Economy

Jerrold Nadler’s Fiscal Fantasies: Herbert Hoover Increased Spending, He Did Not “Slash the Budget” During the Great Depression

by Hans Bader on October 5, 2011

in Economy, Employment, Politics as Usual, Sanctimony

Attacking the idea of a Balanced Budget Amendment, “Congressman Jerrold Nadler (D-NY), the top Democrat on the House Judiciary Subcommittee on the Constitution,” issued a press release on October 4 promoting the falsehood that Herbert Hoover cut spending during the Great Depression, when in reality, Hoover more than doubled government spending as a percentage of GDP:

“Did Herbert Hoover win the last election?” asked Nadler. “If, in the middle of a recession, when tax revenues are down, and unemployment is up, we begin to slash the budget in ways my Republican colleagues are now suggesting, much less the far more draconian measures that this amendment would require, we will go from the Great Recession, right into another Great Depression. It’s been tried before, and if we want the Constitution to enshrine Hooverism for all time, we will get what we deserve.”

Nadler is wrong about the facts here, as he so often is. As I recently noted in the Edmonton Journal:

Former U.S. president Herbert Hoover did not practice austerity, so it is incorrect for politicians to claim that he “helped plunge his country into the Great Depression through austerity measures.”

Hoover’s administration increased federal government spending from three per cent of the U.S. economy in 1929, the year he took office, to eight per cent in 1933, the year he left office.

The U.S. budget deficit became so large as a result that by 1932, the country’s government was spending more than $2 for every dollar it took in.

It was not austerity that caused the Great Depression, but misguided government meddling in the economy, such as the Smoot-Hawley Tariff of 1930.

That increased tariff backed by Hoover ignited devastating trade wars between the U.S. and other countries that wiped out countless jobs.

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Infrastructure Si, Infrastructure Bank No

by Ivan Osorio on September 15, 2011

in Deregulate to Stimulate, Economy, Energy, Tech & Telecom

In his Forbes column, James Glassman provides a counterpoint to the Obama proposal to create a national infrastructure bank. Rather than direct funds through a new federal bureaucracy, he proposes, government should lift the barriers that are holding back private infrastructure investment.

[T]two of the largest prospective infrastructure investments in America are being blocked, or at least delayed, by government. One would result from the merger of AT&T and T-Mobile, which I discussed earlier on Forbes.com. The merger would accelerate deployment of a nationwide LTE 4G wireless network that would bring high-speed broadband to 97 percent of Americans.

The second investment involves energy. Wood Mackenzie, a consulting firm, recently released a report that showed that if the U.S. government allows further sensible energy development projects to go ahead, the results of building and benefiting from the new infrastructure would be over 1 million new jobs by 2018 and over $800 billion in extra government revenues by 2030.

Part of the problem is President Obama’s steadfast clinging to the notion of government spending as job creator. Obama unwittingly revealed the failure of that vision, as Glassman notes.

In his speech to a joint session of Congress, President Obama outlined a different set of taxpayer-funded infrastructure spending:

“The American Jobs Act will repair and modernize at least 35,000 schools.  It will put people to work right now fixing roofs and windows, installing science labs and high-speed Internet in classrooms all across this country.  It will rehabilitate homes and businesses in communities hit hardest by foreclosures.  It will jumpstart thousands of transportation projects all across the country.”

The problem is that, no matter how well-meaning such projects may be, spending on them will be determined by political considerations.

The politicized nature of an infrastructure bank is underscored by the fact that, as The Bond Buyer notes today, “The bank would be run by a chief executive officer and a seven-member board of directors, all of whom would be appointed by the president and confirmed by the Senate.”

Another problem is that, if Obama’s remarks are anything to go by, none of the projects he mentions (except for the passing mention of his bill’s intent to “rehabilitate homes and businesses”) has much wealth-creating potential. He seems more focused on handing out more government contracts than on giving businesses the freedom to grow — and hire.

Infrastructure always needs money, but the choice is not funding si o no, but over which is a better way to provide funding over the long term: increasing direct government spending — and  the cost of government on the private sector with it — or allowing businesses to flourish and therefore expand the tax base, by keeping taxes low and regulation light.

Stimulating Language

by Ryan Young on September 6, 2011 · 2 comments

in Deregulate to Stimulate, Economy, Features, Stimulus to Nowhere

Post image for Stimulating Language

I’ve argued for a long time that stimulus bills are poorly named; it implies that they stimulate the economy. “Spending bill” is a non-loaded term that has the added advantage of being accurate. Both parties have passed spending bills over the years in the hopes of stimulating the economy. Intentions being different than results, Democrats are finally starting to agree with me on this misuse of language, as The Hill reports:

Democrats are now being careful to frame their job-creation agenda in language excluding references to any stimulus, even though their favored policies for ending the deepest recession since the Great Depression are largely the same.

The article continues:

Recognizing the unpopularity of the 2009 package, however, Democratic leaders have revised their message with less loaded language – “job creation” instead of “stimulus” and “Make it in America” in lieu of “Recovery Act” – in hopes of tackling the jobs crisis.

Spending bills work by taking some money out of the economy and then putting it back in, minus transaction costs and political malfeasance; one can see why they don’t have much effect. The thinking is that Congress can invest money more wisely than private investors. If Solyndra is any indicator, that isn’t true.

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More Failed Stimulus Proposals from Obama Administration: Increase Wasteful Education Spending

by Hans Bader on September 2, 2011

in Economy, Stimulus to Nowhere

In a vain effort to try to stimulate the economy, the Obama administration reportedly wants to dump more money into school construction, even though “K-12 facilities spending” is “up 150 percent in two decades,” including monumentally wasteful spending such as the $578 million spent on L.A.’s RFK high school. Obama also wants to dump more money into “K-12 employment” that “has been growing 10 times faster than enrollment for forty years.” In so doing, President Obama has turned a deaf ear to experts who say it makes no sense to increase education spending further. (Much federal education spending is wasted, like the $130,000 in stimulus money spent on a book that demonized white people and promoted racial stereotypes.)

Most education spending does not qualify as a “stimulus,” since it has no short-term economic payoff, and thus can’t jump-start the economy. During the Great Depression, President Roosevelt, a pioneer of “stimulus” spending, actually cut federal education spending, as historian Gordon Lloyd has noted. (See Gordon Lloyd, The Two Faces of Liberalism: How the Hoover-Roosevelt Debate Shapes the 21st Century (2006).) While Roosevelt spent lots of money on other things, and spent more than any other President before him, even the big-spending Roosevelt realized that education spending does nothing to end recessions, and does not jump-start the economy, even if it might be helpful to the economy in the long-run. The Obama administration does not have a clue about how to revive the economy. It claimed that Obama’s $800 billion stimulus package would deliver a short-run “jolt” that would quickly lift the economy, but unemployment rose very rapidly after its passage, and it destroyed thousands of jobs in America’s export sector and elsewhere while outsourcing thousands of energy jobs to foreign countries like China.

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Failures of Auto Bailouts Hidden by Deceptive Accounting and Bogus Jobs Figures

by Hans Bader on June 7, 2011

in Bailout Watch, Economy, Employment, Stimulus to Nowhere, Trade

Mounting evidence shows that the auto bailouts weren’t worth it. They have been far more costly, and less successful, than claimed, as even liberal commentators now have admitted. The Washington Post fact-checker criticizes President Obama’s phony accounting on the auto industry bailout: “What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.”

Obama cites various figures of jobs allegedly saved through the bailout. But he’s playing deceptive numbers games that take credit for jobs actually created by foreign car manufacturers that didn’t participate in the bailout. As the Washington Post’s Charles Lane earlier noted, Obama’s jobs figures cite jobs created by the foreign competitors of GM and Chrysler, and their competitors’ auto dealers, including “not only the Detroit 3, but also all of the plants operated by foreign car makers in the U.S., the entire supply chain and all car dealerships around the country!”

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Lots of Waste, Fraud, and Abuse in the Stimulus, Which Will Cost $43 Billion More Than Expected

by Hans Bader on May 26, 2011

in Economy, Employment, Stimulus to Nowhere

The Congressional Budget Office says the stimulus package will cost $43 billion more than estimated. The stimulus package is full of waste, fraud, and abuse. As Michelle Malkin notes:

Last week, the Treasury Department inspector general found that the tax police have failed to prevent fraud in the stimulus law’s energy tax credit program. Some $6 billion in stimulus energy credits for homeowners have been claimed — but the inspector general’s audit found that 30 percent of credit-claimers had no record of homeownership. The recipients included prisoners and minors. “I am troubled by the IRS’s continued failure to develop appropriate verification methods for distributing Recovery Act credits,” the Treasury Inspector watchdog said.  Moreover, when the IRS wasn’t falling down on its job policing outside fraud, its own workers were committing their own stimulus fraud — by cheating the system and claiming a first-time homebuyer tax credit included in the 2008 and 2009 economic stimulus packages. At least 128 IRS employees claimed the credit, according to a recent Treasury Department audit, yet weren’t first-time buyers or violated other basic eligibility criteria.

Moreover, the stimulus package has also “redistributed wealth to prison inmates, flaky researchers, social justice boondoggles, infrastructure to nowhere, foreign companies, dead people and ghost congressional districts — not to mention $20 million in chump change to pay for campaign-style stimulus-hyping road signs across the country emblazoned with the shovel-ready logo.”

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Sunstein and Obama, Deregulators?

by Ryan Young on May 26, 2011

in Deregulate to Stimulate, Economy, Regulation

Winston Churchill observed that “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” We may finally be seeing a small step in that direction. The Bush and Obama administrations have tried fiscal stimulus to speed up economic recovery. It didn’t work. The Federal Reserve tried increasing the money supply, which they called “quantitative easing” because it sounds much more pleasant than “printing money.” That didn’t work. Then they tried it again. That didn’t work, either. What to do?

We at CEI have been pushing a deregulatory stimulus for years. Now that all other possibilities are exhausted, the administration appears to be taking small steps in that direction. Regular readers are aware that federal regulation costs about $1.75 trillion, and that the Code of Federal Regulations is over 157,000 pages long. Both of those numbers grow every year, as over 3,500 new rules hit the books annually. This morning, OIRA chief Cass Sunstein is announcing a 30-point plan that would “save American companies billions of dollars in unnecessary costs,” according to The Washington Post.

This new initiative stems from Obama’s Executive Order from earlier this year that ordered agencies to comb their books and recommend obsolete or harmful rules for elimination. Agencies hardly have an incentive to reduce their size or scope, which is why an independent commission would be a better vehicle for getting rid of old rules. The rules Sunstein is proposing to eliminate are very modest. But it’s better than nothing.

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3,700 Tax Cheats Got Stimulus Contracts

by Hans Bader on May 25, 2011

in Economy, Stimulus to Nowhere

There has been a lot of news coverage recently about how 3,700 tax cheats got $24 billion in stimulus money. But the stimulus package wasted money in far worse ways. I explain at the Washington Examiner. Unemployment is much higher now than the Obama administration said it would be if the stimulus were enacted. Indeed, it’s higher than Obama administration officials said it would be if Congress had refused to pass the stimulus. (The Obama administration said unemployment would hit 9 percent if Congress refused to pass the stimulus, but not go beyond 8 percent if it did pass the stimulus. But unemployment reached 10.3 percent by October 2009.)

As the failure of the stimulus has become increasingly apparent, the Obama administration has touted its creation of imaginary jobs in non-existent congressional districts.

The stimulus actually provided incentives not to work, since it largely repealed welfare reform and provided incentives for states to increase their welfare caseloads.

 

Stimulus Wiped Out a Million Private Sector Jobs

by Hans Bader on May 21, 2011

in Economy, Employment, Stimulus to Nowhere

The economy may be slowly recovering, but that’s in spite of — not because of — the recent orgy of federal spending. Two economics professors, Tim Conley and Bill Dupor, concluded this month that the $800 billion stimulus package wiped out a million private-sector jobs, destroying a net 550,000 jobs. (The American Recovery and Reinvestment Act, also known as the stimulus package, created 450,000 government jobs, partly offsetting the million private-sector jobs it wiped out.) “The majority of destroyed/forestalled jobs were in growth industries,” they say.

The stimulus package was earlier criticized by many leading economics professors, like Harvard’s Jeffrey Miron, Robert Barro, and Martin Feldstein. Professor Barro called it “the worst bill that has been put forward since the 1930s.” Nobel laureates Gary Becker and Vernon Smith have also criticized it. 200 economists signed a statement publicly opposing the stimulus package.

While pushing the stimulus package through Congress, Obama cited claims by the Congressional Budget Office (CBO) that it would save jobs in the short run, while ignoring the CBO’s own conclusion that the stimulus package will actually shrink the economy over the long run, by increasing the national debt and thus crowding out private investment. Contrary to the CBO’s findings, Obama claimed that “irreversible decline” would occur if the stimulus was not enacted into law.

Obama has run up the largest budget deficits in history, running monthly deficits that are bigger than Bush’s entire annual deficit for 2007, after the economy started to go south.

Obama Subsidizes Job-Killing Outsourcing, While Attacking Job-Creating Outsourcing

by Hans Bader on April 28, 2011

in Economy, International, Regulation, Trade

In his 2008 campaign, Obama demagogued about “outsourcing,” but his own policies have outsourced thousands of American jobs, at taxpayer expense, as I explain today at The Washington Examiner.

As ABC News notes, “Nearly $2 billion in money from” the stimulus package has “been spent on wind power,” but “nearly 80 percent of that money” — $1.6 billion — “has gone to foreign manufacturers of wind turbines.” Indeed, “a recent report by American Wind Energy Association showed a drop in U.S. wind manufacturing jobs last year.” These subsidies effectively outsource American jobs, driving up America’s trade deficit.

Weirdly enough, Obama supports this taxpayer-subsidized outsourcing, which wipes out American jobs, even while opposing non-subsidized (free-market-based) outsourcing, which can actually save American jobs by reducing the cost of finished goods that are produced mostly — but not entirely — in America. (How can firms’ decisions to outsource save American jobs? Here’s how:  An American manufacturer of a finished product, facing stiff cost competition from overseas manufacturers, can reduce its overall costs, and thus avoid going out of business, by outsourcing low-skill jobs producing crude components of the finished product to low-wage overseas workers, thus enabling the more valuable finished product designed or assembled by skilled American workers to be cost-competitive with finished goods produced entirely overseas.)

Wintery Knight has an interesting commentary on additional ways that stimulus money and taxpayer money are being wasted on foreign companies and liberal interest groups. I earlier discussed how GE was using “green jobs” welfare to fatten its profits while paying no taxes (unlike most American companies, which pay some of the world’s highest taxes) and getting a special bailout at preferential terms from the taxpayers.

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