[Peace-discuss] Another perspective on the Stimulus Package

Tue Feb 17 23:40:28 CST 2009

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For what it's worth I think looking at both positive and negative views on
the stimulus plan is something that has merit....mlw

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February 18, 2009
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Author, Debtonation - The Coming First World Debt Crisis
 Posted February 15, 2009 | 07:59 PM (EST)
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 Rachel Maddow gets it. Economists and Republicans don't.

I watched Prof. Jeffrey Sachs on Rachel Maddow's show the other day. She
asked whether the fiscal stimulus would work. "No" he said emphatically, it
would not. "No one has the tools....to fix this......the fiscal hole will
cripple us for the long-term."

She tentatively mentioned 'the multiplier.' He brushed this aside with a
counsel of despair. "We might have a few more jobs in the short-term but a
massive deficit in the long-term..."

Scant consolation for 13 million unemployed and underemployed Americans.
Their lives could be transformed by this fiscal stimulus.

And anyway, as Keynes once noted, in the long term we're all dead.

Sachs's analysis is overwhelmingly shared by mainstream economists. And by
Republicans. These have been whipping voters into a frenzy with talk of
'generational theft.' Future generations, they argue, will be paying for
this fiscal stimulus for decades to come. That is simply not true, as I will
show below.

Meantime, these points are truly rich coming from the Republicans. Readers
no doubt know that during the Bush-Cheney years the US national debt doubled
from $5,700bn in 2001 to $10,700bn today. Others may recollect that Mr.
Cheney said in 2001: "Reagan proved that deficits don't matter."

So let's not hear any more from Republicans about deficits mattering or
about 'generational theft.'

But to get back to history. The fiscal stimulus of the 1930's was positive
-- both in the US and the UK. It dramatically lowered unemployment after
1933.
[image: 2009-02-16-USUnemployment_1930_1950d.jpg]

Second, it is simply wrong to suggest that the fiscal stimulus 'will cripple
us long-term.' It will not. The fiscal stimulus will pay for itself. Here's
how.

At times of high unemployment tax cuts may be saved and not spent into the
economy. But when the government invests the bulk of $789 billion in real,
productive economic activity - it *always *gets its money back - plus some.

It works like this. Government invests in labor-intensive programs e.g. $40
billion in energy efficiency and renewable energy programs, including $2.9
billion to weatherize modest-income homes. $27 billion for highway and
bridge construction and repair and $11.5 billion for mass transit and rail
projects; $4.6 billion for the Army Corps of Engineers; $5 billion for
public housing improvements; $6.4 billion for clean and drinking water
projects.

The energy efficiency/transportation/public housing programs hire American
workers - some highly skilled, some not so skilled. These programs also
purchase materials - from factories. Some foreign, but mostly American.

Next, something called 'the multiplier' kicks in. It's the ABC of economic
science and works like this.

The workers get pay checks. They use the income to pay taxes - direct to the
US government. So immediately the government can use these tax revenues to
fix the budget. Then workers purchase goods and services - boosting the
economy. Companies hire *more workers *to deal with demand for materials
from stimulus-sponsored programs. More employed workers equals *more
taxpayers*.

Ever-rising tax revenues drop into the Treasury's coffers.

Because government spending is financed by bank money or credit, income
increases. Eventually savings are generated to match the original stimulus
expenditure - so there is no 'crowding out' by government. But savings too
can find a way back to the US Treasury, because savers could end up
investing in US Treasury bonds.

If workers or factories spend money on goods made in China - then some will
leak out to China. But experience shows that investment in public works
tends to be local investment. By weatherizing the homes of the poor,
strengthening flood defenses, growing forests to act as pollution 'sinks'
and subsidizing organic farming - investment stays at home.

But investing in this kind of economic activity is not the only revenue
source for the US government.

A massive improvement to the budget will be in *savings *made in
unemployment payments.

I looked up the Congressional Budget Office's estimates for expenditure on
unemployment compensation and food stamps for the years 2009 - 2015. Their
estimates are optimistic. The Congressional Budget Office thinks
unemployment is going to decline after 2009. Nevertheless, even under its
conservative estimates expenditures on unemployment compensation and food
stamps rise to a massive $818 billion between now and 2015.

If the numbers of unemployed people were cut, and if Americans had enough
income not to rely on food stamps - Congress would make massive savings to
the budget. If we add those savings to the tax revenue generated thanks to
the 'multiplier effect' - the outlook is positively rosy for a surplus on
the budget as the economy recovers.

So lets not have any more talk of the 'crippling effects' of the American
Recovery and Reinvestment Act of 2009.

If there is a complaint it's the one the non-economist Rachel Maddow made to
Prof. Sachs. The fiscal stimulus is just not big enough. $789 billion will
not be enough to fill the $2 trillion collapse in output since the crisis
started.

So, it's more strength to your elbow President Obama. And Congress, get
ready for phase two of the fiscal stimulus.

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