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Debate: 2009 US economic stimulus

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*[http://online.wsj.com/article/SB123423402552366409.html Kevin Murphy. "There's No Stimulus Free Lunch". Wall Street Journal. February 10, 2009] *[http://online.wsj.com/article/SB123423402552366409.html Kevin Murphy. "There's No Stimulus Free Lunch". Wall Street Journal. February 10, 2009]
*[http://spectator.org/archives/2009/02/06/unemployment-and-spending/print Brian Wesbury. "Unemployment and Stimulus". The American Spectator. February 6th, 2009] *[http://spectator.org/archives/2009/02/06/unemployment-and-spending/print Brian Wesbury. "Unemployment and Stimulus". The American Spectator. February 6th, 2009]
 +*[http://online.wsj.com/article/SB123353276749137485.html Harold Cole and Lee Ohanian. "How Government Prolonged the Depression". Wall Street Journal. February 2, 2009]
*''Donald J. Boudreaux. "The foolishness of economic 'stimulus'". Christian Science Monitor. January 24, 2008'' *''Donald J. Boudreaux. "The foolishness of economic 'stimulus'". Christian Science Monitor. January 24, 2008''
*''Bernardo Lopez. "Upshot; Flaws in the Stimulus Plan". Business World. January 29, 2009'' *''Bernardo Lopez. "Upshot; Flaws in the Stimulus Plan". Business World. January 29, 2009''

Revision as of 04:35, 12 February 2009

Is the 2009 US economic stimulus package a good plan to combat recession?

Contents

Background

Toward the end of 2008 and in the beginning of 2009, the United States and global economies began to experience widespread recession. Multiple actions were taken to stimulate the economy in early 2008, late 2008, and in the beginning of 2009.
In January 2009, President Obama proposed a roughly $800 billion stimulus package. In early February, both the US House of Representatives and Senate voted to pass modified versions of Obama's stimulus plan, called the American Recovery and Reinvestment Act of 2009. Throughout this period, the nation and world engaged in a vigorous public debate on the merits of the plan, highlighting key philosophical differences in the United States and societies around the world on economic and social theory.

Many questions have framed the debate. Can the government stimulate the economy? Or, is the government incapable of successfully intervening and managing the economy? What does history, particularly surrounding the New Deal's impact on the Great Depression, reveal about the capacity of large spending programs to help end recessions? Is the stimulus package the right size, or is it too large, or event too small? Is the emphasis in the stimulus on spending appropriate, or do tax cuts provide better stimulus and deserve greater emphasis? Are the right kinds of stimulus included in the package? Is it appropriate, for example, to include longer-term spending projects, or does this fail to provide immediate stimulus? Does the stimulus include too much "pork" and room for wasteful spending? What are the consequences of inaction? Would it result in the next depression? Or is the government powerless to help in any case? Might the stimulus actually make things worse by adding to the national debt? Is the Buy American provision appropriate, or will its "protectionist" elements exacerbate the recession? Do the balance of pros and cons favor voting yes and passing the stimulus bill?

See Wikipedia's article on the American Recovery and Reinvestment Act of 2009 for more background.

Government stimulus: Is the government generally capable of stimulating the economy?

Pro

  • Large spending is right approach to stimulating US economy. Martin Feldstein. "Defense Spending Would Be Great Stimulus". Wall Street Journal. December 24, 2008 - "As President-elect Barack Obama and his economic advisers recognize, countering a deep economic recession requires an increase in government spending to offset the sharp decline in consumer outlays and business investment that is now under way. Without that rise in government spending, the economic downturn would be deeper and longer. Although tax cuts for individuals and businesses can help, government spending will have to do the heavy lifting."
  • Majority of economists believe government can stimulate economy. Eugene Robinson. "Roll over the Republicans". Real Clear Politics. February 10, 2009 - "Begin with the most fundamental question: Does the U.S. economy desperately need a massive stimulus, or not? There are economists who doubt it's possible for the government to effectively stimulate an economy of such size and complexity. Those economists, however, are in the minority. [...] The most respected economic wise men and women of both parties believe a huge stimulus is needed quickly to keep a dire economic situation from sinking into catastrophe."
  • 2009 US stimulus will create millions of jobs for unemployed. Barack Obama. "We Can't Afford to Wait". February 9, 2009 - "At [the] core [of the Recovery and Reinvestment Plan] is a very simple idea: to put Americans back to work doing the work America needs done. [...] The plan will save or create three to four million jobs over the next two years. But not just any jobs - jobs that meet the needs we've neglected for far too long and lay the groundwork for long-term economic growth: jobs fixing our schools; computerizing medical records to save costs and save lives; repairing our infrastructure; and investing in renewable energy to help us move toward energy independence. The plan also calls for immediate tax relief for 95 percent of American workers."
  • A successful stimulus can be achieved with proper oversight It is true that a stimulus plan could fail. But, it is also true that the right set of spending and management can procure strong stimulus. For example, it may be important to avoid no-bid contracts and ensure that spending programs are done with a proper dose of competition to ensure that money is used by the most qualified companies for the best results. Transparency and accountability are also important in ensuring that once a company has a contract, it implements is mandate well.


Con

  • Economic stimulus by government intervention always fails Robert Higgs. "Instead of stimulus, do nothing - seriously". Christian Science Monitor. February 9, 2009 - "Hardly anyone [...] is asking the most important question: Should the federal government be doing any of this? [...] Federal intervention rests on the presumption that officials know how to manage the economy and will use this knowledge effectively. This presumption always had a shaky foundation, and we have recently witnessed even more compelling evidence that the government simply does not know what it's doing. The big bailout bill enacted last October; the Federal Reserve's massive, frantic lending for many different purposes; and now the huge stimulus package all look like wild flailing - doing something mainly for the sake of being seen to be doing something - and, of course, enriching politically connected interests in the process."
  • Stimulus spending violates principles of supply-side economics Yaron Brook. "To Stimulate The Economy, Liberate It". Forbes. February 14th, 2008 - "we must first recognize that the key economic activity that causes growth is not consumer spending but production. [...] Economic growth means an increase in the amount of wealth that exists in a country--and all wealth must be produced. [...] The focus of today's stimulus packages on consumer spending is therefore completely backward. Consumption is a consequence of production. This fact is ignored by the Bush plan [and Obama plan], which attempts to achieve prosperity through $100 billion in deficit-spending. Though this might bring the appearance of prosperity, in the same way that an unemployed man appears prosperous if he goes on a shopping spree with his credit cards, the reality will be the opposite."
  • Stimulus is from taxes or debt; injects no new money Stimulus package spends money by first taxing it out of the economy or borrowing it through bonds. Either way, the money injected is not "new" money, but taken from the economy, so adds no new wealth to the economy.


Size: Is the size of the stimulus package appropriate?

Pro

  • Stimulus risks being too small not too large Robert Kuttner, co-editor of The American Prospect. - Stimulus "needs to be adequate to do the job. Eight hundred and twenty billion is about 2.5% of GDP. But the economy is sinking at the rate of five to six percent. So they may find out they have to come back and ask for more." Prominent economist Paul Krugman has also stated he believes that roughly $800b in economic stimulus is "too small".[2]


Con

  • $800 billion stimulus is just too massive. A $800 billion stimulus package is the largest stimulus spending bill ever devised (although there have been some tax cuts that could be considered larger). For this reason, it should be viewed with great suspicion, and, at a minimum, the debate over the bill and areas of wasteful spending should done patiently. Rush such a large bill through Congress makes little sense.
  • Any stimulus is probably inadequate to impact massive US economy. Eliot Spitzer. "Robots, Not Roads". Slate. Jan. 5, 2009 - "the capacity of even the U.S. government to affect the overall global economy is limited. Suppose the package is $800 billion over two years: $400 billion is less than 1 percent of the global economy and a mere 3 percent of the U.S. economy. In relative terms, $400 billion isn't all that much more than the $152 billion spent on the 2008 stimulus, which had nary an impact on the economy."


Growing government: Does US stimulus right/wrongly grow government?

Pro

  • Only about 10% of US stimulus goes to government projects. Barack Obama. "We Can't Afford to Wait". February 9, 2009 - "you may have heard some of the critics of our plan saying that it would create mostly government jobs. That's simply not true. More than 90 percent of these jobs will be in the private sector. More than 90 percent."
  • No evidence that stimulus supporters just want to grow government. While it may be true that some supporters of the stimulus have a hidden agenda to grow government, this is mere speculation, and to oppose the legislation merely on this basis would be to overlook the broader, legitimate arguments involved in the debate.
  • Funding government projects will create jobs, stimulate economy. Steven Pearlstein. "Wanted: Personal Economic Trainers. Apply at Capitol." Washington Post. February 6, 2009 - "And then there is Sen. Tom Coburn (R-Okla.), complaining in Wednesday's Wall Street Journal that of the 3 million jobs that the stimulus package might create or save, one in five will be government jobs, as if there is something inherently inferior or unsatisfactory about that. (Note to Coburn's political director: One in five workers in Oklahoma is employed by government.)"


Con

  • Stimulus will just be used to grow government bureaucracy. The spending in the stimulus will go toward many government programs, growing them so that they become a constant burden on tax payers and constraint for free markets. None of this is desirable, and this is why tax cuts are a better alternative; it provides stimulus without growing government, and in fact, shrinking government.


Spending vs. tax cuts: Which provides a better economic stimulus?

Pro

  • Citizens voted for change reflected in 2009 US stimulus President Barack Obama - "The notion that tax cuts alone will solve all our problems; that we can ignore fundamental challenges like energy independence and the high cost of health care, that we can somehow deal with this in piecemeal fashion and still expect our economy and our country to thrive. I reject those theories, and so did the American people when they went to the polls in November and voted resoundingly for change."[4]


Con


Immediate stimulus: Does the bill provide sufficient immediate stimulus?

Pro

  • Majority of US stimulus is immediate to fight recession now. Jim Horney, director of federal fiscal policy for the Center on Budget and Policy Priorities - "The vast majority of what is in these two bills is pretty good stimulus."[6] This includes "automatic stimulators", such as unemployment benefits and food stamps, money that is typically quickly and fully spent. In addition, the majority of money will be spent within the first year of the stimulus package, providing more short-term, "good" stimulus to get the economy rolling quickly.

Con

  • 2009 US stimulus lacks short-term spending for immediate stimulus John Norquiest. "Stimulus to Nowhere". Planetizen. January 22, 2009 - "Spending projects will take years to get under-way. Is "Shovel-Ready" Enough? State bureaucracies claim to have thousands of "shovel-ready" projects. But examining the list of 'shovel ready' state projects at aashto.org you find a list of decades-old freeway expansion proposals, large-scale projects that according to FHWA estimates, only 27% will be under construction within a year . Intimately familiar with the realities of transportation funding deployment, the nonpartisan Congressional Budget Office offered cautionary advice to the Appropriations Committee on just this point."


Good/bad stimulus: Does the stimulus package contain mostly "good" stimulus?

Pro

  • Stimulus funding for unemployed ensures immediate spending. Barack Obama. "We Can't Afford to Wait". February 9, 2009 - "this plan will provide for extended unemployment insurance, health care and other assistance for workers and families who have lost their jobs in this recession. [...] That will mean an additional $100 per month in unemployment benefits to more than 450,000 Indiana workers, extended unemployment benefits for another 89,000 folks who've been laid off and can't find work, and job training assistance to help more than 51,000 people here get back on their feet. [...] That is not only our moral responsibility - to lend a helping hand to our fellow Americans in times of emergency - but it also makes good economic sense. If you don't have money, you can't spend it. And if people don't spend, our economy will continue to decline."


Con

  • Stimulus lacks important tax cuts for wealthy/businesses "The Stimulus Tragedy". Wall Street Journal (editorial). February 6, 2009 - "Some Democrats claim these transfer payments are stimulating because they go mainly to poor people, who immediately spend the money. Tax cuts for business or for incomes across the board won't work, they add, because those tax cuts go disproportionately to "the rich," who will save the money. But a saved $1 doesn't vanish from the economy, unless it is stuffed into a mattress. It enters the financial system, where it is lent to others; or it is invested in the stock market as capital for businesses; or it is invested in entirely new businesses, which are the real drivers of job creation and prosperity. [...] At the current moment, amid a capital strike, the latter is the kind of fiscal stimulus we really need. Yet there is virtually none of it in the bills now moving through Congress. Senate moderates may succeed in cutting $100 billion or so in spending from the bill, which is political window dressing. Even they aren't talking about adding the kind of tax cuts that would really help the economy now."


"Pork": Does the stimulus contain little or substantial "pork"?

Pro

Con


Infrastructure: Is significant spending on infrastructure appropriate?

Pro


Con

  • US stimulus spends too much on roads and bridges Eliot Spitzer. "Robots, Not Roads". Slate. Jan. 5, 2009 - "The 'off the shelf' infrastructure projects that can be funded immediately and provide immediate demand-side stimulus are almost by definition not the transformative investments we really need. Paving roads, repairing bridges that need refurbishing, and accelerating existing projects are all good and necessary, but not transformative. These projects by and large are building or patching the same economy with the same flaws that got us where we are. Our concern should be that as we look for the next great infrastructure project to transform our economy, we might rebuild the Erie Canal and find ourselves a century behind technologically."


Consequences: What are the consequence of no stimulus?

Pro

  • Stimulus is better than consequences of no stimulus Barack Obama. "We Can't Afford to Wait". February 9, 2009 - "The situation we face could not be more serious. We have inherited an economic crisis as deep and as dire as any since the Great Depression. Economists from across the spectrum have warned that if we don't act immediately, millions more jobs will be lost, and national unemployment rates will approach double digits. More people will lose their homes and their health care. And our nation will sink into a crisis that, at some point, we may be unable to reverse."
Scot Lehigh. "A large stimulus bill for large problems". The Boston Globe. February 6, 2009 - "No one is going to get exactly what they want, but getting nothing is a far, far worse outcome. It would be an act of extreme national stupidity not to enact a big stimulus bill at this point."


Con

  • Allowing recession will enable stronger economic recovery Amity Shlaes. "Obama's gift to GOP is challenge to supply siders". Bloomberg. February 9, 2009 - "Cut the tax rate on capital gains to 5 percent. Halve the corporate tax rate. Fund a new, super-strong Securities and Exchange Commission to monitor anything that's traded, including the haziest derivative. [...] Buy homeowners out of mortgages they can't afford, and protect the rights of lenders. Make Social Security solvent by curtailing the annual growth in benefits. Forget one "S" word, stimulus, and learn to use two "R" words -- rent and recession. [...] Too costly, you might say, or too extreme. But the ideas above are neither costlier nor more extreme than the almost- trillion-dollar stimulus package moving through Congress. And they are more likely to bring long-term growth than the legislation advanced by President Barack Obama."
  • Stimulus may not work; an unacceptable gamble with $1 trillion. Martin Feldstein, chairman of the Council of Economic Advisors under Ronald Reagan, wrote in January 2009, "It is of course possible that the planned surge in government spending will fail. Two or three years from now we could be facing a level of unemployment that is higher than today and that shows no sign of coming down."[7]
  • Fear-mongering on consequences of no US stimulus is wrong David Keene. "From hope to doomsday". The Hill. February 9, 2009 - "There is no denying the seriousness of the current recession, but the specter of a still-popular president on television night after night to predict that things are going to get much, much worse is not something one would call confidence-inspiring. One can lead by inspiring or by trying to scare the heck out of people. In our country, at least, successful presidents have used the inspirational approach — the approach that Mr. Obama took during his campaign, but which he seems to have abandoned."


Debt: Is adding to debt to stimulate the economy justified?

Pro

  • Adding to debt/deficit to fight recession is justified Martin Feldstein. "The case for fiscal stimulus in U.S." The Korea Herald. February 3, 2009 - "Under normal circumstances, I would oppose this rise in the budget deficit and the higher level of government spending. [...] Now, however, increased government spending and the resulting rise in the fiscal deficit are being justified as necessary to deal with the economic downturn [...] When the recession is over, the United States and virtually every other country will have substantially higher debt-to-GDP ratios. At that point, it will be important to develop policies to reduce gradually the relative level of government spending in order to shift to fiscal surpluses and reduce the debt burden."
  • 2009 US stimulus can be paid for by more progressive taxes. Robert Kuttner. "Time to Think Big". American Prospect. February 10, 2009 - "Looking forward, we need a very different sort of economy, one that restores a balanced form of capitalism. At the core of this change is a long-term increase in public outlay, investing in areas vital to economic growth and social decency. Once the recession is over, this increase in public investment needs to be paid for with a more progressive tax system."


Con

Christopher Grey. "Opinion: Why the Stimulus Will Fail". The Street. February 9, 2009 - "In fact, it will further destroy growth and jobs by fueling inflation and higher interest rates. The effect of the stimulus can be summarized best by reversing and paraphrasing Winston Churchill's famous statement regarding the Battle of Britain, 'Never in the field of human conflict was so much owed by so many to so few.'"
  • Spending and borrowing got US into crisis, won't get it out. Andrew Schiff, an investment consultant at Euro Pacific Capital said to Politico: "All this stimulus money is geared toward getting consumers spending and borrowing again. But spending and borrowing were the problem in the first place."[8]


Buy American: Is the "Buy American" provision justified?

Pro

Con

  • Buy American provision will cause protectionism and further harm "How to cause a depression". The Washington Times. February 8, 2009 - "Tucked within the economic stimulus bill the House passed last week was a clause requiring state and local public works agencies to buy American iron and steel for their reconstruction projects, and the Senate expanded it to all manufactured goods. [...] a brief history lesson will show them the folly of their ways. [...] In 1929, in an effort to stimulate the American economy after the stock market crashed, Sen. Reed Smoot and Rep. Willis Hawley, both Republicans, used similar logic to create the Smoot-Hawley Tariff Act, raising tariffs on foreign goods to record levels. President Herbert Hoover signed the bill against the opposition of more than 1,000 economists and numerous business executives. The result was a trade war with Europe, which increased its tariffs on U.S. products. Ultimately, U.S. exports and imports decreased by more than 50 percent in a single year, transforming the recession into the Great Depression [...] But at least Smoot-Hawley left open the freedom to import, whereas what the leadership of the 111th Congress originally wanted to eliminate imports outright."


Public opinion: Where does public opinion stand?

Pro

  • Citizens voted for change reflected in 2009 US stimulus President Barack Obama - "The notion that tax cuts alone will solve all our problems; that we can ignore fundamental challenges like energy independence and the high cost of health care, that we can somehow deal with this in piecemeal fashion and still expect our economy and our country to thrive. I reject those theories, and so did the American people when they went to the polls in November and voted resoundingly for change."[9]


Con

  • American public is ambivalent about 2009 US stimulus plan. Brian Wesbury. "Unemployment and Stimulus". The American Spectator. February 6th, 2009 - "the American people are on board [with the stimulus plan] – sort of. 'They're all over the map,' said Andrew Smith, director of the University of New Hampshire Survey Center. 'The way I would characterize what the public view is they know something has to be done, they're not quite sure what should be done,' Smith said. [...] A national Diageo/Hotline Poll shows 54 percent of registered voters favor the more than $800 billion stimulus package backed by President Barack Obama even if it means increasing the federal deficit. [...] Yet when the same poll asked voters if they thought the package of spending and tax cuts would be spent and managed wisely, 14 percent said they were 'very confident' it would. Twelve percent said they were 'very confident' the stimulus package would be effective in turning around the economy. [...] For voters to hold such disparate views is not uncommon, said Elizabeth Theiss-Morse, a political scientist who studies public opinion and voter behavior at the University of Nebraska. [...] 'It's like people often have the desire for lower taxes and more government services,' she said."


Bipartisanship: Is the bill sufficiently bipartisan?

Pro

  • 2009 US stimulus accomodates Republican tax-cutting views. Eugene Robinson. "Roll over the Republicans". Real Clear Politics. February 10, 2009 - "Obama's plan was criticized by some Democrats for including a heavy component of tax cuts; that's the Republican prescription that helped get us into these desperate straits, and voters made clear in November that it's time to try something else. But Obama and his economic team found that there were only so many "shovel-ready" infrastructure projects to fund, and while straightforward government spending packs a bigger stimulative punch, tax cuts would help to some degree. So, from the beginning, the plan accommodated Republican ideology."


Con

Pro/con sources

Pro

Con


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