Reply With Quote
It's always hard to fix other peoples ups...
Obamanomics 101: Failure Explained
According to President Obama, “every economist who’s looked at it says that the Recovery Act has done its job.” The four economists gathered at the National Press Club on Tuesday were apparently not asked for their opinions on the matter.
Tuesday’s program, “Debt and Deficits: Implications for U.S. and Global Economic Recovery,” featured a panel of academics who addressed not only the unsustainable rate of spending but also legislative solutions to rein in the $13 trillion debt. Naturally, to remedy any situation, it is essential to understand the source of the problem.
That problem is ignoring the second half of the Keynesian model: Spending must be financed, and long-term financing results in rising debt. Veronique DeRugy, a Senior Research Fellow at George Mason University’s Mercatus Center, explains that “in Keynesian thought, a fall in economic demand causes a fall in spending.” A decrease in spending makes a nation poorer; thus when the government makes budget cuts, the result is job loss. That seems pretty uncontroversial, but Keynesians argue that government spending can take the place of private spending to revitalize demand and economic growth. So, does it work?
DeRugy cites a study by Harvard’s Robert Barro and Charles Redlick in which they analyze the effects of government spending on the overall economy, using defense spending as a proxy. Barro and Redlick concluded that one dollar of government spending results in a growth in GDP of 40–70 cents—a strong negative relationship between government size and economic growth. In other words, not a very savvy investment.
The ultimate test case for the Keynesian model, of course, is the American Recovery and Reinvestment Act, which promised that 3.5 million private sector jobs would be created at a price of $787 billion. The President warned that if the stimulus were not signed into law, the country could face 8.8 percent unemployment.
One only needs the post-enactment facts in order to ascertain the success of the stimulus bill:
862,000 jobs created at an average cost of $282,000 per public sector job and $647,000 per private sector job
Four of five jobs created are in the public sector
Government spending is not correlated to areas of high unemployment, and
The rate of unemployment has reached 9.3 percent after peaking at 10 percent.
The facts confirm the Barro and Redlick—and countless others’—research. The Keynesian model didn’t work in the case of the current recession, and even if one accepts the stimulus as an a priori good, it is unsustainable at its current rate. According to David Primo, associate professor at the University or Rochester, “Bailing out states rewards their bad behavior.” When states receive federal funds to sustain their spending habits, they are not forced to “face the music” and engage in budget reform. Essentially, it is that budgetary reform that targets the source of the financial crisis and will ultimately fix it.
What form should state and federal budget overhaul take? Primo suggests a Cons utional Budgetary Rule that is broad in scope, has few escape clauses, and affords minimal accounting discretion. Such a rule would create the congressional commitment and external enforcement that render current efforts to cut spending ineffective. Without strong external enforcement and minimal loopholes, reform proposals are “gimmicks at worst, band-aids at best,” says Primo.
When states are faced with the task of cutting spending, they will have to make unpleasant and politically unpopular choices, but those choices are easier to make before Congress faces a fiscal emergency that will force its hand. A gradual cut in spending and the necessary corollary decrease in en lements will also be easier for the public to swallow.
That is why Miron, Primo, and DeRugy propose that serious budget reform begin now, gradually cutting spending over the course of time. Cutting en lements will be unavoidable because “even if we slashed [all spending] except for unemployment, it would only buy us a few years until we reach credit default,” says Miron. In fact, he suggests a Social Security freeze while phasing out other programs.
After, or in conjunction with, the initial spending reductions, Bruce Yandle, former Executive Director of the Federal Trade Commission, suggests a strict budgetary statute or the kind cons utional of amendment Primo proposes. A cons utional amendment on the federal level may be unlikely, but states could more feasibly enact such a measure, spurring economic growth.
The stimulus bill failed to do just that: spur economic growth. Yandle explains what is at stake if the deficit continues to grow:
[The average family’s] private world will contract while the public sector expands. Their expectations for future wealth and prosperity will gradually be revised. And they will not likely know that deficits and public debt led to these results.
In the wake of a failed stimulus package, one might think that “if at first you don’t succeed” doesn’t apply to the logic of economics. Think again, because the Administration is pushing a second, larger stimulus bill. That’s Obamanomics.
Cristina Goizueta is currently a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm
It's always hard to fix other peoples ups...
No you don't understand, the economy was booming before the socialist took over..
in one minute i doubt you read it. thanks for the posts. It adds so much to this specific topic and isn't a one sided slanted generalization that has no true facts to base it on.
sincerley,
the guy who started another thread that contains a one sided, slanted generalization that is not based in any truth or fact
Yeah 1 year is not enough time to fix 8 years of ups...
One cannot comprehend. The other cannot add. Neither can read or they would read the article. Instead they cower away in nonsense.
That's because their party is senseless.
It's fun to come back without even reading or knowing the facts and just blindly defend your side...now I see why the other side responds like this all the time...it's easy and fun...
Oh I forgot...we had a surplus before Bush...but now look where we are...
Unemployment is worse that even Obama said it would be if HIS recovery plan wasn't implemented.
The deficit is quadruple what it was under Bush.
So, when does he start fixing things?
Katrina happened under Bush...this is addicting...
What Heritage doesn't say is that the deficit that they are using to whine about spending and budget is almost completely due to Repug tax cuts and botched, bogus wars.
btw, national security spending has ballooned from $30/2001 to $75/now. Was that $45B paid for by cuts elsewhere? Anybody feel safer? Any lives saved? Any privacy left?
does the economy growing count as fixin?
Bush spent 487 days at Camp David and 490 days at his Ranch in Texas instead of the White House...
you've obviuosly missed the obama vacation threads...it's like the dead enders were born on or after 1/20/2009
of course they would tell you Bush never stopped working on his vacations...
Bush falsely invaded Iraq which has cost more than $300 billion dollars...
According to President Obama, “every economist who’s looked at it says that the Recovery Act has done its job.” The four economists gathered at the National Press Club on Tuesday were apparently not asked for their opinions on the matter.of course if he asks no one, then no one disagrees with him.
don't forget the billions lost in iraq... that was soooooo yesterday..
Let's not bring up the unecessary 5,000 dead GIs...
Obama is a socialist!!!
Depends on where its growing and how that growth is calculated...
But, no, it doesn't count.
Millions more than Obama promised would be, are unemployed after he said his stimulus package would reverse the trend.
Trillions more in debt on a recovery that economists say is not working.
, even Democrats and Bernanke are imploring Obama not to let the Bush tax cuts expire.
Why? Because they know it will wreck what's left of public confidence.
I never knew the US economy could be explained in 3 sentences.. thanks for the education.
Don't worry Yoni your side is doing their part to make things sound as dire as possible..
If it was working, there would be jobs. therefor no need to extend the unemployment welfare program.
Not only would there be jobs...there'd be more jobs than there were when this "recovery" was ins uted.
That was the promise.
The truth is pretty dire, right now.
so then you acknowledge that unemployment insurance is necessary because their are no new jobs..and you support the extension the republicans just fought against...
There are currently 1 users browsing this thread. (0 members and 1 guests)
Posting Permissions
