Fiscal Straightjacket

So says Jeffrey Sachs,

The US debate over the fiscal stimulus is remarkable in its neglect of the medium term — that is, the budgetary challenges over a period of five to 10 years. Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package.

Not to mention foreign investors whom we’ll need to buy up all this debt.

We are told that we have to rush without thinking lest the entire economy collapse. This is belied by recent events. The spring 2008 stimulus package of $100bn (€76bn, £71bn) in tax rebates was rushed into effect in a similar way and we now know it had little stimulus effect. The rebates were largely saved or used to pay down credit card debt, rather than spent. The $700bn troubled asset relief programme bail-out was also rushed into effect and its results have been notoriously poor.

So obviously we need something bigger and $900 billion is larger than $800 billion, so there. Nothing to worry about.

The Tarp has not revived the banks or their lending, but it has supported a massive transfer of taxpayer wealth to the management and owners of well-connected financial institutions. Some of those transfers — as in the case of Merrill Lynch using its government-financed sale to Bank of America to enable $4bn in bonuses last month — are beyond egregious. Yet the US is now inured to corruption and in such a rush that even billions of dollars of public funds shovelled into Merrill’s private pockets in broad daylight barely merited a day’s news cycle.

I’m just trying to figure out how I can get in on the pork train that Team Obama is cooking up. I’d like some bacon, some pork chops, and some baby back ribs please.

Seriously what is up with all these moronic programs? Why are we going to spend $355 million on STD prevention in a bill to stimulate the economy (no pun intended). Seriously, everybody says, “We need to get the money to the people who will spend it!” Okay, here is an idea and its simple and easy. Take a significant chunk of that money and send it directly to the bottom 20% of the income distribution. They’ll likely spend it so you’ll get that multiplier everyone argues over…well your more likley to anyways. Instead we have all these special little programs. Gotta cater to those lobbiests during these troubled times.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Steve, this fiasco has become utterly depressing. Where are the Big Media types who ought to be screaming at the public telling them they are being lied to and stolen from?

    I think America just died but the corpse will remain animated for a while yet. It is as though the body politic has been stung by a ichneumon wasp whose larvae is devouring us from the inside in such a way as to prolong the agony as long as possible as it eats away at our vital organs. Everything appears ok from the outside right up until the end when all that’s left is a hollow shell.

    Bastards.

  2. mike says:

    why not give it to the bottom 20% or halt fed income taxes for a few months – b/c that does not give Congress/gov’t the power to control the US – there are no new programs like how not to catch the clap or how not to spread herpes

    every intelligent person knows why not to give the money to the people who will spend it in the ways it needs to be spent – control – plain and simple

  3. markm says:

    I’m just trying to figure out how I can get in on the pork train that Team Obama is cooking up.

    That’s easy..quickly start not paying your mortgage…once you get to 60+ days o’due they are supposed to either lower your intrest rate or make the bank eat a little off the top so you can afford it (read as free money).

    OR…try really super super hard to come down with some crotch crabs…I hear they have $355MEG they’ll throw in your lap to prevent that stuff. Allz you need to do is show Uncle Sam your wounded Chelipad and you-are-set!.

  4. odograph says:

    I am not enamored of the $800B “stimulus” bill that has by some measures just $30B of stimulus.

    But neither am I enamored of the games played by detractors. Just watch they say, the economy won’t any better in a year. Well, that’s the frickin’ point and to applaud ruin while doing nothing is … duly noted.

    My guess is that the Republican will come up empty on this in a couple years. They gamble that people blame the Democrats for a bad economy while forgetting that (a) helped make this disaster in the Bush years, and (b) washed their hands of cleaning it up.

  5. odograph says:

    Charles, did the media tell the truth when Alan Greenspan put the economy on crack?

  6. markm says:

    But neither am I enamored of the games played by detractors. Just watch they say,

    the economy won’t any better in a year.

    My guess is that the Republican

    They gamble that people blame the Democrats for a bad economy while forgetting that (a) helped make this disaster in the Bush years, and (b) washed their hands of cleaning it up

    .

    Your they are what for the that’s the emprob.

  7. steve s says:

    OMG! OMG! .5% of the bailout goes to something with sex in the title! OMG!

    Seriously, steve, get a grip. (and put down the Ayn Rand books while you’re at it. You’re not 19 anymore.)

  8. Steve Verdon says:

    But neither am I enamored of the games played by detractors. Just watch they say, the economy won’t any better in a year. Well, that’s the frickin’ point and to applaud ruin while doing nothing is … duly noted.

    I’m not enamored with the games played by supporters. I think back to the comment by Rahm Emmanuel on not letting a good crisis go to waste when trying to implement one’s agenda. Playing politics while we are the road to ruin is duly noted.

    They [Republicans] gamble that people blame the Democrats for a bad economy while forgetting that (a) helped make this disaster in the Bush years, and (b) washed their hands of cleaning it up.

    (a) The public’s memory is not that long.
    (b) A sufficiently well funded and intense propaganda campaign will get most members of the public to believe anything.

    In other words, what happens today will be of little consequence in 4 years. Its kind of a what have you done for me lately thing.

  9. Steve Verdon says:

    steve,

    You really are an unpleasant bigot aren’t you. I’ve never read any of Ayn Rand’s books.

    Further, it isn’t sex, it is that it is stupid to be funding that when the supposed goal is jump starting the economy. A simpler and more direct route would be to put cash in the hands of those people most likely to spend it since that is supposed to be where the biggest multipliers are.

    Funding STD prevention, while a worthwhile cause, shouldn’t be funded under the rubric of fiscal stimulus.

  10. just me says:

    But Steve, didn’t Cheney teach us that “deficits don’t matter”?. Or is that only applicable for Republican administrations?

  11. Franklin says:

    While this is being sold as a stimulus bill, it indeed has lots of long-range investment. I don’t have a problem with long-term planning in theory (and I think some infrastructure improvements are WAY overdue), but you’re right, of course, that the bill should be sold honestly.

    I’m curious to see what kind of the promised “painful cuts” will be made in the general budget for this year.

  12. odograph says:

    I’m more a grudging acceptor, than an advocate of stimulus … but I think there are some odd things about Steve’s response to me.

    First “never let a crisis go to waste” sounds good until you think about it. As if the rational course were “ignore all crisis until they go away.”

    The second part is really interesting, in which he essentially acknowledges the Republican role in making the mess, and first “going all socialist” under Paulson, and then retreating from the field to sulk, post election.

    He accepts it, but thinks he can market past it.

    Telling. Very.

  13. Charles, did the media tell the truth when Alan Greenspan put the economy on crack?

    Is there a point here?

    First “never let a crisis go to waste” sounds good until you think about it. As if the rational course were “ignore all crisis until they go away.”

    You don’t get it. I mean you really don’t get it.

  14. odograph says:

    charles, I think you deserve a “you made this mess, #$%^&”

  15. odograph says:
  16. odograph, on your linked article I call bullshit. The White House and members of Congress tried to do something about Fannie Mae and Freddie Mac for many years and each time Rep. Frank, Senator Dodd and friends got in the way and made sure nothing could be done about them. As others have said before, you are entitled to your opinion but not your own set of facts.

    As to your other comment, I have no idea what you are trying to say.

  17. Steve Verdon says:

    But Steve, didn’t Cheney teach us that “deficits don’t matter”?. Or is that only applicable for Republican administrations?

    God I hated that moment. Cheney really need a punch in the mouth after saying that, IMO.

    I’m curious to see what kind of the promised “painful cuts” will be made in the general budget for this year.

    None.

    Odograph,

    First “never let a crisis go to waste” sounds good until you think about it. As if the rational course were “ignore all crisis until they go away.”

    Well that was the common view prior to the Great Depression, at least in terms of economic policy. Recessions were seen as a natural part of the business cycle, even corrective.

    Now instead of correcting erroneous expectations, bad planning, and so forth…we implicitly reward those things assuring that the problems don’t really go away at least not quickly.

    From the Ritzhotz link,

    “The administration’s blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.”

    I think charactrizing this view as “trusting market forces” is misleading. The problem is that it wasn’t just market forces. Everyone likes to pretend that prior to the financial crisis that the financial sector was some sort of un-regulated free market expriment that unfortunately blew up becuase markets are volatile.

    Anyone who thinks this is a fool. What we had were markets that were already distorted by government rules, regulations, and bailouts. Further, this government was an active player in the markets as well as in changing the rules. This can create a very unstable market, IMO.

    Perhaps it was foolish to not take proactive steps earlier, but to use the term “market forces” and “free market”, even implicitly, to describe the financial sector prior to melt down suggests an amazing level of intellectually dishonest.

    In fact, I look at this,

    Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

    The bold portion is one reason why I think that government will always end up being a failure. This is one of the lessons of Public Choice theory.

    The banks that lobbied most aggressively against the rules reads like a who’s who of bankruptcy and FDIC conservatorship: IndyMac, Countrywide Financial, Washington Mutual, Lehman Brothers, and Downey Savings.

    I read that an wonder: How can a person look at that and think, “Oh, discrtionary government policy is a good thing!” Those banks went out and influenced the government to do something that was foolish. Sounded like a good idea at the time, but in the end it was foolish.

  18. odograph says:

    Your call doesn’t bother me at all Charles. I’ve got more reasonable support wall to wall.

    Remember, for instance, when John McCain’s response was to call for the head of Chris Cox. Hardly a “liberal” pundit there.

    Heck, go to wikipedia where their hard fought editing battle become our measured consensus:

    Financial crisis of 2007—2009