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Why John McCain’s Views on the Stimulus Package Don’t Matter |
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Sen. John McCain says he plans to vote against a stimulus package unless certain items, including making the Bush tax cuts permanent, are part of the deal. This is the same McCain who recently said that he “wish[ed] interest rates were zero.” That’s actually not such a good thing–when interest rates get close to zero, as they are now, it’s simply not possible to take what Paul Krugman calls “the normal response” to recession–that is, cutting interest rates. When the interest rate that the Fed controls is effectively at zero, as it is now, it’s harder to develop an effective response to a recession.
It’s not surprising that McCain made this remark about interest rates–after all, McCain admitted that economics is not something he’s understood as well as he should. He keeps reminding us how right he was about his own level of understanding when he insists that a stimulus package should include making the Bush tax cuts permanent. How would that help the economy? If the Bush tax cuts were such a great thing, why did the economy tank on his watch?
I don’t take any pleasure in putting anyone down, even if they are a U.S. Senator. And I don’t mean to be pretentious about this–I don;’t think I’m anything near an expert on the economy. But I have observed what has happened in the last 8 years, and the last 30, for that matter. When Republicans were allowed to implement the policy McCain advocates–the idea tax cuts for the wealthy are a cure-all good for any ailment–we ran huge deficits and the economy often foundered. When the Democrats were in charge in the 1990s, we had a balanced budget (a surplus, even) and an economy that was gangbusters. I think it’s become clear that trickle-down theory is a joke. We don’t have to take its advocates seriously when it comes to economic policy.
I’m no economist and I see some of what you are saying as true. But could you answer this - how will this stimulus package the way it stands now EVER allow for a balanced budget? It has TONS of pork spending which a government in debt can’t afford(we all know this) and it has some permanent spending that won’t go away when we have two quarters of GDP growth (which John is proposing we include in the package). And why is it only John McCain and one other economist that I’ve heard reacently who are addressing the issue of inflation? We can’t print endless money without paying a price!
thanks for the comment Robin. I would ask one question off the bat: what is “pork spending”? is that simply spending someone disagrees with? that would probably be true of just about every dollar spent in any budget. In terms of whether we can ever balance the budget, I think the stimulus plan reflects the reality that economists are telling us we’re facing the most serious economic crisis since the Depression. It is a crisis that will be made worse as Americans continue to spend less–that creates a cycle where, as we spend less, businesses sell less, are forced to lay off more workers, more Americans get scared, people spend even less, cycle continues. This is very dangerous, and the concern is depression and deflation (not inflation at the moment). That’s why Obama is talking about a stimulus–the idea is to pump money into the economy to make up for the money Americans are not spending, and to create jobs.
I agree that we should have a balanced budget–I was thrilled when the budget was balanced at the end of the 90s. But, right now, the bigger threat is the one I described above. Once we (I hope) get things back on course, then we can balance the budget. Note that, under different, less scary circumstances, Clinton proposed a stimulus package in 1993. He ultimately balanced the budget, but thought stimulus was important in 1993 given the circumstances.
I’m not sure that paying for the stimulus involves printing $–I assume we would borrow for the stimulus, assuming this can be done. I don’t know that this has the same inflationary pressure, but I’m not knowledgeable enough to say for sure.
permanent spending is not necessarily a bad thing, as long as it can be made to fit into the budget i.e. as long as it is ultimately part of a balanced budget. We can’t automatically say permanent spending is a bad thing–depends on what it’s for. I assume what you’re talking about is health care spending? that seems like something that could be very useful–we have 45 million uninsured Americans right now…but not sure what permanent spending you’re referring to
Here is a list of some of the “pork” spending in the bill. Pork is normally a pet project of someone in Washington whereby they pay back a political contributor (of favors or $$) by passing legislation to help that person or their constituents. Obviously not all of these fit that specific definition but if something is in this bill (whether it is worthy of taxpayer dollars or not) and doesn’t stimulate the economy in a rapid manner, it should NOT be in this bill! How the heck will the converter box coupons help stimulate the economy? If it’s a needed expenditure put it in the regular budget and not here. And economics 101 - if you print money (Yes you have to print the money and then sell bonds etc. in order to pay for this) it will drive up inflation. Every extra dollar put into circulation reduces the buying power of every dollar out there. How do you think $800 billion extra dollars will affect inflation? Hang on to your hats!
%u2022 A $246 million tax break for Hollywood movie producers to buy motion picture film.
%u2022 $650 million for the digital television converter box coupon program.
%u2022 $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).
%u2022 $448 million for constructing the Department of Homeland Security headquarters.
%u2022 $248 million for furniture at the new Homeland Security headquarters.
%u2022 $600 million to buy hybrid vehicles for federal employees.
%u2022 $400 million for the Centers for Disease Control to screen and prevent STD’s.
%u2022 $150 million for Smithsonian museum facilities.
%u2022 $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.
%u2022 $75 million for “smoking cessation activities.”
%u2022 $200 million for public computer centers at community colleges.
%u2022 $75 million for salaries of employees at the FBI.
%u2022 $25 million for tribal alcohol and substance abuse reduction.
%u2022 $500 million for flood reduction projects on the Mississippi River.
%u2022 $10 million to inspect canals in urban areas.
%u2022 $6 billion to turn federal buildings into “green” buildings.
%u2022 $650 million for wildland fire management on forest service lands.
%u2022 $5.5 million for “energy efficiency initiatives” at the Department of Veterans Affairs National Cemetery Administration.
%u2022 $100 million for reducing the hazard of lead-based paint.
%u2022 $75 million to construct a “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies.
The bill contains about $820 billion in spending. adding up all the examples you give comes to about $12 billion–that is between 1 and 2 per cent of the total. I can’t go thru each example you give, but I don’t see the $6 billion needed to turn federal bldgs into green bldgs as a bad thing. It creates jobs and addresses a serious problem we have in terms of the environment. Many of the other items you list don’t sound bad to me, even at first glance–a bldg for Homeland Security, money for CDC to prevent diseases, hybrid vehicles for federal employees, money for wildlife fire mgmt, reducing hazard of lead based paint, flood reduction projects on the Mississippi River. These don’t sound the least bit scandalous or frivolous, and each one of them will involve jobs–to build the building, the cars, pay the scientists, carry out the flood reduction projects, etc. I don’t really understand why this would seem outrageous.
and again, the big problem economists are worried about right now is deflation, not inflation. The Federal Reserve, and many leading economists, are citing concerns about deflation. people are spending less, saving more, money is coming out of the economy, prices are coming down. Inflation is simply not the concern right now–though deflation may well be
my apologies–the total cost of the bill is about $820 billion, but about $275 billion is in tax cuts. That leaves about $550 billion in spending. The $12 billion from your examples is about 2% of that $550 billion–still not real significant. But I would still understand the point if the spending you were talking about involved bad ideas–as I discussed above, the examples you give don’t sound like frivolous or scandalous spending projects to me
Chris: That was only a very few of the many examples that I would be glad to provide you if there were space on here. It wasn’t meant to be an exhaustive list by any means. And I never said they were all bad ideas - I said if they didn’t create jobs in a timely fashion, they didn’t belong in this particular bill! It has been estimated that the number of jobs “actually” created out of the bill as it currently stands will run at a cost of about $80,000 per job! Please tell me how that’s a good thing? The CBO report (Actually commissioned by Pelosi herself!) states the deficit effects of this bill. Here is one tidbit directly from that report:
Combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period.
I don’t think anyone claims that every spending item in the package will create jobs immediately. Economists say that there is a need to pump money into the economy immediately (e.g. thru increased spending on food stamps, unemployment insurance, govt projects that are ready to go) but there is also a need for spending that will generate jobs in a year or 2. This is expected to be a long and deep recession (if not depression–which I hope it will not be), and that means we need to keep generating spending, not just today, but also over the next couple of years. I don’t understand why, in light of these arguments, which i find persuasive, the test for spending is whether it will generate jobs “immediately”. It’s not a bad thing to include spending that will trigger stimulus both today and over the next couple of years. This is not an economic crisis that anyone expects will be resolved any time soon.
I don’t know if spending $80,000 to create a job is a high figure or not. A Paul Krugman column from Jan. 25 estimates the net cost will be closer to $60,000 per job created. If there’s a way to do this more cheaply I’m sure people are open to hearing about it. Right now, critics of the stimulus plan (Republicans, mainly) are arguing for tax cuts instead of spending. Tax cuts are far less effective at creating jobs, as the Krugman column I mentioned discusses. However much it costs to create a job, we have to understand that in context—what are the options available to us? is there an option that will create jobs more cheaply than the stimulus proposes to do? if there is, it doesn’t seem to be something that anyone is discussing
In terms of the deficit, I rejoiced when Clinton balanced it and left a surplus for Bush. Unfortunately, that was squandered and we face very specific economic challenges right now–most prominently, a contracting economy, job loss, decreasing consumer spending–all of which are intertwined. Just about everyone seems to agree we need to do something about this. Sometimes, there are worse options than running a larger budget deficit–if running a deficit means staving off a deeper recession or even a depression, it seems to me that it is something that we clearly must do. I don’t advocate running a deficit in all circumstamces, but right now it seems unavoidable if we are going to take real action to address the worst economic crisis of the past 75 years
I have only heard one person (Senator Thune) who has advocated tax cuts alone to deal with our crisis. I think, however, it’s the sheer enormity of this bill which has the Republicans scared (and we all should be - SOMEONE has to pay it back!). To be very honest, I think the debate all comes down to one thing - there is a vast disparity in beliefs between conservatives and liberals as to what actually works, has worked in the past, and will work for this situation. As many economists have said, this is a different situation than the Great Depression so even if something worked then, it may not work now. I will be very interested to hear what all of the supporters of this bill have to say in two years if it doesn’t work. Will they blame that on Bush? Or will they be willing to take responsibility for the failure (Or God willing) the success of this massive spending bill. I think another reason that I and so many others are against the sheer number of OUR dollars being spent is that it’s coming on the heels of the ridiculous $700 billion bailout which thanks to Henry Paulson’s pathetic attempt at doing his job, has been an utter failure as far as the first half that was spent! He ran around screaming “the sky is falling” and “we have to spend this money” and now the government is saying there wasn’t enough oversight and the credit crisis is deepening. IMHO if you give the government money to spend, you might as well kiss it goodbye! I don’t believe our current government is at all what our founding father’s envisioned when they left England for the oppresive taxation that was being imposed on them. I truly fear for our future if this attitude of spend now and pay for it later continues.
Thune proposed an amendment to the stimulus bill that would have replaced all the spending with tax cuts (Sen. DeMint also introduced a similar amendment). Nearly every Republicans in the Senate voted for the amendment (all but 5, I think). The Rs have had one idea for every economic crisis over the past 30 years and that is tax cuts. They have nothing else to offer right now, and nearly the entire Republican caucus in the Senate voted for an amendment to replace all spending in the bill with tax cuts.
I fear for out future if the Rs get their way, or ever part of their way. The Dems certainly aren’t perfect, but at least they understand why a stimulus is needed and why we need to inject govt spending into the economy. this is not an attack on you, but the Rs in Congress are absolutely out of ideas and only acting as obstructionists
Well, I’ll finish up our discussion on your last comment, Chris. I disagree that anyone right now is acting as an “obstructionist.” I know many Republicans and Democrats who disagree with the bill in it’s current form because they don’t want to BORROW all this money - not because they are trying to be partisan (as so many keep saying.) I’ll make you a deal - you and I will meet back here at this website (if it’s still in existance) on Febuary 8, 2011 and pick up the discussion based on what we’ve learned. If we’re lucky, you’ll have been right and I’ll gladly bow down as you say I told you so. : ) It’s been a pleasure debating someone who took the time to research the issue!
well, the Rs are very willing to borrow the $ they just want to use the loan to give out tax cuts. Such has been the story of the last 8 years–and really, most of the past 30 when Rs were in power.
I appreciate the comments, and I will say that this is a terrible situation and I have no idea if anyone can set things on a better course. I do know that trying the same policies (i.e. tax cuts) that have failed before makes no sense, and seeing every R in the Senate but for 5 vote to replace all the spending with tax cuts is rather amazing. I don’t really care about being right or getting credit and I don’t think there is any basis for people supporting the stimulus to lord it over anyone if they are right. I do think it is clear that we need to try this. There is no reasonable alternative on the table–in fact, the only alternative at all is the tax cut idea
thanks for the comments and I hope this turns out well for everyone