Politics

Ten Reasons To Whack Obama's Stimulus Plan

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US News' James Pethokoukis, one of the few econ/business writers to be consistently against all the financial sector and stimulus plans offered up by both Dems and Reps over the past several months, offers up 10 reasons (count 'em) not to count on President Obama's latest and greatest pitch, which is "heavy on government spending and light on tax cuts."

Among them:

6) Christina Romer, the new head of the Council of Economic Advisers, coauthored a paper in which the following was written about taxes: "Tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects." And former Bush economic adviser Lawrence Lindsey tack on this addendum: "The macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet."…

9) Massive stimulus didn't work in the Great Depression. As this Heritage Foundation study notes: "After the stock market collapse in 1929, the Hoover Administration increased federal spending by 47 percent over the following three years. As a result, federal spending increased from 3.4 percent of GDP in 1930 to 6.9 percent in 1932 and reached 9.8 percent by 1940. That same year—10 years into the Great Depression–America's unemployment rate stood at 14.6 percent." Same goes for Japan and its Great Stagnation of the 1990s.

10) Olivier Blanchard, the chief economist of the International Monetary Fund, coauthored a paper which found "that both increases in taxes and increases in government spending have a strong negative effect on private investment spending."

Pethokoukis concludes, "There is another model out there. One that worked in 2003, 1997 and 1981. But will America use it?" Read the whole thing here.

For more on what worked in 1981, watch The Washington Post's Robert J. Samuelson (no relation, genetically or ideologically, to economist Paul Samuelson), discuss his book The Great Inflation and Its Aftermath:


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