Again, I've had it, and I need to do something to save my head the damage incurred from facepalming, headdesking, pulling my hair out, and beating it against a wall (and not necessarily in that order).
I've been hearing the criticisms of the stimulus bill, but one argument sticks out from the rest:
"Spending won't save the economy; tax cuts will."
Yes, tax cuts stimulate the economy. But guess what? Government spending increases it more. Don't believe me? See for yourself (PDF):
Fiscal Stimulus Bang for the Buck [for a $750 billion fiscal stimulus bill]
Tax Cuts
Nonrefundable Lump-Sum Tax Rebate: $1.01
Refundable Lump-Sum Tax Rebate: 1.22Temporary Tax Cuts
Payroll Tax Holiday: 1.28
Across the Board Tax Cut: 1.03
Accelerated Depreciation: 0.25Permanent Tax Cuts
Extend Alternative Minimum Tax Patch: 0.49
Make Bush Income Tax Cuts Permanent: 0.31
Make Dividend and Capital Gains Tax Cuts Permanent: 0.38
Cut in Corporate Tax Rate: 0.30Spending Increases
Extending Unemployment Insurance Benefits: 1.63
Temporary Increase in Food Stamps: 1.73
General Aid to State Governments: 1.38
Increased Infrastructure Spending: 1.59Note: The bang for the buck is estimated by the one year $ change in GDP for a given $ red...[cut off]
In short, for every $9 towards tax cuts, the economy gets $6.27 worth of stimulus. On the other hand, for every $4 towards spending increases, the economy gets $6.33 worth of stimulus. That averages out to roughly $.70 per tax cut dollar versus roughly $1.58 per spending increase dollar.
Now, I'm no economist, so if you would like to explain how tax cuts are a better alternative to an economic stimulant that's twice-almost thrice-as effective, don't let me stop you.
The Japanese tried for an entire decade to spend themselves to prosperity. They passed 8 or 9 massive spending stimulus bills. They finally gave up when they realized they were broke (like us). None of the stimulus bills worked. They call it the "Lost Decade".
We had similar poor results during the Depression. Keynesian stimulus economics don't work and they have never worked. The money has to come from some where and the massive borrowing (or printing) ends up starving the private sector which is the true engine of prosperity of the capital it needs to expand. And the timing is always wrong for example everybody is in pretty much agreement that the spending in the "stimulus bill" for the most part is two or three years away when we need stimulus now. Tax cuts would be immediate.
The real answer is neither stimulus or tax cuts. This problem was caused by too much spending and too much debt in both the private and the public sectors. More spending and more debt is not going to fix anything. What is needed is the tough medicine that will wring these excesses out of our economy. There is no magic bullet. We just need to swallow our nasty medicine and clean up our bad debts.
I'm just tired of the attitude that tax cuts will take care of everything from a paper cut to the worst economic times in modern history and that spending is worse than whatever the worst thing you can think of is. And now, for what I really replied to this comment about:
Yes, the economic hard times resurfaced in 1937 and didn't go away until we entered WWII. Why? Because FDR started subscribing to that school of thought mentioned above and cut government spending.
"...Seek any job; ask anyone out; pursue any goal. Don't take it personally when they say 'no' — they may not be smart enough to say 'yes.'"
-Keith Olbermann
Tough Medicine means living within our means. This problem is caused by too much debt in both the private and public sectors.
In the private sector that is a combination of excessive consumer debt, and bad mortgage debt. In the public sector it is years of deficit spending funded by borrowing largely from overseas and excessive money supply growth (investment banks leveraged at 40x capital).
Tough medicine means that the government should be doing just what the private sector is doing. Reducing spending and paying down debt. Rather than spending and either borrowing or printing two trillion dollars that we do not have, the government should cut spending and balance its budget. We have a problem caused by too much spending and debt and it is not going to be solved by more spending and debt.
It will be tough medicine because it will mean the economy contracts. That is necessary and healthy even if it hurts. We are in this mess largely because Alan Greenspan engineered one too many "soft landings" with cheap money and short circuited smaller recessions that are necessary to wring the excesses out of the economy.
Now we need the kind of pain that Paul Volker gave us in 1982 although a different recipe. It will hurt but not half as bad as the catastrophe that uncontrolled deficit spending is going to cause because that can only lead to inflation and probably won't help the economy much anyway just like it did not in either the Depression or in Japan. Inflation is far worse than a bad economy. And usually when the government causes inflation they also deliver a bad economy. I lived through that in the 1970s and I would prefer not to experience it again.