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Didn't that Manchester bank robber last week know that if you are going to rob a bank on Elm Street, ManchVegas, you are supposed to tape a tree to your head?
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Andrew Cline has been editorial page editor of the New Hampshire Union Leader since October of 2001. His writing has appeared in more than 100 newspapers and magazines, including The Wall Street Journal, The Washington Post, and National Review.Walter E. Williams: The stimulus plan fails the swimming pool test
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By WALTER E. WILLIAMS
Saturday, Jan. 31, 2009
Here is what my George Mason University colleague, Professor Richard Wagner, wrote, which was published by the Office of the House Republican Leader:
"Any so-called stimulus program is a ruse. The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing or by inflating the currency, the added spending will be offset by reduced private spending. Furthermore, private spending is generally more efficient than the government spending that would replace it because people act more carefully when they spend their own money than when they spend other people's money."
A short translation of Wagner's comment is: There is no Santa Claus or Tooth Fairy.
Let's examine the ruse. Suppose the value of all that we will produce in 2009, our gross domestic product (GDP), totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left over for us to spend privately. In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.
You might say, "Congress doesn't have to tax us $4 trillion. They could tax us $3 trillion and run a $1 trillion budget deficit." You have that wrong. There is no way for Congress to spend $4 trillion out of our 2009 $14 trillion GDP by getting us to spend only $3 trillion less privately. It has to be $4 trillion less.
Another method to force us to spend less privately is to print money and inflate the currency. Rising prices reduce our ability to spend privately since each dollar we hold will not buy as much. Another way is for Congress to borrow, thereby reducing our ability to spend privately. By the way, all of this means that in any real economic sense the federal budget is always balanced. That is, if Congress spends $4 trillion we must privately spend $4 trillion less whether it is accomplished through taxation, inflation or borrowing.
The stimulus package being discussed is politically smart but economically stupid. It's that bedeviling, omnipresent Santa Claus and Tooth Fairy problem again.
Let's say that Congress taxes you $500 to put toward creating construction jobs, building our infrastructure. The beneficiaries will be quite visible, namely those employed building a road. The victims of Congress are invisible and are only revealed by asking what you would have done with the $500 if it were not taxed away from you. Whatever you would have spent it on would have contributed to someone's employment. That person is invisible.
Politicians love it when the victims of their policies are invisible and the beneficiaries visible. Why? Because the beneficiaries know for whom to vote, and the victims do not know who is to blame for their plight.
In stimulus package language, if Congress taxes to hand out money, one person is stimulated at the expense of another, who pays the tax and is unstimulated. A visual representation of the stimulus package is: Imagine you see a person at work taking buckets of water from the deep end of a swimming pool and dumping them into the shallow end in an attempt to make it deeper. You would deem him stupid. That scenario is equivalent to what Congress and the new President proposes for the economy.
A far more important measure that Congress can take toward a healthy economy is to ensure that the 2003 tax cuts don't expire in 2010 as scheduled. If not, there are 15 separate taxes scheduled to rise in 2010, costing Americans $200 billion a year in increased taxes. In the face of a recession, we don't need that.
Walter E. Williams is a professor of economics at George Mason University.
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YOUR COMMENTS
Williams actually has a point. He just doesn't understand what it is. The economy is stagnating - and in this case there is a value to creating current (ie - economic activity). There is a reason why people who own swimming pools run pumps to mix water - and don't just trust it to circulate on its own. The last 8 years, we did our best to turn off the pump, and trust natural forces to take care of our pool - and it has become stagnant and foul as a result. And we don't need buckets - we need a firehose!
- Phil Martin, Austin, TX
Chris, whatever Williams does or doesn't understand, you have at a bare minimum missed the reason for the stimulus. BANKERS ARE NOT LENDING MONEY. Is that so hard to understand. No one, not even determined liberals like me likes the government spending money like this. It is NECESSARY because no one else is doing it. Now here is the sneaky Democratic part, we think that if you are going to spend money, you should have something for it in the end. Roads, bridges, education, infrastructure, instead of the added zeroes to bank accounts that results from tax cuts to work less bank and stock broker buffoons like you.
- Robert, Deerfield
Matt says he is not an economist, but Dr. Williams is. Matt says "the government can create GDP...by borrowing." The P in GDP stands for Product, and Product comes from American workers. The government can indeed manufacture dollars--by foreign borrowing or just by printing new ones--and those dollars will flow and can be measured, but the government has not increased production, nor even created jobs--just moved control over more of them to Washington. Bush's "stimulus" programs likewise pursued statistics over productive reality.
- Spike, Brentwood NH
I'm not an economist, but Williams is wrong with his main his stimulus example. He's relying on assumptions that don't hold up in the real world to press his point. In order for his zero-sum-game swimming pool example to be true, the money the federal government borrows to finance its spending must have come out of the current spending of US citizens. The govt borrows $1 trillion from us and thus we have $1 trillion less to spend, right? Not true in the open global capital markets. Buyers of US treasuy bonds are not in fact US Citizens using their grocery money. They are overwhelmingly foriegn govts with US dollars to spend (China, Middle East Oil exporters). The pool of capital the government is borrowing from was not going to be spent on goods and services or even on risky R&D investment, it was capital fleeing from risk and seeking a low yielding hiding place in AAA US Treasuries. Williams has mis-applied the economic concept of public investment "crowding out" private investment to press his political viewpoint. And he's just plain wrong. At the end of the day, they govt can in fact create GDP by borrowing in the global capital markets to spend on goods and services here in the US. Try again, Professor.
- Matt, Bedford, NH
- David, in Manchester, writes:
"That's right, Obama's economic advisor, Robert Reich, is recommending "No skilled, white, male workers" for these projects. (Yes, he actually said "white!")
(...)
Read the bill. Our congressmen & women didn't, but we as taxpayers should."
It's obvious to me, that you yourself haven't read the bill - or you'd realize that Reich's proposal isn't anywhere in it.
[url]http://www.opencongress.org/bill/111-h1/text[/url]
- Frank, NY, NY
Those of you that support this so called"stimulus" plan obviously do not understand that the money that is "stimulating" the economy is money that was taken from the people to give back to the people! And you really think this makes sense?
It would be one thing if the money were really going to infrastructure but it is clearly not. This bill is so full of pet project spending it is silly! Do some research and you will see that very little of this money will actually be spent in the next two years let alone in a manner likely to help lead this economy.
- Jesse, Orford
John from Portsmouth,
I realize times are tough for your business right now. I work in the same field. No money for survey crews, cutting back workweeks for salaried employees, layoffs have been high since the late fall...
As a civil engineer, you may not understand budgets for "infrastructure" jobs, but as a project manager in this field for over 21 years in MA and NH, I certainly do.
How much bang for the taxpayers' dollars do you think we will get when the only people working these jobs will be the previously "long-term unemployed," "unskilled,"or "socially disadvantaged" people?
That's right, Obama's economic advisor, Robert Reich, is recommending "No skilled, white, male workers" for these projects. (Yes, he actually said "white!")
He stated this in the Jan 7th Economic Recovery Plan Meeting. You can watch the video on the CSPAN website, or find plenty of copies with commentary from outraged taxpayers and workers on YouTube, because the network news won't tell you about it.
In case you are thinking (as I did when I initially heard of this) that this would never fly: Charles Rangel supports this- he doesn't want the states to have any say in job allocation under this stimulus plan, in favor of using more money to train "unskilled" workers and put them to work building those roads and bridges. He wants the "relief targeted to low income areas."
Read the bill. Our congressmen & women didn't, but we as taxpayers should. Williams is (mostly) correct, although he pulled his punches in this editorial.
- David, Manchester
If only the Democrats would employ half the effort they so artfully are using for negative PR aimed at Republicans in order to create a stimulus package to benefit all. Instead they want you to hear the message and focus how many jobs the Republicans voted down; all those people taking a bucket from the deep end to the shallow end who now won't have that opportunity. Remember also that just because money is coming to your State for construction jobs doesn't mean work for those residents. There no requirements to employ people of that State. And Government jobs created don't generally benefit those living in rural areas. Most times they are centered in metropolitan areas. Search for the truth and learn the facts.
- Patty, Stratham
Walter Williams is right in his analysis, in two ways.
First, he says the 'stimulus' is smart politically. Who can argue with that? Taking money from one group to give to another always makes the 'getters' happy. This country has gotten to the point where the 'getters' outnumber the 'producers', so, politically, this works.
Second, he says it's dumb economically. Again, who can argue? The swimming pool analogy is great.
Walter doesn't mention who's to blame for all this, but let's look at some facts: The President, George Bush, Barack Obama, or any other President, cannot spend a dime without that dime's being appropriated by Congress. Who has been in control of Congress for the last few years? Democrats, of course. At the state level, the same - Democrats. To quote Dr. Phil, "How's that working out for you?"
- Paul, Fremont
John, Portsmouth:
George Bush was essentially a RINO. That is why his approval ratings were so low. Not even his base backed him. Please understand this. Real republican princilpes are what are needed--not more senseless spending. Anyone with common sense knows that increasing the size and scope of government (more spending) will not correct having a budget deficit.
- Patricia, Raymond
Only a Republican would be surprised that anyone has to pay for the things that they get. In conservative land, infrastructure just pops up out of the streets and those nasty public works people reap all the rewards. Here is an example of someone (Democrat) trying to ameliorate the bad stuff about replacing all the money that the Wall Street loafers have stolen by putting money into something that will last and benefit everyone except those with executive jets - no wait there may be some public airports that they use. Tax cuts will only supply money to those who aren't spending it any way. The purpose is to increase the money in circulation not increase bank accounts of the rich who already made off with the money.
- William, Deerfield
John from Portsmouth,
I never once insinuated Republican's hands were clean in this problem. Read it again. My issue is with folks who erroneously sit there and claim "this is because of 8 years of republican rule" or even worse, blame it on one man with "It's all Bush's fault." Those folks are either 1) misinformed or 2) lying. I know all too well the Republicans abandoned the platform of "less taxes, less spending, less government" which is one reason they are now losing elections. Many congressional republicans also turned into spineless wimps, which did not help. A little more time researching the issue and a little less time making snide remarks will do you some good. Both sides of the aisle have dirty hands with respect to where we are now despite Reid, Obama, Pelosi, et al claiming otherwise. The stimulus package, which apparently is also chocked full of liberal funding for their pet projects, will do nothing to stimulate the economy the way we need it to. Sure, you and I will get a $1000 check but sthousands of folks who do NOT pay taxes will also get a "rebate"....this is the redistribution of wealth. If you can't see that, it's only because you don't want to. Furthermore, when the Bush tax cuts expire, folks like me who get child tax credits will see Obama's Administration turn right around and take that $1000 stimulus check back and then some. This, sir, is called a tax increase. By 2012, barring the media's push to further hoodwink the American Sheeple into thinking this is STILL all Bush's fault, Obama's name will be Mud. The Democrats are currently running with the best play in Vladimir Lenin's playbook and so far it's working well for them. Repeat a lie often enough and it will be taken for truth.
- Mike, Temple
John from Portsmouth, meaningful infrastructure expenditures may truly be a meritorious use of funds that are worthy of the cost in taxes, inflation or debt simply because they - well spent, and only well spent - do have an economic return. Nor do I object to needed temporary welfare safety net expenditures. On these levels I have minimum problems with the stimulus bill. I do object to gigantic new entitlements that will expand government control and damage future economic productivity perhaps in even greater proportions than the stimulus spend.
Two problems: (1) the bill has a panoplied wish-list social programs far exceeding the infrastructure portion; and (2) have you looked where the fine folks in Concord are considering to put the infrastructure funds?
Sadly, I fear nothing this large and government administrated will end well. Meaningful infrastructure investment takes time and that fact dampens short-term stimulus. Conversely, short-term stimulus rarely provides meaningful economic returns and often has additional unintended cost and public policy consequences.
- Steven, Swanzey
Mr. Williams - thank you for explaining the absurdity of Obama's "stimulus" package in very simple terms that even an Obama supporter should be able to understand.
- Tom, Campton
John from Portsmouth. Did you read the article or miss the point entirely? You can increase government spending to cover the cost of replacing infrastructure, but somebody is going to pay for it. Some taxpayers of which will no longer be using the roads because the government has taxed more of their discretionary income they would of used to travel along the roads.
- James, Manchester
Walter Williams, you really don't have a clue what it means when we say "Our nation's infrastructure is falling into significant disrepair". If Congress taxes the American public $500 to fix roads, bridges, water mains, sewer mains, etc. you say the only people that will benefit are the construction workers?!? Well my friend, you have stumbled upon a civil engineer who is hear to educate you. How short your memory must be, Mr. Williams, that you have forgotten how states are continuing to talk about raising tolls, puting in new tolls and raising gas taxes to pay for our crumbling roads. If these roads and bridges continue to crumble, I can ASSURE you, you'll be paying more than $500 a year at the tolls and at the pump because of your near sighted views. And lets for a minute talk about water mains. How many stories have you heard on the news this year about water main breaks?!? Quite a few, actually. The cause...AGING INFRASTRUCTURE!!! but I'm sure all the work that is being done to put bandaids on cracked pipes and put stresses on other parts of the distribution system are done 100% free of charge to the water users of that system...wait, what's that you say?? Your water rates keep going up?? FASCINATING! I guess the stimulus plan DOES have a trickle down effect that short sighted windbags like yourself can't or won't take the time to acknowledge
- John, Portsmouth
I finally understand how it works...Mr. Williams, thank you for clearing it up for me. I knew the hard workers of this country were getting shafted; I just didnt know how.
- gt, new hampton
Mike from Temple. Read my lips; the Republicans demand to cut taxes but spend more than Democrats. This is not partisan bias this is a fact. Republicans don't know how to be fiscally responsible anymore. You have been brainwashed my friend. Seek some support to cure you of your ailment.
- John, Portsmouth
If a stimulus is such a ruse (read, Democratic ploy to institute socialism), then why did the all mighty Repbulican savior and face of the party George W. implement TWO stimulus programs?!? The second of which went to pay for Wall Street bonuses?? (the first of which went into people's savings accounts and to pay off existing debt rather then new spending) Stop the Democrat hating... Republicans, you have to change your attitude in a hurry. This attacking crap has turned the American majority completely against you.
- John, Portsmouth
Another day, another UL slander editorial based on extreme twisiting of facts and solely written to make the extreme right feel like they are right.
Keynesian has a basis in adjusting interest rates and taxation and funding public projects as a stimulus to growth, ummm everything the Republicans also do, yeah, that sounds horrible, we should just have no public money for infrastructure, leave interest rates and taxes at 1 level forever, great idea Kevin from Lancaster. Please go study some Keynesian economics before you just throw it at this stimulus plan with a broad brush, just calling something names does not really accomplish anything in the debate.
As with anything extremes to any side is too much, this plan hardly seems extreme and is 100 times better than the stimulus plan that Bush pushed through that was solely base don a quick infusion of cash and then over which would almost never work, this lan has the instant stimulus PLUS the long-term spending to keep things afloat once that initial surge is gone, long enough, hopefully to make people start to feel good and spend again.
- Kevin, Derry NH
Once again Williams hits the nail right on the head. I hope some of Obama's supporters who make a sport of hanging around and trashing all-things-republican take the time to read and consider his words. Maybe they'll come to the realization that the Democrats are taking this country down a path we cannot afford to take. Many will just make excuses for them as they always do (It's all Bush's fault, republicans in 1977 waved their evil magic wand and caused the democrat congressional majority to pass the Community Reinvestment Act, the republicans waved their wand again at Clinton in 1999 and hypnotized him into threatening to veto FSMA unless is contained a provision of Carter's Reinvestment Act, blah blah blah...yeah right, the democrats had NOTHING to do with this, and terrorists had nothing to do with 9/11). Besides, Williams to them is a contradiction...he's African-American AND Republican.
- Mike, Temple
While it is true that "There is no Santa Claus or Tooth Fairy" there are greedy grinches giving themselves $18 billion dollars worth of bonuses while it is revealed that they don't know how to run the businesses with which they are trusted. Kevin still seems to entrust weasel words with his thoughts. The money is there, the question is, who gets to have the swimming pool. How about this time, the people who work for a living get some? Okay, I'll even settle for not having to give all we have to support the rich incompetance of our business and financial elite. Corporations should not be asking for pity, bribing government officials, encouraging wars to keep their cost of materials low, they should be making and selling products.
- Robert, Deerfield
And to think that Reagan's plan of letting people keep and spend more of their own money was dismissed with a sneer as "voodoo economics".
Keynesian stimulus plans (like this one) are the real "voodoo", purporting to make money appear out of thin air.
The truth is that FDR's New Deal prolonged the depression, and Obama's Newer Deal will be a repeat of history.
- Kevin, Lancaster
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