resources into unproductive jobs. They harm the economy by undermining the good ethics that are the basis of any sound economy. The U.S. lobby groups for housing and construction are large and well-known, and they correspond to the Japanese cartels. In both cases, there exists an iron triangle among business, bureaucrats, and politicans that leads to waste and corruption. Tax cuts only lead to increased borrowing and dollar devaluation unless they are matched by cuts in wasteful government programs. The real political work to be done is in taking aim against interest groups and cutting spending for the sake of the general public. The Obama stimulus package does the very opposite.
“Come up with answers, like Neal Bortz in Atlanta’s flat tax. I am an independent and I am seriously intrigued by this if someone can explain this to me.”
The flat tax is a good idea that has been around for decades. The idea is simply to carry the 1986 Tax Reform (which reduced the top marginal rates while eliminating many deductions and loopholes) to its logical limit of having just one rate for all income. This would be a great time to implement it, but it won’t happen with this administration and congress.
The opponents of the Obama plan are not just obstructioniist. To spend huge quantities of tax dollars unproductively is harmful. I personally favor a “stimulus” that improves the long-run fundamentals of the economy, as opposed to a gimmick that gets people to spend a little more this winter in exchange for less next spring. In addition to cutting top marginal income tax rates (permanently), also permanently cut the corporate income tax rate. That’s not going to cost much revenue (not a lot of profits this year), and will make corporate borrowers more attractive to lenders. And even diehard Keynesians think that tax cuts stimulate the economy.
The problem is that the administration and Congress want to take this opportunity to redistribute income and expand the government’s role in the economy, and are focused on short-run tweaks instead of restoring the economy’s long-run health.
The money lost in the mortgage crisis didn’t go away,
it just ended up in someone else’s pockets (Bonuses come to mind, still paid until just up to the crash, to people who were aware that the profits justifying the bonuses were illusory; then financial institutions unloading risky papers on unsuspecting investors, including your pension fund).
More tax cuts now help those, who did profit from the crisis, and allow them to keep more of their gains. Those of us with businesses outside the financial services industry didn’t have so much profit recently, and thus aren’t helped much by tax cuts.- But any new orders for our product or service, even by the government, helps to keep people employed (and paying taxes).–
The Republican Party makes a clear choice here whom they favor.
December 22nd, 2008 at 4:33 pm
Where are the dozens and dozens of skeptics? I see four.
December 23rd, 2008 at 12:17 pm
[…] be casting about wildly. With his own Rolodex under strain, House Majority Leader John Boehner has put out a public call for any economist who could give some rationale for opposing the Obama stimulus package. The […]
December 24th, 2008 at 5:19 am
Once again, you embarrass us from Ohio. Instead of finding someone to provide ideas and solutions, you look for political ways to oppose. We are tired of this type of fighting.
Come up with answers, like Neal Bortz in Atlanta’s flat tax. I am an independent and I am seriously intrigued by this if someone can explain this to me.
Offer a trade response to the manufacturing situation that does not attack unions. When Reagan did what he did it was necessary, but now republicans are overreaching and not thinking about the ramifications to the middle class.
Stop finding ways to fight for power and influence and find solutions to this mess your party has created for all of us>>>>>>
December 24th, 2008 at 9:05 am
Everything the government is doing to stimulate the economy is exactly the opposite of what should be done. All money spent on bailouts has first to be acquired or created. Those yielding the money to the government through added taxes or purchasing federal debt have less to spend on goods and services, and the businesses they would have patronized are hurt, offsetting any stimulus from the federal spending. Rent-seeking for bailout money and costs of administration make it a negative-sum game. Inflation is a tax on cash balances. Instead, the government should (1) reduce expenditures at least 40%, liquidating departments like HEW and Ecucation. (2) reduce tax revenue by 25%, and (3) use the surplus to pay down debt. That would supply an enormous influx of cash to the financial system.
December 24th, 2008 at 9:13 am
Everything the government is doing to stimulate the economy is exactly the opposite of what should be done. All money spent on bailouts has first to be acquired or created. Those yielding the money to the government through added taxes or purchases of federal debt have less to spend on goods and services, and the businesses they would have patronized are hurt, offsetting any stimulus from the federal spending. Rent-seeking for bailout money and costs of administration make it a negative-sum game. Inflation is a tax on cash balances. Instead, the government should (1) reduce expenditures at least 40%, liquidating departments like HEW and Education. (2) reduce tax revenue by 25%, and (3) use the surplus to pay down debt. That would supply an enormous influx of cash to the financial system.
December 28th, 2008 at 8:58 am
The so-called stimulus from federal spending is a contradiction in terms. By borrowing or creating money and spending it on nonproductive infrastructure or bailouts, the money is wasted and the loans remain. Increasing the debt of the government reduces overall GDP because the money is not free and this delays the recovery.
Government must reduce spending and taxes and stop supporting companies that are effectively bankrupt with bailouts.
December 28th, 2008 at 10:16 am
I am skeptical that Republicans give a damn about anything except being obstructionist.
We blame you for this mess, you know.
December 28th, 2008 at 1:49 pm
This is supposed to be wide bi-partisan support for stimulus alternatives? It’s laughable. And one of the objective acclaimed economists is from the Cato Institute - which has never exactly been known for its progressive democratic values.
These people are a joke.
December 28th, 2008 at 9:57 pm
Dear Congressman Boehner,
200 economists signed and sent an open letter to Congress opposing the first $700 billion bailout.
Did you get it?
The reasons for not stimulating are laid out clearly and logically. We are in deep trouble if you are unable to stop this economic lunacy being foisted on us by the big NYC banks.
Please search your archives and call upon the academics who signed the letter to testify before Congress.
Thanks and God bless you.
Regards,
Stephen
December 28th, 2008 at 11:30 pm
Letter from 200 economists opposing the original bailout.
This letter was sent to Congress on Wed Sept 24 2008.
http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm
Lots of good names on the list, but most of the “hard core” people didn’t sign, because we were uncomfortable with some of the wording, particularly on part #2 (which could be read to support some kind of TARP if the objectives are clear and there is strong oversight).
Look, just ask any Austrian economist. They have predicted the current mess. They know that it is doomed to fail.
AND they know that any attempt to interfere with the free market with government bailouts will just make things worse.
They will guarantee you that government bailouts and stimuli will make things worse. They have never been wrong about this. They have hundreds of examples to back up their arguments.
Just read the letter if you are truely serious about knowing who thinks Bernanke and Paulson and Krugman are mistaken. In fact horribly, terribly, awfully mistaken, such that they are dooming the world to fiscal hell.
Please read some Friedman, Hayek, and Mises. This is serious. We are not talking about economic problems for our kids but rather problems for Americans in the next two years if not sooner. Major serious currency collapse problems through hyper inflation. We are talking about the US dollar collapsing through inflation.
As a Republican conservatives, I think we really do need to wake up and quit trying to win elections by telling people what they want to hear. We need leaders not crowd followers. More people acting like you with this forum, i.e. real statesmen would be refreshingly new things in DC. We have never needed them more.
Thanks for soliciting input. DC has never needed to hear it more than RIGHT NOW.
December 29th, 2008 at 4:15 am
The Japanese tried huge public works spending, and it failed to rescue their stagnant economy. That is because the money goes to wasteful, over-priced, and inefficient projects. These projects are pork barrel and subject to politics. They harm the economy by diverting resources into unproductive jobs. They harm the economy by undermining the good ethics that are the basis of any sound economy. The U.S. lobby groups for housing and construction are large and well-known, and they correspond to the Japanese cartels. In both cases, there exists an iron triangle among business, bureaucrats, and politicans that leads to waste and corruption. Tax cuts only lead to increased borrowing and dollar devaluation unless they are matched by cuts in wasteful government programs. The real political work to be done is in taking aim against interest groups and cutting spending for the sake of the general public. The Obama stimulus package does the very opposite.
December 29th, 2008 at 4:16 am
Michael S. Rozeff (retired) held the Louis M. Jacobs Chair in Financial Planning and Control at University at Buffalo.
January 9th, 2009 at 1:53 pm
“Come up with answers, like Neal Bortz in Atlanta’s flat tax. I am an independent and I am seriously intrigued by this if someone can explain this to me.”
The flat tax is a good idea that has been around for decades. The idea is simply to carry the 1986 Tax Reform (which reduced the top marginal rates while eliminating many deductions and loopholes) to its logical limit of having just one rate for all income. This would be a great time to implement it, but it won’t happen with this administration and congress.
The opponents of the Obama plan are not just obstructioniist. To spend huge quantities of tax dollars unproductively is harmful. I personally favor a “stimulus” that improves the long-run fundamentals of the economy, as opposed to a gimmick that gets people to spend a little more this winter in exchange for less next spring. In addition to cutting top marginal income tax rates (permanently), also permanently cut the corporate income tax rate. That’s not going to cost much revenue (not a lot of profits this year), and will make corporate borrowers more attractive to lenders. And even diehard Keynesians think that tax cuts stimulate the economy.
The problem is that the administration and Congress want to take this opportunity to redistribute income and expand the government’s role in the economy, and are focused on short-run tweaks instead of restoring the economy’s long-run health.
January 14th, 2009 at 3:47 pm
The money lost in the mortgage crisis didn’t go away,
it just ended up in someone else’s pockets (Bonuses come to mind, still paid until just up to the crash, to people who were aware that the profits justifying the bonuses were illusory; then financial institutions unloading risky papers on unsuspecting investors, including your pension fund).
More tax cuts now help those, who did profit from the crisis, and allow them to keep more of their gains. Those of us with businesses outside the financial services industry didn’t have so much profit recently, and thus aren’t helped much by tax cuts.- But any new orders for our product or service, even by the government, helps to keep people employed (and paying taxes).–
The Republican Party makes a clear choice here whom they favor.