Monday, January 26, 2009

Bad Arguments Against Obama's Stimulus Plan

The debate is heating up now surrounding Obama's $825 billion stimulus plan, with conservatives leading the opposition. They are making all kinds of arguments for why the plan won't work, but according to Paul Krugman most of them are bad arguments at best. Seeing as the opposition ranks are pretty small at this point, it just seems like a matter of time till the bill gets passed, and thus a moot point. But just for fun, let's look at a recent article from Krugman, and his response to the objections, curtesy of Mark Thoma at The Economist's View.

How to identify "fundamentally fraudulent antistimulus arguments":

Bad Faith Economics, by Paul Krugman, Commentary, NY Times: As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.

Some of these arguments are obvious cheap shots. John Boehner ... has already made headlines with one such shot:... he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”

But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible... So as a public service, let me try to debunk some of the major antistimulus arguments... Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.

First, there’s the bogus talking point that the Obama plan will cost $275,000 per job created. Why is it bogus? Because it involves taking the cost of a plan that will extend over several years... and dividing it by the jobs created in just one of those years. ... The true cost per job of the Obama plan will probably be closer to ... $60,000...

Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all,... surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending. Meanwhile, it’s clear that ... public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.

This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.

Finally, ignore anyone who tries to make something of the fact that the new administration’s chief economic adviser has in the past favored monetary policy over fiscal policy as a response to recessions.

It’s true that the normal response to recessions is interest-rate cuts from the Fed, not government spending. ... But ... we’re in a situation not seen since the 1930s: the interest rates the Fed controls are already effectively at zero.

That’s why we’re talking about large-scale fiscal stimulus: it’s what’s left in the policy arsenal now that the Fed has shot its bolt. ...

These are only some of the fundamentally fraudulent antistimulus arguments out there. Basically, conservatives are throwing any objection they can think of against the Obama plan, hoping that something will stick.

But here’s the thing: Most Americans aren’t listening. The most encouraging thing I’ve heard lately is Mr. Obama’s reported response to Republican objections to a spending-oriented economic plan: “I won.” Indeed he did — and he should disregard the huffing and puffing of those who lost.

This post can also be viewed on economistsview.typepad.com.

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1 comments:

January 29, 2009 at 12:01 PM DWentzel said...

I think this article is just as silly and "nonsensical" as the conservatives you are bashing. The plan is full of spending that will create MASSIVE DEBT. It's not just the debt principal that is the problem, but the INTEREST on this type of debt alone will be enough to choke generations of our children.

All we have to do is look at HISTORY to see that INVESTMENT TAX CREDITS, REDUCED CAPITAL GAINS, AND TAX INCENTIVES FOR THE PURCHASE OF MANUFACTURING EQUIPMENT, CONSTRUCTION EQUIPMENT AND SIMILAR PROGRAMS, has always created jobs, stimulated the economy AND produced MORE TAX REVENUE than increased government spending or higher taxes ever has.

Which part of history are you referring to that shows us what increased spending does --- the Great Depression? Don't get me wrong, some of our greatest achievements came from spending programs like the Intracoastal Waterway, Hoover Dam and everything else built and managed by the US Army Corps of Engineers - or the National Highway Systems and the Space Program - but compare these to what's in the current bill....PLEASE!

To be fair, I do, however, believe that Obama's plan does have some things in it that will help; such as the New Home Buyer's Tax Credit. The only problem is that things like $50 BILLION for the arts, or an additional $9 BILLION for the NASF, or redoing the National Mall and all of the other insane money spending projects will be an enormous waste of tax payer money and will only benefit a very small number of companies or people in the private sector.

Far too little is being budgeted for infrastructure and far too little is being done to correct the credit or mortgage crisis or to create jobs. We heard today, that an additional separate plan is going to be submitted for the credit and mortgage problems at costs in addition to the $825 billion.

Obama said he wanted to create a bi-partisan bill yet he scoffed at EVERY SINGLE suggestion from the Republican house and adamantly refused to consider any further tax incentives. What kind of "bi-partisan" bill can it be if it is merely made up of dusted off Democratic spending programs that have been in mothballs for years.

Your letter is comprised of the same kind of partisan rhetoric that divides the country rather than bringing it together.

SMALL BUSINESS IS THE BACKBONE OF THE AMERICAN ECONOMY. THIS BILL DOES VERY LITTLE, IF ANYTHING TO PROVIDE INCENTIVE OR SUPPORT FOR SMALL BUSINESS OR CORRECT THE CREDIT AND MORTGAGE CRISIS. Nothing will turn around until these issues are fixed.

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