Sunday, February 15, 2009

Sunday Salon - Stimulus Thoughts

Over the last week, I have watched with a certain amount of interest the debate in the U.S. Congress over the then proposed bill to stimulate the failing U.S. economy. Before I continue, a disclaimer: I am a progressive. The majority of the time, I vote Democrat. What I cannot understand is how can anyone still believe that the Republicans have any answers to our current difficulties.

The Republican arguments against the stimulus bill were baffling to me. First, the idea that tax cuts are the answer is ludicrous. I am no economist, but my Econ 101 understanding is that the government has two sets of policy tools to control the economy. First, monetary policy, which is the more useful, less drastic tool. However, the Federal Reserve has exhausted its monetary policy options to stimulate the economy. Second, fiscal policy, which is either cutting taxes or direct government spending. Now, the Republicans have been touting their beloved tax cuts as the answer to the current economic difficulties. However, the previous round of tax cuts, brought to us by a Republican President and Congress, had very little stimulative effect on the economy.

The second fiscal policy tool available to the government is direct spending. And, as we all know the Republicans, who believe that government is the problem, cannot stand the idea of government spending. And, while I am not always a fan, my Econ 101 understanding is that the current economic conditions call for it. Beyond their philosophical argument against spending, the Republicans have stated that the proposed spending cannot be accepted because it will lead to a deficit that will have to be paid by our descendants. Really? Aren't these the same Republicans that presided over a doubling of the national debt? Aren't these the same Republicans that spent our government from a surplus to a deficit? I am outraged! In the previous eight years, Republicans have had their way: tax cuts for the rich; two wars, one of which was completely unnecessary and illegal; and the complete disregard for the rule of law and the U.S. Constitution. Who do they think is responsible for this mess? They are! They have some nerve now to argue, basically, that it is irresponsible to borrow money to spend on rebuilding the U.S. and stimulating our economy. But, it is perfectly OK to borrow money so that the wealthy can pay less taxes or we can preemptively invade another sovereign nation on the justification of dodgy intelligence.

The Republicans made some other ridiculous arguments against the stimulus bill. Senator John Kyl, a republican from Arizona, argued that because the Congressional Budget Office said that by 2019 the spending in the stimulus bill would reduce the GDP by 0.1 to 0.3 percent, that that would be a recession, given the definition of a recession as two quarters of negative growth. However, this assumes that the stimulated economy is not strong enough to overcome the drag and continue to grow, which is possible. How can anyone predict with any accuracy what the economy will be like in ten years? Senator John Ensign from Nevada looked at the historical record and argued that tax cuts are the only way. After all, Coolidge, Reagan, and Bush (43) cut taxes. What he failed to mention is that Coolidge's tax cuts preceded the Great Depression, and Bush's tax cuts preceded our current economic woes. Somehow I found his arguments for tax cuts unconvincing! The Republicans even complained that it wasn't fair what the Democrats were doing, after all it was just what the Republicans did when they controlled Congress.

Now, I am not saying I am 100% confident that the stimulus bill with all of its spending will work. I don't really know. I don't think anyone really knows. But this situation reminds me of the kind of thing that happens on one of my favorite TV shows, House. Quite often, House and his staff are faced with a patient that must be treated to prevent death. The problem is the treatment could also kill the patient. That is how I feel our economy stands right now. If we don't do anything, the situation will become dire. So, we have to do something. Tax cuts? We already tried that and it didn't work. Government spending? But that could kill patient, cry the Republicans. But if we don't do anything, the patient will die anyway, reply the Democrats. So, the Democrats, like Dr. House, have decided to treat the patient, to pass the stimulus bill, on the chance that it will actually work. And, I agree with them. We have to try something, because doing nothing is not really an option.

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