Tag: American Recovery and Reinvestment Act

Fuzzy Math

Jesus Tapdancing Christ. I have seen this now in several places and it needs to fucking stop:

Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true.

But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.

Even hapless Herbert Hoover managed to increase spending more than Obama has.

Stop right there. If you’ve been on this site, you know that the “Hoover cut spending” thing is a complete myth. Hoover increased spending massively and doubled the debt during his Presidency. Roosevelt called him out as a socialist. So this writer is already starting from ignorance. But carry on:

• In the 2009 fiscal year — the last of George W. Bush’s presidency — federal spending rose by 17.9% from $2.98 trillion to $3.52 trillion. Check the official numbers at the Office of Management and Budget.

• In fiscal 2010 — the first budget under Obama — spending fell 1.8% to $3.46 trillion.

• In fiscal 2011, spending rose 4.3% to $3.60 trillion.

• In fiscal 2012, spending is set to rise 0.7% to $3.63 trillion, according to the Congressional Budget Office’s estimate of the budget that was agreed to last August.

• Finally in fiscal 2013 — the final budget of Obama’s term — spending is scheduled to fall 1.3% to $3.58 trillion. Read the CBO’s latest budget outlook.

Over Obama’s four budget years, federal spending is on track to rise from $3.52 trillion to $3.58 trillion, an annualized increase of just 0.4%.

You see what the problem is? FY2009 was not a Bush year. FY2009 was not a Bush year. FY 2009 was not a Bush year. The Democratic Congress did not pass a budget until March 12, 2009. Do you know who was President on March 12, 2009? It was not George W. Bush.

FY2009 also included the stimulus which this analysis now considers part of the baseline — exactly as conservatives warned would happen. Do you know who passed the stimulus? It was not George W. Bush.

You can blame Bush for TARP. But let’s remember that Obama voted for it, used it, expanded it. Two car companies got bailed out on that budget authority. Do you know who bailed those car companies out? It was not George W. Bush. Well, not the big bailout at least.

Look, I’m prepared to bash Bush with the best of them. But this is bullshit. If you’re going to use a baseline for Barack Obama’s spending, maybe you can use $3.1 trillion Bush originally requested. But you can’t use the final budget figures as a comparison. That’s simply cheating.

The author eventually, on page 2, gets around to this, admitting that, at minimum, Obama has increased spending 1.4% per year. But that too is deceptive since many of the Obama “tax cuts” were for people who don’t pay taxes. Moreover, we’ve been winding down two wars, which should have moved the budget closer to balance.

(The New York Times tried this stunt too, gaming the figure so that it looks like Obama has cut spending. Even then, they have to credit him with state spending cuts. I find that ironic since the point of the stimulus was to prevent state spending cuts, but … let’s not interrupt the Times when they’re in the middle of Democratic propaganda.)

Anyway, the idea that Obama has not increased spending is pure garbage. To the extent that he has controlled spending, it has been because of relentless pressure, faceoffs with the GOP and the winding down of two wars. His last two budget were rejected almost unanimously by Congress. He does deserve credit for winding down the wars. I’ll give that to him. But let’s not pretend he’s a model of fiscal restraint.

Stimulus … V?

I’ve lost track of the number of stimulus bills our Congress has passed. There were two under Bush (mostly tax cuts), the big Obama spendathon and now two waves of payroll tax cuts:

Two months after vowing to never give up the fight against President Obama’s payroll tax proposal, House Republicans decided Friday that they could not afford the battle any more.

Large bipartisan coalitions in both the House and Senate passed a $143 billion economic package that includes a year-long extension of the payroll tax holiday for 160 million workers, just as Obama had requested more than five months ago, and also extends unemployment benefits for millions of others.

It also includes the doc fix. And this $143 billion hole in the budget is filled by … very little actually. They’ve already quit even pretending to care about the deficit implications. And they wonder why Congress’ approval rate is 10%.

(The WaPo quotes Mark Zandi as saying this will boost the economy. Why that idiot real estate bubble supporter and stimulus maven continues to get press is beyond me. It just shows that no one ever falls out of the MSM rollodex no matter how often or how spectacularly wrong he is.)

A year ago, I thought the payroll tax cut was a decent idea. I now think it was terrible one. Because this tax cut is almost impossible to reverse. Any attempt is branded as “raising” taxes on the middle class (a verb that is conspicuously not used when eliminating the Bush tax cuts is discussed). We seem to now have a permanent $150 billion a year hole in the budget. And no one is interested in fixing it.

Food and ammo, guys. I keep saying it and it keeps looking more and more likely.

CBO downgrades the Patronage Bill

In a move that doesn’t surprise people like me a bit, and which the LSM will simply ignore and thus allowing others that feel unless the LSM says it word for word, it isn’t so, we now find out that the stimulus patronage bill has had it’s price tag increased and its positive impact majorly downgraded:

Recovery: After nearly all the stimulus money has been spent, the Congressional Budget Office now admits it cost more than advertised, did less to boost growth and will hurt the economy in the long run. In its latest quarterly report on the economic effects of the Obama stimulus, the CBO sharply lowered its “worst case” scenario while trimming many of its upper-bound estimates for stimulus-fueled growth and employment. The new report finds, for example, that the stimulus may have added as little as 0.7% to GDP growth in 2010 — when spending was at its peak — and created as few as 700,000 new jobs.

Both are down significantly from the CBO’s previous worst-case scenario. The report also lowered the best-case estimate for added growth in 2010 to 4.1% from 4.2%. In addition, the CBO says the extra infrastructure money didn’t boost growth as much as it previously claimed, because states reacted by spending less out of their own budgets on highways. So in other words, the CBO now says it’s possible In our view, even the CBO’s downgraded estimates are too high, because they’re still based entirely on Keynesian economic models that simply assume extra government spending results in added economic growth.

You don’t have to look very hard to see this isn’t what happened. Wile Obama promised the massive stimulus would “ignite spending by businesses and consumers,” unleash “a new wave of innovation, activity and construction,” and keep unemployment under 8%, what we actually got was the worst recovery since the Great Depression.

Look this was the biggest rip off of the American tax payer in our history. We were “Bernie Madorffed” by the one party that controlled the two houses of our government that does the spending. All the problem makers stepped up and demanded that they be allowed to “fix the problems”. We got a ton of new regulation, government driven crony capitalism, massive uncertainties that prevent private sector businesses from doing any growing or hiring in the near, and maybe even far future, leading to horribly high unemployment, deeper in debt, and unless you count democrat friends, donors, lobbyists, politicians, and campaign coffers making out like bandits, no tangible assets to show for all that cash spent. And the fundamental underlying problems not only remain there, intact, but in addition to the “social engineering” problems of the housing market, we now are staring at another one in education.

Oh wait. I know. It’s Bush’s fault. The donkeys inherited all the problems from Bush and the porkulus failed because it was just too small. At this point we should ask if we would not have been better off without any of it.

Solyndra update: WH doubled down.

The AP has this piece running today dealing with how the WH knew Solyndra was a disaster waiting to happen, and that when it happened, it was coming right around the 2012 election, too. While the AP article is not clear as to exactly when the WH figured out this company was a disaster waiting to happen – likely I feel, that because pointing out that they knew even before the loan was made, would be damning – it is clear that they knew Solyndra was in deep trouble before Obama went on stage in 2010 to tout them as the example of the success of the stimuluspatronage bill. Epic fail on both counts.

From an e-mail by WH budget official trying to red flag this disaster we get the following:

An email from a White House budget official to a co-worker discussed the likely effect of a default by Solyndra Inc. on President Barack Obama’s re-election campaign.

“The optics of a Solyndra default will be bad,” an official from the Office of Management and Budget wrote in a Jan. 31 email to a senior OMB official. “The timing will likely coincide with the 2012 campaign season heating up.”

You think? But it gets better! Why was the e-mail sent? Well lets read on.

The email, released by the House Energy and Commerce Committee as part of its investigation into a half-billion dollar federal loan to Solyndra, said the budget official wanted White House budget director Jacob Lew to warn Energy Secretary Steven Chu about the risk posed by Solyndra, which was once the poster child for the Obama administration’s clean energy program but by early this year was teetering on collapse.

At the time of the email, the Energy Department was pushing to release an additional $67 million to Solyndra. The Fremont, Calif.-based solar panel maker received a total of $528 million in federal loans before declaring bankruptcy Aug. 31 and laying off 1,100 workers.

They where considering if they should give Solyndra another $67 million of tax payer money. Was that money part of the original allocated half a billion dollars, or was that money on top of that? If the first, then the money was given despite the terrible news, and on can not help but speculate that considering what they knew, if it was done hoping to prevent or postpone the inevitable? If it was new money, we obviously where spared that pain.

We also again get validation that people knew Solyndra was in trouble, but that the WH dismissed them:

At least three reports by federal watchdogs over the past two years warned that the Energy Department had not fully developed the controls needed to manage the multibillion-dollar loan program.

Emails obtained by The Associated Press show that a White House official dismissed reports about Solyndra’s gloomy future. An email from Greg Nelson, a White House official who had been involved in the planning of Obama’s May 2010 trip to Solyndra’s headquarters, to a Solyndra executive downplayed a July 2010 news story in a trade publication that criticized the company’s financial health.

Seems B.S.,” Nelson wrote.

A 2009 report by the Energy Department’s inspector general warned that the DOE lacked the necessary quality control for the loan guarantee program, which was created in 2005 to support clean-energy projects that could not obtain conventional bank loans due to high risks.

In July 2010, the Government Accountability Office said the Energy Department had bypassed required steps for funding awards to five of 10 applicants that received conditional loan guarantees.

Can we now stop pretending that not only did the people in the WH get told Solyndra was a dead beat company, but that they also where warned that they had no mechanism to make sure Solyndra used the money wisely and that the DOE had bypassed required steps in the process by the GAO (that’s fast tracking if you have a problem with English comprehension), but that then politics and ideology trumped common sense, here?

And lest there be any doubt that this was ideology trumping everything else, there is this tidbit:

The report did not publicly identify the companies that were not properly vetted, but congressional investigators say one of them was Solyndra. The company was the first to receive a loan guarantee after the program was expanded under the 2009 stimulus law.

Solyndra was not the only one that had their application process not thoroughly vetted. There is a pattern here. How many of these “other companies” that are not identified by the AP article had similar problems as Solyndra but still got money? How many more Solyndra-like failures are there in the near or not-so-near future? Why where these companies fastracked in the first place? Was it either desperation to produce something with all that stimulus cash being thrown around, or was it because of the political/ideological belief that green industry was the solution to all our ills? Me, I bet it was a little bit of both. And it get’s better!

The Obama administration is moving to finalize as many as 15 loan guarantees for renewable-energy companies before the stimulus program ends on Sept. 30. Republicans question whether that could lead to more loans to companies that fail like Solyndra.

Time will tell. One thing is for sure: this is damaging to Obama, the progressives and the green movement in general, and most of all to the tax payer which foots the bill for these ideologues and their crusades against evil fossil feul in the progressive government controlled battle to pick who wins and who loses. And while I suspect no laws where broken, it is obvious that this will haunt Obama and the left in 2012.

More Perspective..

During the comments discussion on one of our recent posts dealing with the effect of our current leaders on the economic and job situation in the US, the issue of what kind of impact the blatant hostility from the Obama administration towards business came up. Some people refused to accept that, in general, based on the laws and policies pushed over the last 3 years, this administration was exhibiting some serious and severe hostility towards business. Their absolute need to control the private sector, so they could use the power of big government to pick the winners and losers – under the guise of fairness or justice – was the biggest contributor to this hostility. And that hostility lead to massive lack of confidence which then drastically impacted the job market situation. When businesses feel they are under attack and they can not predict their costs and liabilities – to verify if they are financially viable and can turn a profit – they basically do not take risks.

Hiring new people these days is a huge risk. It’s also why no tax payer money spending plan the Keynesian-Marxist grieve mongering cabal comes up with, no matter how big the amount of money being flushed down the toilet may be, will ever make any kind of positive impact on hiring: they are not addressing the fundamental issues.

Today we find out that the jobless claims posted another “surprise” increase. I am more surprised that the usual suspects in the LSM still continue to be surprised that we have for months, even years, now seen the number of people filing after they lost their jobs stay steady, at scary levels, or go up, instead of realizing the trending is telling them something important.

NEW YORK (Reuters) – The number of Americans filing new claims for jobless benefits rose unexpectedly last week in a sign concerns about a weak economy were sapping an already beleaguered labor market, data showed on Thursday.

The inflation rate decelerated slightly in August as gasoline prices rose at a more modest pace and the cost of buying a new car held flat, the Labor Department said on Thursday.

And I am sure the bleak unemployment numbers do not account for the countless people that have dropped off the radar and are not even bothering to look anymore, are working part time when they would love to get a full time job, or simply can’t report because they are ineligible to receive any kind of benefits. The numbers are frightening, there seems to be no end in sight to this situation, with many are thinking will get a lot worse, and last for a very long time, before it improves – if ever – and thus, it’s no coincidence that unemployment is now the top concern for most Americans. It also explains why after three years of anything but caring for the economy and the employment situation, the WH and the donkeys are now scrambling to make it look like they do and have a plan. The problem is that it’s just a lot more of the same crap from the last 3 years that has been disastrous.

As the WSJ reports in this article the current plan basically is doomed to failure, because it tries to fool employers into stimulating economic growth with some very short term cuts, paid for with backloaded taxes that would not just wipe out any benefit that these short term cuts would create, but increase the burden on these not just these businesses, but a whole bunch of Americans Obama previously told us where exempt from his wealth redistribution schemes, to a level that it will create an economic situation that looks far worse than it is now.

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

And there you have it. Obama’s big plan is not going to do anything to create jobs because the short term “tax cuts” are short term, but the tax increases that follow it, to pay for it, are not. I can’t say that I am surprised. After all, Obama and the left have told us they want more taxes because the beast needs the cash, and everything before this that has happened in the last 3 years has been about them trying to make it so. Basically they are trying to fool people into thinking they are improving the economic incentives for small businesses to hire, but unless these small business owners are total twerps, they will quickly realize they are being had with those back end taxes basically punishing them whether they hire anyone or not, and they will do nothing of the sort.

In fact, I expect them, if they do anything, to downsize, considering they will be slammed with new taxes in 2013 regardless. The WSJ breaks down the facts as follows:

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let’s call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama’s new jobs program. This would mean a tax hit of $240 billion on small business and workers. That’s the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create “millions of jobs” through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress’s Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare’s biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

It doesn’t look well for us tax payers, and it certainly looks like Obama’s jobs plan will not do anything. I could break all of this down and comment, but the article already did an awesome job of that. And the WSJ author puts it perfectly when they say:

The White House’s economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

Emphasis mine there. What again was the definition of insanity?

Obama talked. And we got just more of the same…

Well it’s what? Some 961 days since he took office, and now Obama finally has decided he needs to tackle jobs – or appear to be doing so is what I see this as being – because he is heading for an epic ass kicking in 2012, even if his opponent is Dracula himself. Obama and his groupies are warning the republicans to pass this bill, and pass it fast, or else. I admit that I didn’t bother watching the community organizer in chief’s speech last night, but I did go read up on what he said, and as far as I can tell, while the left and the LSM are all talking about a bill, it is obvious that we have no bill whatsoever, but just a plan. Is this more of that special “Hope & Change” magic?

What I do know is that the price for this non-existent bill climbed from the $300 billion in new stimulus that was touted at the beginning of the week to a staggering something closer to another half a trillion. Fox news puts this new Keynesian stimulus plan that democrats are trying real hard not to refer to as stimulus part deux at $450 billion, but since there is no real bill, and I suspect that’s the number the WH gave them, I certainly wont be surprised that if we ever do get a bill, the price tag ends up being far costlier. Seriously, we waited over 30 months for Obama’s people to produce this junk?

The plan, touted as a bill, supposedly is a mix of tax cuts, tax credits, infrastructure investments and other measures – heavy on the infrastructure investment and other measures, and tax cuts and credits that I bet again only target those private sector industries the left wants to be the winners instead of those that actually would produce jobs immediately, I bet – needs to be nailed down, but so far, there is very little I see that will do any real job creation. And from the response by others that are not desperate democrats, it is obvious they where not very impressed. The problem our economy is facing right now is directly tied to the insecurity that the private sector feels because of what has been done so far. That’s because of a combination of things. The first is the myriad of crazy and unpredictable collectivist regulations coming from those things that Team Obama focused on, while ignoring jobs I should add, during its first 2 years. That coupled with a palpable hostility towards the private sector from these elitist academics playing political games, leave practically all small business owners feeling that it is simply too dangerous to expand and hire on new people, when the cost to them is nebulous and likely to just go up every damned time these democrats do anything. And that’s why trillions of dollars of government spending later, with even more debt being made we have no honest, real, and enduring job creation.

And this plan they claim is a bill? Well it is more of the same failed recipes of the last 30 months. Seriously, at this point Obama might want to take a page from my job plan. Topless coffee shops might actually do more to grow the economy than this idiotic plan of his that smacks of nothing more than another attempt to have tax payers subsidize the campaign coffers of countless democrats for the coming 2012 elections. Some people are advocating that we should let them actually create a bill and the pass it, because it is a victory for those that want these people out of power when it fails – and have no doubt it will fail – but seriously, the price tag is freaking frightening.

The Slowest Stimulus

Barack Obama is supposed to talk jobs tonight. Of course, what he’s really going to talk is spending, likely on our “crumbling infrastructure”. Gregg Eastebrook has a roundup of what our efforts to deal with this cost:

*Boston’s Big Dig, mostly funded by the federal taxpayer though benefits went exclusively to Massachusetts, was supposed to take 10 years at a cost of $6.2 billion in today’s dollars. Instead it took 21 years and cost $22 billion.

*The Washington, D.C. metro is building a mainly federally funded extension from its current Virginia terminus to Dulles Airport. The next leg of the project was just priced at $3.1 billion for 11.5 miles – that’s $270 million per mile, not for subway but for above-ground rail on the median of a highway the public already owns. The price is so extreme that even Secretary of Transportation Ray LaHood, representing an administration that loves to spend borrowed money, says the price must be cut.

*My home county, Montgomery County, Maryland, just outside Washington, D.C., wants $1.9 billion for a 16-mile trolley line which would be mainly funded by federal taxpayers though the benefits would go exclusively to Maryland. That’s $121 million per mile for simple above-ground construction of trolley line.

*The federal government just gave contracts to renovate the Reflecting Pool that fronts the Lincoln Monument. The renovation is expected to take 18 months — longer than it took to build the pool in the first place, 90 years ago when machinery was much less efficient.

*Baltimore wants the federal government to fund a new light-rail line for the city. Set aside why taxpayers in Nebraska or Wisconsin should pay for a system solely for the convenience of Marylanders. In line is projected to cost $2.2 billion for 14.5 miles, about $2,400 per inch, entirely for above-ground work. Construction is projected to require nine years. That’s a pace of 1.6 miles per year. At that pace the First Transcontinental Railroad, completed in 1869 using far less machinery than available today, would have taken more than a thousand years to build.

*On the George Washington Parkway that runs along the Potomac River in the nation’s capital, there is a Depression-era humpback bridge that needed replacement. In January 2008, federally funded contractors began work on this small, low, four-lane, short bridge (80 yards) that crosses a shallow channel. Almost four years later, the job still is not finished. In the 1950s, the three-mile long, 140-foot high, seven-lane Tappan Zee Bridge, spanning the Hudson River at a deep point, took less time to construct. At the pace of the humpback bridge project, the Tappan Zee Bridge would have taken two centuries to build.

And he doesn’t even get into high speed rail. The fact is that we’ve spent hundreds of billions on infrastructure with very little improvement.

Eastebrook sites two reasons for this ridiculous inefficiency: Davis/Bacon rules that require union wages and work rules that stop construction when speciality work is needed. I would also add enormous regulatory requirements such as environmental impact studies. But the key point here is that, when you see infrastructure spending primarily as a jobs program, paying people to stand around or push pencils is a feature, not a bug. The more time and money a project costs, the more stimulating it is.

Keynesians can trot out their “aggregate demand” argument all they want. It still amounts to paying people to dig holes and fill them up again, which has almost no economic multiplier. If these projects are so important to the health of our economy, the Left should be the first ones insisting on efficient spending. But spending is the end, not the means.

Update: I think I muffed an important point. Infrastructure spending is a much about patronage as it is about jobs. If jobs were the priority for Obama, he would have relaxed the Davis/Bacon provisions. This would either have cut the cost or increasing the number of hires while decreasing their average pay.

He still could work with the GOP to relax Davis/Bacon to make federal spending more efficient in terms of jobs per dollar. But his union allies would never allow it.


I’ve been thinking a lot about the job problem in this country. Jobs are the problem right now. One in eleven Americans is unemployed, the knock-on economic effects are making a bad deficit situation worse and a long-term culture of dependence is being created. I am under no delusion that a blog post will change anything. But I thought I’d write up about 2000 words of thoughts on the subject so you’ll know where I’m coming from.

The fundamental problem with fixing the job situation is that we have two parties absolutely devoted to failed policy. On one side we have the Republicans insisting that just a few more rounds of Bush-style demand-side tax cuts will get things moving. However, there is very little evidence that these would help, even if we could afford them. We know what the Bush tax cuts did for jobs: jack.

The Bush tax cuts were followed by low GDP growth, negative median wage growth, and little job growth. Even before the Great Recession, growth in the Bush business cycle was the weakest since World War II. And the cuts cost about $2.6 trillion between 2001 and 2010, according to the Economic Policy Institute—adding to a debt future generations of taxpayers will pay for, plus interest.

To be fair, Sarbanes-Oxley played a role here as well. But the record is stark — one of the weakest economic booms since World War II and the tax cuts distinctly failing to “pay for themselves”. Tax cuts can pay for themselves when you’re cutting a marginal rate of 97% (Kennedy) or 70% (Reagan). The don’t pay for themselves when the marginal rate is in the 30’s or lower. No one is quite sure where the Laffer Curve turns over, but it’s not at 0.

On the other hand, we have a bunch of Democrats calling for more stimulus spending under the Keynsian theory that … actually I’m not sure what the Keynsians are on about. The stimulus failed and their response is to claim it wasn’t big enough — the equivalent of saying we’ll really really fly if we just jump off a taller building. Will Wilkinson called it a religion, a belief that government can create an infinite multiplier of loaves and fishes. Given the immunity of the Keynsians to fact, that’s a fair description.

So what do we need to do to get the economy moving?

Deficit Reduction: Bruce Bartlett:

Government mainly affects savings not so much through tax rates as through the budget deficit, which constitutes negative saving. When government borrows, it takes funds out of the economy that would otherwise be available to finance domestic investment. Alternatively, the U.S. must borrow more from foreigners, which increases the trade deficit. In the national income and product accounts, the trade deficit is subtracted from GDP, thus lowering growth.

The bottom line is that neither taxes nor spending by themselves are the most important government contribution to the investment climate; it’s the budget deficit. Consequently, a reduction in tax revenue which raises the deficit is unlikely to stimulate domestic investment because more money will have to be borrowed from abroad. Conversely, a tax increase dedicated to deficit reduction could well be stimulative, as was the case with the 1982 and 1993 tax increases. Contrary to Republican dogma, rapid growth followed on both occasions.

But, scream the Keynesians, austerity kills! Look at Ireland! Look at the UK!

OK, assholes. Let’s look at Ireland:

Ireland was the first of the debt-plagued European countries to cut government consumption significantly in 2009, mainly by reducing government paychecks from 12.3% of GDP in 2009 to 11.8% in 2010.

While such gestures toward fiscal frugality lasted, the country was rewarded with a tolerable risk premium on government bonds. The yield on 10-year Irish government bonds was still 5.3% as recently as last August, compared with 10.7% in Greece. This May, the interest on Irish bonds reached 17.6%. What went wrong?

Back in June 9, 2010, I wrote that “unlike Greece, the Irish economy is showing encouraging signs of recovery.” Ireland’s real GDP had increased by 1.7% in the first quarter, with an 11.7% quarterly rise in industrial production. Manufacturing output increased 29% from November 2009 to July 2010, thanks to growing exports.

Ireland tanked shortly after, which the Kenysians blame on austerity. To them, the logic is inescapable — Ireland cut spending, the economy crashed, QED. They leave out the intermediate step, when Ireland did was Iceland refused to do — bailed out foreign investors in their banks and quadrupled their debt overnight. It was an incredibly stupid move that the EU bullied them into. Claiming that austerity caused Ireland’s ongoing economic woes is like claiming that Mexico won World War II. Yeah, they contributed, a little. But let’s not ignore the bigger players.

OK, OK. But certainly the UK is fucked because of … what was that?

Unemployment is falling at its fastest pace in a decade, official figures reveal, in a boost for George Osborne as he prepares to deliver his Mansion House speech. The Office for National Statistics (ONS) said the number of people unemployed fell by 88,000 in the three months to April, to 2.43 million — the largest drop since the summer of 2000. The unemployment rate was 7.7%, down from 8% three months earlier.

The UK has gained 100,000 private sector jobs even as the government has cut 24,000. The recovery is still fragile and could crumble underneath them. But if we had similar numbers in the United States, the President would be turning cartwheels on the White House lawn and prank-calling Mitt Romney (“Hey Mitt, heard you’re unemployed, hahaha.”). Canada and Puerto Rico have followed this model as well.

The ultimate example here, of course, is Germany, which refused to engage in a stimulus despite pressure from the Administration. I’ll have more to say on them later. But I want you to savor this — at least two, possible more European welfare states have righted the ship while keeping their deficit under control. According to both the Keynsians and the Norquistians out there, this should be impossible. Without stimulus spending or tax cuts, you can’t get an economy moving. But the example of these countries belies this. Hell, the example of our own country in the 80’s and 90’s show this to be false. Both decades saw tax hikes; neither saw any stimulus (the GOP filibustered Clinton 1993 stimulus bill). And yet — miraculously — we recovered. Recovered enough that we could later ease the tax burden.

The Tax Code: Despite my aversion to yet more tax cuts, overhauling the tax code would help a great deal. The tax code, because of its complexities, imposes $200-300 billion of deadweight loss on our economy every year. Cutting that in half would be the equivalent of a permanent and massive tax cut. Reagan’s 1986 tax hike was eased by tax reform, which more than compensated for the economic hurt of higher rates. American corporations spend more time figuring out the tax implications of their business decisions than the business implications of their business decisions. Does this strike anyone as healthy?

The most important thing is to broaden the tax base. Our income tax has become highly dependent on the top earners, who now pay almost all of the tax. This is a problem because when the economy is doing well and the rich are getting seven figure bonuses, revenues boom and governments spend like mad. Then the economy stalls, the rich make less and revenues crash, creating a gaping budget hole. Coburn’s idea of increasing revenue by closing loopholes and tax credits is the right one. It’s not just that it bring in more revenue, it stabilizes the revenue by making it less dependent on a few key economic sectors.

The tax code has also contributed to numerous bubbles, especially the housing bubble through the mortgage interest deduction and the home buyer tax credit. The last thing we need is the government stimulating another bubble — this time in green tech — through either direct spending or tax breaks.

There are other anchors on American business as well — notably the failure of the Administration to enact free trade agreements and the hideously awful Sarbanes-Oxley law. Both need to be dealt with as well.

Our regulatory structure also needs help. How do we expect to build a green economy when it takes a decade just to get the paperwork done for a new power line? Congress should create an agency specifically designed to identify regulatory problems. The idea is that a business could go to this agency and say: “Here — this is the law that’s holding everything up. This is why it’s taking us two years to start a business instead of two minutes. This needs to be fixed.” And Congress would fix these not with waivers doled out to powerful industries but with a repeal that benefits everyone. The most important business to help are the ones that don’t have lobbyists.

The German Model: You can read here about what Germany did to make their economy healthy. It’s a long post, but the gist is that Germany made jobs their sole focus. They enacted provisions to make sure that people stayed working. This meant reforming their unemployment system so that people had to take any job they could find, even if it was “beneath” them. Their unemployment system focused on finding people jobs — any jobs. They also made it easier to hire and fire workers.

I’m not so sure how well this would work here. Our unemployment benefits aren’t as generous and a government job-matching service isn’t that useful in the internet era (and our government would inevitably find a way to fuck it up). But the philosophy — a focus on jobs — is the right one.

One thing we should do it make it easier and cheaper to hire people. The problem is that everything this Administration has done has made it more expensive to hire people. From health insurance mandates to supporting Davis-Bacon mandates to raising the federal minimum wage, they have made it more and more expensive to hire people. And they’re surprised that people aren’t hiring.

The solution seems simple. First, suspend Obamacare provisions or lighten them by allowing cheap high-deductible insurance and HSA’s to qualify (the latter, in my opinion, having the added benefit of fighting rising healthcare costs). Second, suspend Davis-Bacon provisions in federal spending. The Democrats seem to think that 100 jobs at union wages is better than 120 jobs as sub-union wages. I don’t see that. The other thing we could do is lower the “employer contribution” on Social Security and Medicare. Obama almost did this, but decided to cut the employee contribution instead — yet another failed supply-side tax cut.

If you make it easier to hire people, more people will be hired. Take it from a rocket scientist — this isn’t rocket science.

So to sum:

  • Close the deficit, even if it means broadening the tax base.
  • Overhaul the tax code.
  • Repeal Sarbanes-Oxley.
  • Sign the pending free trade agreements.
  • Create a process to identify and remove the most damaging regulatory provisions.
  • Suspend Obamacare or allow HSA’s to qualify.
  • Suspend Davis-Bacon provisions.
  • Reduce the employer contribution on payroll taxes.

I’m not a complete moron. I don’t expect all of the above to happen, certainly not on my suggestion. But we are moving on the first goal. There are rumblings on the second and fourth. And each goal we move on multiplies the effect of the others. If you close the deficit, signs the FTAs and overhaul the tax system, the combined effect will be greater than any of them.

Anyway, those are my thoughts. And I’m judging candidates based on them. Mindless anti-tax rhetoric doesn’t impress me — Pawlenty’s proposal is especially ridiculous. What impresses me is someone looking directly at the issue — thinking in terms of how we make it easier for jobs to be created. When one of our six hundred Presidential candidates gets there, I’ll let you know.

Update: Heh.

Still think that stimuluspatronage bill wasn’t political?

Then check out an awesome paper on the effects of the ARRA (that’s the porkulus bill) titled “The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled“, by Timothy Conley and Bill Dupor, both economists, contending the following:

Our benchmark results suggest that the ARRA created/saved approximately 450 thousand state and local government jobs and destroyed/forestalled roughly one million private sector jobs. State and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases rather than boost private sector employment. The majority of destroyed/forestalled jobs were in growth industries including health, education, professional and business services.

Get it? The democrats basically this bill saved some 450K federal & state jobs – that’s their voter base – at the expense of over a million private sector jobs, which might not even vote for them. So thusly we spend over a trillion – that’s the ARRA with interest – to get a net loss of over half a million jobs. But the donkeys kept their constituents happy-crappy.

Now, I am sure someone will try to point out that it wasn’t this but simply that these people believe government creates jobs, and the jobs it creates are government jobs. Well, thanks a ton. A trillion dollars later I have people that are hostile to me still entrenched, while the goods producing private sector is being told it needs to pony up more cash for them. Can we at least then agree that government spending is not any kind of stimulus spending, but actually destructive to the real economy? Basically we protected big government states from their own malfeasance at the tax payer’s expense, got none of that promised infrastructure, and paid premium dollars for it. Think we will see this on the national news soon?