The Stimulus Seems to have failed

[Malerin]

The adjusted dollar value of the 1981 stimulus is twice that of the of what Obama managed to get despite a significantly worse economic situation due to the near collapse of the banking industry the US was facing when he took office.

Going by "81/82 wisdom" the stimulus should have been 2-3 times as big...

...and consisted entirely of tax cuts

 

[lomiller]

...and consisted entirely of tax cuts

Are you claiming there wasn't a massive increase in military spending as well?

In any case the result of tax cut's was predictable it created the most rapid run-up of peace time debt in US history. The ballooning deficits didn't end until Clinton was elected in 1992.

The right was to do stimulus is short term spending on infrastructure or other items that yield a long term return, because unlike tax cuts it has a predefined end. In the short term it's the deficit spending that provides the stimulus.

 

[ideogram]

To understand why this recession is different, you need to look at the big picture:

This graph depicts quarterly GDP, private investment, government spending and exports between 1970 and 2010

And it was terrible back in 1981/82 and in 1974 too. But somehow they managed to recover from the recession without Obama's (or your) economic wisdom.

Ok. You don't want to actually talk about reality. The graphs speak for themselves. This isn't 1981/82. When you want to have a real conversation, let me know.

Can we talk about the graph?

 

[Malerin]

Are you claiming there wasn't a massive increase in military spending as well?

That's what I'm claiming. Defense spending in the 80's was comparable to defense spending in the 70's, and much less than spending in the 60's.
http://www.truthandpolitics.org/military-relative-size.php

In any case the result of tax cut's was predictable it created the most rapid run-up of peace time debt in US history. The ballooning deficits didn't end until Clinton was elected in 1992.

Wait a minute. YOU pointed out that the 1981 stimulus was larger than the one we recently passed. Now you're bitching about how much it ran up the debt? You don't get to have it both ways.

The right was to do stimulus is short term spending on infrastructure or other items that yield a long term return, because unlike tax cuts it has a predefined end.

Wait, aren't the Bush tax cuts set to expire? Anyway, we know what happened shortly after the 81 stimulus: record economic growth. I don't see that happening anytime soon. We're not even adding enough jobs to keep up with the growth of the labor force.

In the short term it's the deficit spending that provides the stimulus.

I thought you were concerened about debt. Or is debt only a problem when it's a result of tax cuts?

 

[BobTheDonkey]

That's what I'm claiming. Defense spending in the 80's was comparable to defense spending in the 70's, and much less than spending in the 60's.
http://www.truthandpolitics.org/military-relative-size.php





Wait a minute. YOU pointed out that the 1981 stimulus was larger than the one we recently passed. Now you're bitching about how much it ran up the debt? You don't get to have it both ways.

Actually, in this case, he kinda does. See, the two stimuli being discussed happened via different routes. So, in comparison, the '81 stimulus not only was more expensive at the onset (dollar for dollar, adjusted for inflation), the Government's means of paying off it's debt was decreased by the same amount that was spent. Thus, ballooning the deficit. The stimulus as signed by Obama was a one time spending effort that did not cut Government revenue. So, the ability of the Government to pay off it's debt was not diminished in the same manner that the stimulus of '81 did.

Wait, aren't the Bush tax cuts set to expire? Anyway, we know what happened shortly after the 81 stimulus: record economic growth. I don't see that happening anytime soon. We're not even adding enough jobs to keep up with the growth of the labor force.

Right, because more money was in the system. Same as what you see when the Gov't pays for outside contractors. So, in this case, not only is the stimulus increasing monetary flow (which was the real danger, btw - the lack of monetary flow due to Banks puckering up), it's producing long-term physical gains in the way of rebuilt/new infrastructure. It's, essentially, a win-win. The Gov't gets to choose how the money is spent - something tax cuts don't allow the Gov't as much direct say in - while the money is still making it's way to the public sector. And if the tax cuts expire, wouldn't that mean an increase in the Gov't's ability to repay the debt?

I thought you were concerened about debt. Or is debt only a problem when it's a result of tax cuts?

Debt is always a problem. It's a larger problem when you increase debt and decrease revenue at the same time. It's like taking a new job with lower pay while at the same time buying a more expensive house. Just not the wisest financial move. This is opposed to maintaining a relatively similar revenue stream (yes, I know, revenue will be decreased as there is less taxable income - however, 33% of what's available is still higher revenue than 30% of what's available, etc) and purchasing a more expensive house. Increases debt - but the ability to pay off that debt is not as negatively affected.

 

[Malerin]

Wait a minute. YOU pointed out that the 1981 stimulus was larger than the one we recently passed. Now you're bitching about how much it ran up the debt? You don't get to have it both ways.

Actually, in this case, he kinda does. See, the two stimuli being discussed happened via different routes. So, in comparison, the '81 stimulus not only was more expensive at the onset (dollar for dollar, adjusted for inflation), the Government's means of paying off it's debt was decreased by the same amount that was spent. Thus, ballooning the deficit. The stimulus as signed by Obama was a one time spending effort that did not cut Government revenue. So, the ability of the Government to pay off it's debt was not diminished in the same manner that the stimulus of '81 did.

Actually, the latest stimulus had about two hundred billion in tax cuts too (somewhere around there). But either through decreased taxes or increased spending, the governement is going to have less money. There is nothing permanent about either one: spending can be cut off and tax cuts can be reversed.

If anything, I would argue that govt. spending is the harder one to control. Once that money flows out to specific congressional districts, it can be hard as hell to cut off. This is esp. true if a new entitlement program is created. There is no way, for example, that the Medicare Prescription Act will ever be repealed.

But you need to look at the context of the two stimulus acts: national debt level and entitlement spending:
In 1980, total national debt hadn't even hit the trillion mark. It was about 1/3 of GDP. It was possible to pass the tax cuts in 1981 and still not be too concerned about debt levels. Contrast that with Sept. 2008 (right before TARP). Debt-to-GDP had climbed to just under ten trillion (around 70% of GDP). Your margin for error is a lot less with a debt load like that. Nor are these record deficits we've seen expected to be a "one time thing". Trillion-dollar deficits will be the norm for many years. CBO projects Obama's budgets will bring debt-to-GDP up to 90% by 2020. Krugman hand-waves this away from his Ivory Tower, but European countries are already dealing with the effects of such high debt loads. The PIIGS are still in trouble and Germany and Britain just passed (or are going to pass) radically reduced budgets. We'll see how they do in the coming years.

In 1980, Medicare was bringing in a hefty surplus, and would for decades to come. S.S. was in trouble, but was "fixed" in 1983 and also made solvent for decades. That is not the case now. In 2008, for the first time, Medicare had to cash in some of it's IOU's. That will only get worse and there's not even a hint of a fix in the works. S.S. is also in trouble again, but Medicare/Medicaid is the real killer.

So in the context of everything, the stimulus of 81 was far less riskier than the recent stimulus.

Wait, aren't the Bush tax cuts set to expire? Anyway, we know what happened shortly after the 81 stimulus: record economic growth. I don't see that happening anytime soon. We're not even adding enough jobs to keep up with the growth of the labor force.

Right, because more money was in the system. Same as what you see when the Gov't pays for outside contractors. So, in this case, not only is the stimulus increasing monetary flow (which was the real danger, btw - the lack of monetary flow due to Banks puckering up), it's producing long-term physical gains in the way of rebuilt/new infrastructure. It's, essentially, a win-win. The Gov't gets to choose how the money is spent - something tax cuts don't allow the Gov't as much direct say in - while the money is still making it's way to the public sector. And if the tax cuts expire, wouldn't that mean an increase in the Gov't's ability to repay the debt?

It's hard to spend nearly a trillion and not produce some gains. But measured by the goals of the people pushing the stimulus, it has failed. Unemployment was supposed to stay below 8%. That was what, a year ago? It will likely be above 8% for yet another year. Who knows how many jobs the stimulus has "saved", but we know that a net two million have been lost since the stimulus was passed. That also was not supposed to happen.

As to the bolded part, do you think Govt. is a more efficient allocator of resources? I live in California and can tell you that once govt. spending really starts to get going, it creates its own weird inertia. Entrenched interest groups (which my union is a part of) want to make sure that spending doesn't get cut. So it doesn't get cut and now we have obscenely high tax rates and budget battles every year. With all this "allocation" of money by the state, you would think things would be demonstrably better than they were, say, ten years ago. They're not.

I thought you were concerened about debt. Or is debt only a problem when it's a result of tax cuts?

Debt is always a problem. It's a larger problem when you increase debt and decrease revenue at the same time. It's like taking a new job with lower pay while at the same time buying a more expensive house. Just not the wisest financial move. This is opposed to maintaining a relatively similar revenue stream (yes, I know, revenue will be decreased as there is less taxable income - however, 33% of what's available is still higher revenue than 30% of what's available, etc) and purchasing a more expensive house. Increases debt - but the ability to pay off that debt is not as negatively affected.

Which is exactly what we did with the latest stimulus. The tax cuts that were passed cost about $200 billion (http://projects.nytimes.com/44th_president/stimulus). A lot of it was also aid to states. Infrastructure spending was only about $100 billion out of the $750 billion.

 

[lomiller]

If anything, I would argue that govt. spending is the harder one to control.

Argue that all you want, but discretionary spending (essentially everything but Social security, Medicare/Medicaid and debt servicing) must be signed into law every single year while tax cuts remain law until repealed.

What makes spending seem hard to control is the fact that the vast majority of Americans support the programs that spending enables. It’s not only difficult to cut spending without cutting back on services it’s impossible, but that doesn’t stop Republicans from trying!.

 

[BobTheDonkey]

Argue that all you want, but discretionary spending (essentially everything but Social security, Medicare/Medicaid and debt servicing) must be signed into law every single year while tax cuts remain law until repealed.

What makes spending seem hard to control is the fact that the vast majority of Americans support the programs that spending enables. It’s not only difficult to cut spending without cutting back on services it’s impossible, but that doesn’t stop Republicans from trying!.

The TeaParty is a perfect example of this.

While the official stance is that they're all for cutting taxes, ask them what they're willing to give up to make the tax cuts affordable and they have nothing specific. Just a general "We want lower taxes!"

So, there are those that would lower taxes. What spending would be cut to enable these lower taxes to not drive up the deficit?

 

[Malerin]

The TeaParty is a perfect example of this.

While the official stance is that they're all for cutting taxes, ask them what they're willing to give up to make the tax cuts affordable and they have nothing specific. Just a general "We want lower taxes!"

So, there are those that would lower taxes. What spending would be cut to enable these lower taxes to not drive up the deficit?

That's what Matthews always asks on Hardball. There is no answer, of course, besides entitlement reform or crushingly high tax rates. You can make trivial cuts here and there, but it's a drop in the bucket. I see the Tea Party as a symptom that people intuitively know we can't go on like this, but they don't know just how bad things really are or what to do about it. I would guess that if you suggest a base closure to any of these TP'ers (who actually live near said base), they would be up in arms about that.

 

[Malerin]

Argue that all you want, but discretionary spending (essentially everything but Social security, Medicare/Medicaid and debt servicing) must be signed into law every single year while tax cuts remain law until repealed.

What makes spending seem hard to control is the fact that the vast majority of Americans support the programs that spending enables. It’s not only difficult to cut spending without cutting back on services it’s impossible, but that doesn’t stop Republicans from trying!.

I don't really have to argue, you know:

The trend is clear. Toss in a new health care entitlement and which way do you think the graph will go?

 

[lomiller]

What does that graphic have to do with the fact that discretionary spending must be signed into law every year? BTW, you appear to have hotlinked it from another site which is against forum policy


As an addendum, since we have seen that particular graphic before, in places where it’s marginally more relevant it ignores the fact that spending outside Social security, Medicare, Medicaid and military has dropped as a fraction of GDP. Since the people campaigning against more spending are also trying to present themselves as champions of spending on these very programs their positions are suspicious to say the very least.

 

[Malerin]

What does that graphic have to do with the fact that discretionary spending must be signed into law every year?

I withdraw it. You're right about discretionary spending remaining relatively constant (although it grew a bit during the Bush years)

BTW, you appear to have hotlinked it from another site which is against forum policy

Any link is going to go to "another site".
Anyway, here's a Wiki link to the graph: http://en.wikipedia.org/wiki/File:Us_gov_spending_history_1902_2010.png

As an addendum, since we have seen that particular graphic before, in places where it’s marginally more relevant it ignores the fact that spending outside Social security, Medicare, Medicaid and military has dropped as a fraction of GDP. Since the people campaigning against more spending are also trying to present themselves as champions of spending on these very programs their positions are suspicious to say the very least.

I agree, they'll have to tackle entitlement spending. Anything else is just a band-aid. But I'll ammend my claim about spending to reference just entitlement spending- once enacted, it is almost impossible to remove.

Will you do the same about your claim that there was "a massive increase in military spending" in the 80's?

Oh, and tax cuts do not have to be repealed if they're set to expire.

 

[lomiller]

I didn’t say military spending went up since 1980, it actually dropped quite a lot in the 90’s. What I said was that it was increased in the early 80’s which it was. In the early 80’s US military spending climbed back to where it was at the height of the Vietnam War.

It’s obviously climbed as a result of the War’s in Afghanistan and Iraq as well, but that doesn’t show up until the 2010 budget because Bush kept these costs off-budget. Putting these costs into the budget is actually the single biggest “spending increase” in Obama’s 2010 budget vs Bush’s 2009 budget. (Remember the budget process begins a year in advance so 2010 is the first Budget prepared by Obama.)

 

[lomiller]

Oh, and tax cuts do not have to be repealed if they're set to expire.

I guess it’s possible but we don’t have much in the way of good examples to work with. The Bush tax cuts were set to expire so far into the future that they went right though the good economic times when you are supposed to reign in deficits all the way into the next downturn. The net result is that they not only increased debt, they contributed to over-stimulus and helped create the bubble and ensuing crash.

Stimulus needs to end once the economy is picking back up, and needs to be repaid when the economy is back at full speed. It should also be aimed at people who are most likely to spend the money. Most of the $ value for tax cuts tends to end up going to the top end of income earners who don’t change their spending very much.

 

[Malerin]

I didn’t say military spending went up since 1980, it actually dropped quite a lot in the 90’s. What I said was that it was increased in the early 80’s which it was. In the early 80’s US military spending climbed back to where it was at the height of the Vietnam War.

It’s obviously climbed as a result of the War’s in Afghanistan and Iraq as well, but that doesn’t show up until the 2010 budget because Bush kept these costs off-budget. Putting these costs into the budget is actually the single biggest “spending increase” in Obama’s 2010 budget vs Bush’s 2009 budget. (Remember the budget process begins a year in advance so 2010 is the first Budget prepared by Obama.)

It was 9% of GDP at the height of Veitnam. The highest it got in the 80's was barely above 6%.

 

[thaiboxerken]

What did Clinton do to balance the budget?

 

[BobTheDonkey]

It was 9% of GDP at the height of Veitnam. The highest it got in the 80's was barely above 6%.

Some quick math for you:

9% of 100 is 9
6% of 150 is 9

According to the BEA, (in current dollars) GDP in 1970 was $1,038.5B and in 1980 was $2,789.5B.

Thus, I see it very likely that the 6% of GDP in 1980 (or so) was very similar to the 9% of any year of Vietnam.

 

[BeAChooser]

Can we talk about the graph?

Well, why don't we start with what's the source of that graph? Have a link to where it came from?

 

[Malerin]

Some quick math for you:

9% of 100 is 9
6% of 150 is 9

According to the BEA, (in current dollars) GDP in 1970 was $1,038.5B and in 1980 was $2,789.5B.

Thus, I see it very likely that the 6% of GDP in 1980 (or so) was very similar to the 9% of any year of Vietnam.

Which leads to the true but completely irrelevant point that we spend more dollars on defense now than in 1944. Completely useless unless put in context (% of budget, GDP, etc.)

I don't believe Lomiller was being that obtuse, he was just wrong about defense spending in the 80's. I would have agreed with him before I bothered to look it up. I always thought we spent a disproportionately huge amount on defense under Reagan. We didn't:

 

[BobTheDonkey]

Which leads to the true but completely irrelevant point that we spend more dollars on defense now than in 1944. Completely useless unless put in context (% of budget, GDP, etc.)

I don't believe Lomiller was being that obtuse, he was just wrong about defense spending in the 80's. I would have agreed with him before I bothered to look it up. I always thought we spent a disproportionately huge amount on defense under Reagan. We didn't:

[qimg]http://upload.wikimedia.org/wikipedia/en/2/27/U.S._Defense_Spending_-_%25_tutlays.png[/qimg]

Look, what I spend on my rent every month is the same, regardless of whether I work overtime or get a pay raise. It is not erroneous, nor obtuse, to refer to an increase or decrease in actual dollars spent as just that - an increase or decrease, regardless of my income.