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  • Why the Stimulus Won't Work: Thugs Ransacking My House

    Arnold Kling

    Last speaker on the morning panel, Cato Institute adjunct scholar Arnold Kling.

    Kling begins somberly: “I think about what’s going on as an economist but I feel it as a father. My wife and I have three daughters between the ages of 19 and 25. And when I see what’s being done to their future I’m really angry. Back in September when they were talking about taking $700 billion dollars to unclog the financial system I wanted to yank Henry Paulson out of the TV screen and say to him: “Keep your hands off my daughter’s future.” But he got away with it. For me it felt like sitting there watching my home being ransacked by a gang of thugs. And now we’ve got a new gang of thugs and they are doing the same thing. So that’s how I feel, now back to how I think.”

    Kling says this is a big bill, but not a big stimulus. There is nothing timely, targeted, or temporary about it. It is a simple transfer of money from one set of people to favored interest groups of the Democratic Party.

    If economists had designed a plan, instead of Democratic politicians, it would look a lot like Greg Mankiw’s plan which calls for an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax.

    Kling stressed that profits are the key to economic recovery. Profits and losses are signals in a market economy. Huge losses in the financial sector signal that that sector needs to shrink. Instead Obama is talking about buying and insuring toxic assets. They think they can force the financial sector to lend. But if businesses are not profitable then it makes no sense to lend. Cuts in payroll tax would make businesses more profitable.

    UPDATE: Kling has since gotten in trouble with the PC Police for the statement above. An early liveblogged version of his remarks left out his first mention of Paulson and mentioned Barack Obama by name. Kling did not mention Obama by name at all in his opening paragraph. The above transcript is from a video of the event that will be on YouTube. We deeply regret the error and offer a sincere apology to Mr. Kling.

    Posted in Ongoing Priorities [slideshow_deploy]

    18 Responses to Why the Stimulus Won't Work: Thugs Ransacking My House

    1. Marilyn Morgan says:

      I agree with your thoughts. We do need to cut taxes to get the economy growing again. I do not believe the stimulus in its present form will work. Economists not congressmen should be drafting the proposals.

    2. John Schuh, Lake Dal says:

      Mr. Kling nails it. The chilling thing is that the Democrats are making no real effort to hide what they are doing. To the victors belong the spoils. Now we have Obama handing out cars and kitchens.

    3. Chris, Phoenix, AZ says:

      Well, didn't Barack Obama himself say, "There will be a time for them to make profits and a time for them to receive bonuses. Now is not that time"? He, like the rest of the liberals in this country believe that profits are a sign of greed. Too bad they can't put together the fact that the man's wage and the business' profit are one and the same.

    4. Pingback: Actually, Quite A Few Economists Oppose The Stimulus Package « Nice Deb

    5. Pingback: Boudreaux: FDR’s Policies Put the ‘Great’ in Great Depression » The Foundry

    6. Bryan Entzminger | N says:

      I just can't imagine what investor would want to put more money into the management of people who had proven they couldn't manage what they already had.

    7. Ozzy6900, CT says:

      Mr. King is absolutely correct. Too bad that student that has been working 4 years at McDonald's "with no way out" do not under stand this! Too many people want the Government to do everything for them – they have been "trained" this way by the Left. Now the Left has their chance to everything that we have stopped them from doing over the years.

    8. Rodger Potocki, New says:

      The country voted for a rookie who was big on platitude and short on details. We now have a President who is big on platitude and short on details. Filing the gap is the liberal Congress which will not in the words of an ex member,"let a crises go to waste." Obama is just a front man along for the ride.

    9. jsfox, NH says:

      Funny, Kling is now singing a different tune than he did back in 2000, when he was all for stimulus spending.

      "Arguing in My Spare Time" No. 3.28

      by Arnold Kling December 20, 2000

      Times may not be good much longer. In January, I predicted that the next President would face a recession caused by a stock market crash. Also, I predicted that the President's economic advisers might not know what to do about it. Subsequent developments have been along the lines that I feared.

      The father of macroeconomics is John Maynard Keynes. Since the 1960's, his reputation has declined steadily, particularly among conservative economists. I continue to believe that Keynes is relevant today. What follows is some elementary Keynesian economics that President-elect Bush is likely to need but unlikely to hear.

      My Recommendation

      Overall, if you accept points (1) – (5), there is a case for thinking in terms of turning the Federal Budget in the direction of a deficit. How should this be done?

      One approach that would be congenial to Bush would be a large tax cut. Unfortunately, much of the tax cut that was part of his campaign was "back-loaded," with the larger cuts occurring farther into the future. If anything, we probably need a more front-loaded tax cut.

      In addition, some of the tax cuts most popular with Republicans may not be very stimulative, because they are likely to be saved rather than spent. For example, eliminating the "death tax" is unlikely to unleash much spending. I cannot imagine that the marginal propensity to consume out of inheritances over $700,000 (smaller inheritances are tax-free today) is very high.

      Another approach to running a deficit would be to increase Federal spending. However, the notion that the first Republican President-plus-Congress since 1952 would go on a spending spree is difficult to contemplate.

      An alternative would be to give large grants to state governments–what used to be called general revenue sharing. For example, the Federal government might give each state $1,000 for every person living in that state. This would amount to a $280 billion program.

      One impact of a recession is to reduce state revenues. Because they are obliged to balance their budgets, this leads them to reduce spending. The result is to reinforce the downturn. However, with revenue sharing, the states would have less need to cut back.

      In conclusion, I believe that a large, temporary revenue-sharing program would be a good approach for fighting a recession. This form of fiscal stimulus would quickly find its way into the economy. Unfortunately, I suspect that there is little chance of any Keynes getting through to Bush.

    10. Conn Carroll Conn Carroll says:

      jsfox needs to read Kling's blog more often. Then we would know that Kling has been for a small stimulus from the beginning:

      http://econlog.econlib.org//archives/2009/01/talk

      I guess jsfox doesn't see the difference between $280 billion in tax cuts and $1.2 trillion in permanent new spending.

    11. Pingback: de libertate » What happens when you look for racism under every rock?

    12. Barney Murrell says:

      In his inauguration speech Reagan claimed “government is not the solution… government is the problem.” Consequently, it has been economically downhill since those words were spoken, with deregulation generating business bankruptcies and tax cuts that conservative think are the solution to all problems from war to deficits.

      Conservatives claim tax cuts to the wealthy “trickle down” to the masses, but Congressional Budget Office Historical Effective Federal Tax Rates 1979-2005 prove the opposite – wealth “trickles up” under conservative economics. Based on CBO data the bottom 80 percent of taxpayers saw their share of After Tax Income fall from 57 to 49 percent; while the top 20 percent share increased from 43 to 51 percent between 1980 and 2005.

      Another conservative prevarication is that tax cuts increase revenue, but the claim is superfluous when the deficit and national debt increase by larger percentages. Financial data from Federal Budget Historical Tables 1.1, 2.1, and 7.1 can be used to calculate and compare increases in non-Social Security revenue with increases in deficits and national debt.

      Under Reagan non-SS revenue increased 60 percent but national debt increased 186 percent. Under Clinton non-SS revenue increased 102 percent and national debt 40 percent. Under G.W. Bush – thru 2007 – non-SS revenue increased 24 percent while the national debt increased 59%, and that calculation was with a national debt of $9 trillion, which is now over $10 trillion.

    13. AsianDudeCA says:

      I consider myself as a hard working middle class Asian American. Living in the Silicon Valley near San Francisco, everything is expensive. As an engineer, I too face the possibility of losing my job. Based on what I gathered on Obama's "stimulus" package, I will not benefit much from it. It is simple for me, if the package contains tax cuts and may be something in the technology development area, I would be happy. But the bottom line is tax cut would stimulate spending, at least that's what I would do (e.g. replacing my old computer, updating my home, taking a vacation every year, and continue to send my kids to private schools). I believe Obama's economic stimulus package contains too many provisions for special interest groups, which I oppose. Also, I believe it also shows how inexperienced he is in handling a big problem like this. Sad day for America!

    14. Sheila Byrne, Sacram says:

      If the government had enough money, we would not have been listening for years to the song of 'Deficit Spending.' They never have enough and if they do it is fleeting.

      A diversion for those of us who do have money. Buy gold. And if we do, what is to keep the government from confiscating it in the name of the common good. Think before you spend IRAs are not totally yours. People who had that kind of wealth used it to escape Europe one step ahead of Hitler. Where are we supposed to go. I hear Chili has great fruit.

    15. Pingback: de libertate » Kling Vindication

    16. Pingback: The Blogosphere Has Corrected the Record | Think Tank West

    17. Pingback: Blackmoor Vituperative » Obama’s stimulus package won’t work

    18. Pingback: Balloon Juice » Blog Archive » Teabagging with Bobo

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