Saturday, January 31, 2009

The Old Razzle Dazzle

The Old Razzle Dazzle
By Jerome Grossman

If President Barack Obama rescues America, and indeed the entire world, from the ravages of recession/depression, the gratitude of the populace will be boundless. His party will sweep the congressional elections of 2010; his reelection in 2012 will be by acclamation.

If Obama's stimulus plan fails and the economy sinks into depression, he will bear the blame, and he and his party will be swept from power. Obama says the stimulus “serves two functions-creating jobs and stimulating the economy in the short term and laying the groundwork for overhauls in energy, health care and infrastructure that would be felt for decades.”

But some Democrats say that his package could end up missing both targets. The nonpartisan Congressional Budget Office said that the stimulus bill "could prove less than the quick jolt that President Obama is seeking," because of necessary delays in spending on longer projects.

To protect his political flank in 20i0 and 2012, Obama has catered to the policies of the Republicans, so that 40% of the entire package is composed of tax cuts. Vice President Joe Biden said "That's not what the Democrats wanted." But they accepted the Republican tax proposals to get their support and votes for the package. Then, in case of failure, Republicans could not attack politically in 2010 and 2012 because the bill included their own tax cut wish list.

However, after receiving the tax concessions, the GOP failed to deliver their votes. From being dispirited after losing the White House and the Congress, they now have a strategy: to blame Obama if the economy fails to rally, to blame Obama for the waste of trillions, to blame Obama for the anticipated inflation.

Today, Obama is in a very strong position. Virtually the entire country wants him to succeed. Guarding against possible failure, he wanted both parties on the same hook, the stimulus bill. In remarkable and unprecedented gestures of bipartisanship, he praised Ronald Reagan, met with GOP officials, dined with conservative pundits, solicited their advice and ideas, appointed Republicans to his Cabinet and policymaking positions, to name only a few outreaches. Obama made all those compromises for nothing.

So far, Obama has failed to achieve the desired cooperation or the bipartisan cover for his stimulus bill. The Republicans now have a political strategy for future elections. Unfortunately, it seems to be based on Obama’s future failure and the continuation of our economic troubles. Let us hope they are wrong in their use of the old razzle dazzle style of politics.

Sunday, January 25, 2009

A Stimulus Project That Works

A Stimulus Project That Works
By Jerome Grossman

President Obama is pressing for a quick jolt to the economy to make up for the dramatic decline in public consumption that has left our business system gasping. The dream of endless consumption of goods and services has no limits as our species chews up the planet in the race between endless population growth and the finite resources of Mother Earth.

In the current economic crisis, we are all Keynesians, followers of John Maynard Keynes, who believed that a program of government spending on public works would increase national purchasing power and promote employment. The latest proposal considered by Congress calls for spending $825 billion, including $550 billion "For spending on infrastructure, science, energy and education programs over two years” and $275 billion "For tax cuts for individuals and businesses."

That bill will not give Obama his quick jolt. In total dollars it is inadequate: The stimulus needs to be $1 trillion for each of the next two years. From past experience in the US and Japan much if not most of the income generated will be put into bank accounts or used to pay debts. The proposed spending on infrastructure et al takes time to organize and is subject to delays, sometimes as long as two years. The tax credits to business are unlikely to stimulate investment and employment, which depend on an increased flow of sales.

Furthermore, the Congress program is too complicated, trying to correct social deficiencies when the problem is how to stimulate a quick jolt to restore purchasing power to give business the incentive to hire workers and invest in equipment. First things first.

Here is a simple plan to accomplish the objectives immediately and effectively without a new bureaucracy. For numerical simplicity, assume that there are one hundred million families in our nation of 300 million people. Mail to each family a numbered coupon giving ten thousand dollars for the purchase of goods and services only, a total of one trillion dollars. The coupon must be used within 60 days, and then sent to the U.S. Treasury by the vendors within 60 days. Repeat: only for goods and services, not for deposit in banks, not for payment of debts. Every family would participate in the plan, would understand it, and would benefit.The coupon would be worthless if not spent within 60 days, encouraging immediate spending.

This program gives the economy an immediate jolt of $1 trillion. The operating cost is minimal. No delay to set up a bureaucracy. The U.S. Treasury and Census Bureau have all the names and addresses. Repeat the $1 trillion project in 2011 to encourage business by promising the continuance of the purchasing power.

We are all Keynesians now, Democrats, Republicans, and Independents. Let’s use a Keynesian formula and objective in its purest form. Will it cost too much? Professor Martin Feldstein, Harvard economist and chief economic advisor to President Reagan said, “Without that rise in government spending the economic downturn would be deeper and longer.” The production lost in a deeper and longer recession would amount to at least $5 trillion. The Keynesian formula will pay for itself.


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