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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Peter Dierks who wrote (32609)	2/12/2009 8:55:32 AM
From: Peter Dierks	Respond to of 71588

Exactly How Does Stimulus Work? Separating economics from theatrics. FEBRUARY 12, 2009 Three major events piled into view Tuesday: The Senate, under intense fire from the new president, passed a $838.2 billion stimulus bill. Treasury Secretary Tim Geithner unveiled the Obama administration's solutions to the credit crisis. And the Dow Jones Industrial Average fell 381.99 points, 4.6%. Speaking of the "tired ideas of the past," how long does it take for the ideas of the here-and-now to start running on empty? We ask because public anxiety haunts the Obama plan to revive the economy. A USA Today/Gallup poll found some two-thirds of respondents thought the stimulus would help the economy, at least a bit. But half said it would have no affect on their situation and might even make it worse. By contrast to this ambivalence, the confidence of the president and his team verges on intellectual arrogance. His political adviser David Axelrod describes Republican resistance to the bill as "machinations" and claims the people are not "sweating this detail or that detail." Indeed it might not be worth breaking a sweat if the stimulus bill was going to spend the measly $168 billion that George Bush's tax rebates threw at the economy last year. Nobody gets upset anymore if Washington wastes a hundred billion dollars. But coming after four months of the TARP's dizzying billions spent in futility, we get a president proposing to spend nearly $1,000,000,000,000 on what he calls "stimulus." Even a populace numb to its government's compulsive spending woke up to that fantastic sum. After kicking the tires of this bill, which Congress blipped downward yesterday to $789.5 billion, a skeptical voter might reasonably ask: "Just how does an economic stimulus work, Mr. President?" In the White House and in Congress, the "stimulus" has become a magical incantation, requiring no explanation beyond that it is "necessary." The theory beneath the $800 billion of spending is called the Keynesian multiplier, first posited around 1931. One suspects not a voter in a million knows how this is supposed to work. Barnstorming in Elkhart, Ind., Tuesday, Mr. Obama took a shot at it, calling the weatherization of homes "an example of where you get a multiplier effect." The administration's primary technical explanation for how spending these hundreds of billions revives an economy is in a paper prepared during the transition by Mr. Obama's economic advisers Christina Romer and Jared Bernstein. To arrive at the number of new jobs the bill would create, the Romer-Bernstein paper attempted to "simulate the effects of the prototypical (stimulus) package on GDP." The multiplier, as they explain, is applied to a given amount of federal spending to arrive at the likely effect on GDP. Then using a "rule of thumb" that 1% of GDP equals 1 million jobs, they come up with a total jobs figure of 3,675,000. They said their multipliers "are broadly similar to those implied by the Federal Reserve's FRB/US model" and leading forecasters. Card-carrying economists are themselves more modest about stimulus theory than the president. Testifying on the bill to Congress a few weeks ago, CBO director Douglas Elmendorf said, "Designing effective stimulus on the scale that the Congress is considering . . . is difficult." Mr. Elmendorf also noted that "Even without any stimulus, market forces would eventually bring about a recovery from the recession," albeit with more unemployment and loss of output. The Romer-Bernstein study for Mr. Obama itself admits "the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress." Do Ms. Romer and Mr. Bernstein believe the current bill will produce their January study's job numbers? Is the bill in Congress now a strong-form stimulus or a weak-form stimulus? If the latter, then it's a waste of money. Martin Feldstein, an early supporter of stimulus, now says that the bill's effects are weak and need a redo even if it takes a month or two. If the Obama team won't consider this, then why shouldn't one conclude that their case for stimulus, as Mr. Obama suggested with his famous "stimulus is spending" remark, is indeed the crude cartoon version of Keynes, who suggested digging and refilling holes? If this is true, that "this detail or that detail" don't matter, then a number of conclusions follow: The whole congressional effort is an irrelevant sideshow; only the final spending number matters. The economics don't matter, because the real political purpose of the bill is to neutralize this issue until the economy recovers on its own. Much of its spending is a massive cash transfer to the party's union constituencies; a percentage of that cash will flow back into the 2010 congressional races. The bill in great part is a Trojan horse of Democratic policies not related to anyone's model of economic stimulus. Finally, if this bill's details are irrelevant to the presumed multiplier effect of an $800 billion Keynesian stimulus, GOP Sen. Susan Collins's good-faith participation in it looks rather foolish. online.wsj.com

To: Peter Dierks who wrote (32609)	2/12/2009 9:23:44 AM
From: Peter Dierks	Respond to of 71588

Trekonomics by Jed Babbin 02/12/2009 President Obama says we have to act boldly to solve the financial crisis. On Tuesday, supposedly explaining the new and improved bank bailout plan, serial tax evader and Treasury Secretary Tim Geithner added that we have to try things that have never been tried before. The Obama team wants to boldly take our economy where no economy has gone before. Ladies and gentlemen, I give you the birth of “Trekonomics.” It’s like the old “Star Trek” series, just without the brainy, logical Vulcans. And Obama’s Trekonomics begins with a violation of the Prime Directive for a free-market economy: that government policy shall not hinder industry’s planning for the long or short term. As I learned the hard way while working in the aerospace industry two decades ago, even minor revisions to tax policy -- if done too often -- can prevent millions or billions in investments in research, new plants and equipment and hiring. In contrast, Geithner promised to “bring the full force of the United States government to bear to strengthen our financial system.” But he didn’t say how, when or why. Which is the principal problem with the Geithner plan: it’s not a plan, it’s an idea. As if to drive the instability knife deeper, Geithner did say of his new strategy, “We will have to adapt it as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.” This announcement was the perfect antidote to confidence: any credibility Obama and Geithner had gained in the over-hyped lead up to the announcement was vaporized. Wall Street expressed its opinion of Geithner’s plan by dropping like a rock: the Dow Jones sank nearly 400 points, nearing the pre-Obama bottom of about 7800 points. Geithner’s approach -- Obama’s, of course -- is based on the assumption that doing something quickly is more important than doing it right. And if you don’t know what you’re going to do, make an announcement that is designed to placate people with vague promises of bold action. Which is precisely the opposite of what our economy needs. It’s no wonder the Dow Jones Industrial Average sank. Geithner’s speech sowed doubt: he tossed a financial grenade into the mess Hank Paulson made last fall and then stood back to watch the rubble bounce. This is becoming a parody of government. FDR said we had nothing to fear but fear itself. President Obama and his team don’t fear the fear: they embrace a piece of it, react to it and then find another. But according to Geithner, “When the crisis began, governments around the world were too slow to act. When the action came, it was late and inadequate. Policy was always behind the curve, always chasing the escalating crisis.” Which was true last fall, and is still true today. Hank Paulson demanded the bank bailout, using apocalyptic rhetoric to stampede Congress. And since the Obama administration began (was it only a month ago?) we’ve heard little more than how bad the crisis is. The financial markets cannot have confidence in themselves and regain their strength until they know that the biggest influence on them that is beyond their control -- government policy -- has stabilized. But in his big moment, Geithner promised the markets only continued experimentation and gave them no reason to expect a stable policy for another year or more. He thus guaranteed that we will be in a worsening recession at least until the spring of 2010. Even if you spend money at warp-speed, it takes a long time to run out of it. Geithner’s plan promises to spend up to another $2 trillion in the financial market rescue. And this comes on top of the $1 trillion that’s in the president’s faux-stimulus package. President Obama seems comfortable with that time table. In his first prime-time press conference, he was asked how Americans should judge the success of his stimulus plan. Answering ABC’s Jake Tapper, Obama said that it will take time to work. The president proposed that his success be judged by three criteria at the end of the year. First, Obama said we should measure how many jobs have been “created or saved,” repeating the goal of four million jobs to be in one category or the other. Second, he said that if the credit markets are operating properly (and here he mixed the Geithner plan with the so-called stimulus), that is another measure of success. (But what is “properly”? Maybe he and Geithner will figure that out.) Third, the president said that success will be achieved if the housing market has been stabilized and the rate of foreclosures has been reduced. There, at last, is a measurable criterion. As the Congressional Budget Office said last week, the Obama-Pelosi “stimulus” bill will -- in ten years -- do more damage than good to our economy. We’d be better off if Congress took six months off rather than passing this awful bill. Which it may do today. Our free market economy -- at least what’s left of it after Bush, Paulson, Obama and Geithner are done with it -- craves a reason to be confident in government. Not for government salvation, but for stability of government action and minimization of interference. Obama’s Trekonomics promises only experimentation and continued instability in government action. He and Geithner will take our economy where no nation has gone before at the warped speed of government spending. And while they do, our economy will have no opportunity to recover. --------------------------------------------------------------- Mr. Babbin is the editor of Human Events and HumanEvents.com. He served as a deputy undersecretary of defense in President George H.W. Bush's administration. He is the author of "In the Words of our Enemies"(Regnery,2007) and (with Edward Timperlake) of "Showdown: Why China Wants War with the United States" (Regnery, 2006) and "Inside the Asylum: Why the UN and Old Europe are Worse than You Think" (Regnery, 2004). E-mail him at jbabbin@eaglepub.com. --------------------------------------------------------------- humanevents.com