A Liberal and a Libertarian Debate the Stimulus Plan

Here's the essence of an email debate I had with a liberal colleague regarding the stimulus plan. (He's no piker: B.A, MBA from Harvard, top of his class, senior consultant in a major national consulting firm.)

MN: Obama claims consensus on his stimulus package where none exists--Evidence: the 350 economists, including Nobelists, that took a full-page ad in the New York Times opining that Obama's spending package is a colossal mistake. Also the U.S. stock market has declined at an accelerating rate under Obama; Vanguard Total Stock Market Index Fund is now down 50% since Obama took the lead in the presidential polls. While there are covariates, of course, if there was consensus that Obama's stimulus plan was good, it's extraordinarily unlikely that the stock market would have declined at an almost unprecedented rate. Obama's claim of consensus, both re the stimulus plan and the wisdom of massive spending to try to cool the earth, are disingenuous.

DB: I don’t really care about consensus. There never has been a consensus of economists and there never will be.

MN: Whether you care about consensus or not, Obama's claim of consensus is a major basis on which he's tried to persuade Congress and the public to adopt his unprecedentedly large spending package, more than had been spent in total from American independence to 1980. He's using The Big Lie to push through his radical policies.

DB: It’s not like there’s a consensus on the other side of the case.

MN: No, there is no consensus on the other side but when such strong disagreement exists, it's foolish to bet all of America's future on one extreme side of the debate--whether it be re Big Govt or Massive Green spending. Obama certainly shouldn't be lying and saying there's consensus so he can force-feed us his mammoth package. (with a promise of more spending sprees to come.) He should practice the transparency he preaches.

And it's sickening that the media, which was pit-bull-like in investigating and attacking everything Bush/Cheney-related (except for going into Iraq), is absolutely a lap dog, indeed a spin doctor for Obama's truly extremist, non-consensus-based policies.

DB: Do you believe that money needs to be pumped in, that there’s a risk of systemic failure if we don’t? Yes or no. If no, then we have nothing more to talk about.

MN; The only pumping I favor is returning money to the taxpayer so the collective wisdom of 300,000,000 million Americans will put its money in the places most likely to be stimulative in an enduring sense.

DB: That is a nice cliché but if you really don’t believe there’s systemic risk here then you are out of touch with how the banking system actually works.

MN. There's risk in action as well as inaction. But I believe that "freely flowing credit" is not be the basis on which an economic can sturdily be run. I believe that most things should be bought for cash. If an individual or business can't afford it, it should wait until it can. (with some exceptions--e.g., a house, major business capital investments.) Of course, that would result in a slower economy, but a stable, sturdy one, not one built on a house of cards.

DB: I’m not referring to consumer overuse of credit cards and home equity loans, about which I agree with you. I am talking about business use of credit called “working capital” as well as capital investment, which is essential to functioning of the economy.

MN: From where I sit, you don't start a business until you have saved sufficient working capital to address the cash flow issue. Yes, you may need to borrow to buy the ovens and even pay the workers first month or three's salary until sufficient revenues start coming in, but as you know, that's not what you're talking about--you're talking about far greater sums of money.

DB: The same people who are now so worried about running a big deficit weren’t worried about it all when the issue was the consequences of starting the Iraq war while continuing the Bush tax cuts. I don’t think they are simpletons; I think they are being disingenuous.

MN: I have been very opposed to the Iraq War from the start... Why do Dems never learn? Govt spending is nearly always inefficient spending. The example that comes to me this rainy moment is the water pipeline erected across the Richmond-San Rafael bridge to share water between the East Bay and Marin, which a few years later was dismantled as unnecessary. And now, amid the nonstop California rain (with rainfall above average for the year and reservoirs at more than half of maximum (with predictions of rain continuing every day this week), Schwarzennegar announces a statewide drought emergency, which means more taxpayer spending and forcing all of us to restrict our use of water. Is our government so inept that even when rainfall is as extensive as it's been, the government can't even provide something as basic as our water. Why aren't there sufficient reservoirs and dams? (Somehow, I'm guessing environmentalists have something to do with it.)

DB: I'd like to see how the conservatives would react to the idea of a stimulus that’s 100% tax cut – but focused on the middle class worker – for example, eliminate the worker’s end of the payroll tax for incomes between $20,000 and $60,000 dollars. My guess is it would tear the conservatives apart. What would you say to this proposal?

MN: I'd totally support it. By the way, I am sickened by the slick messaging machine of the Dems. (e.g., the constant and disingenuous use of the word "responsibility.")

Obama's Stimulus Spending Won't Stimulate Much

In Wednesday's, New York Times, University of Chicago economics professor Casey Mulligan argues that Obama's stimulus package in fact will create few new jobs.

For example, one of Obama's priority spending areas is health care. But there already is near full employment in health care. The U.S. has to import nurses from countries such as the Philippines to meet the current need. Indeed, health care is the one field that has increased employment during every month of the current recession. Spending more taxpayer money on health care will mainly just move health care workers from one employer to another--or result in importing more health care workers. It won't, as Obama promises, create many new jobs

Even in Obama-priority fields in which many jobs have been lost in the recession, for example, infrastructure construction, few jobs will be created by the Obama spending spree. Mulligan points out that many, although certainly not all, the workers laid off from residential construction have already picked up work in commercial construction. Too, much construction work is done by illegal immigrants, for whom Obama has promised to create a path to citizenship within his first 100 days in office. So, ironically, the largest stimulative effect of Obama's infrastructure spending may be to create jobs for illegal immigrants.

Mulligan additionally points out that while the large majority of the recession's job losses have been to men, Obama's economists report that half the jobs Obama will create will be aimed at women (and minorities.) So, many of those unemployed men will remain jobless. That is yet another reason why Obama's stimulus plan will not provide as many new jobs as he promises.

Of course, even more problematic is this question: "Where will the trillion dollars to pay for the unprecedentedly massive (and dubious) spending come from? "It will come from the taxpayers, who if instead, were allowed to keep their money would spend much of it on products and services, which would create real, new, enduring jobs. And of course, the Obama spending spree will also be funded by the tax dollars from successful businesses, which if instead were allowed to keep their money, would use much of it to expand their businesses and hire more people.

Sure, the Obama Spending Spree will yield a short-term boost in the economy by taking taxpayer money to create some (temporary) jobs, prop up badly run banks and car manufacturers, invest in private-sector-rejected alternative energy and other schemes, and bail out people who bought more home or took on more credit card debt than they could comfortably afford. But long term, that won't stimulate the economy. It will kill it.

It's only human to be tempted to bail out the most failing people and businesses but as every triage medic in the battlefield knows, you'll save more lives by using the limited resources to help those most likely to recover, not those who scream the loudest.

That means allowing successful people and businesses to keep their money, not have the government forcibly take it from them to give to the unsuccessful. Real, sustainable, enduring growth comes not from tax increases but from tax cuts.

It's Getting Crazier: Now $8.5 TRILLION in bailouts and handouts (plus more in boondoggles)

The Los Angeles Times estimates that the proposed bailouts and handouts will cost $8.5 TRILLION. That is fully half of this year's U.S. economic output! 

And that's not even counting the big-spender states and municipalities planning to join the bailout conga line! Nor does it count the hundreds of billions in alternative energy and education boondoggles (See below.)

We're going to take that inconceivably large amount of money from the good people who are productive enough to pay taxes to give to the businesses and people who managed themselves into or near bankruptcy? To spend on Sloppy Thousandths: the alternative energy schemes that no private company felt worthy to invest in? To spend yet more on education despite study after study demonstrating that spending more, especially on Obama's pet liberal ideas, does not yield more results?

Japan tried the strategy of massive government bailouts, handouts, and boondoggles (prettied up with the word "stimulus") in the '90s and it failed.  

And that is supposed to be the spending that will replace our house-of-cards economy with a sturdy one? That will increase the U.S's ability to survive against competition from China, India, etc.?  The government bailout/handout/boondoggle spending approach is more likely to drive the U.S. into a depression of unprecedentedly painful proportions. 

Why are free-market voices not being heard here?