Oxy Weekly Article

Sorry for the inactivity everyone. I've been hard at work on a book review of Tom Woods' Meltdown for the upcoming issue of YAR! So please be on the lookout for that :)

In the meantime, this is an article I wrote for the Oxy Weekly. I regret how little space I had and how vague I had to be, but please check it out everyone. I'll have more substantive posts coming shortly.

you can find the article here: http://media.www.oxyweekly.com/media/storage/paper1200/news/2009/02/25/Opinion/Economic.Stimulus.Plan.Says.No.Money.No.Problem.Just.Keep.Spending-3647067.shtml

Ron Paul on the Floor

My final stimulus blog post will be up soon after I've had a chance to look at the damn thing. All I can find are partial cost reports from appropriations committees and a 100 MB file of the gigantic bill in a rough .pdf copy form. However, while you're waiting I would like you all to watch this video from Congressman Ron Paul.



Foreign policy affects the economy? Yes, it does. What happens to hundreds of billions of dollars in our budget? The taxpayer money goes to overseas bases, pointless wars, troop deployments founded on acute paranoia. The money goes to a foreign policy of imperialism, fear, and warmongering.

Cyril, where are you on this one?

Stimulus passes Senate test vote, may be approved within the week

The stimulus was put to a test vote on Monday, reaching the necessary 60 votes by getting votes after converting three GOP Senators (both from Maine and Arlen Specter from Pennsylvania). The bill passed the test vote 61 to 36. Harry Reid, Senate majority leader, has said that he will hold Senate in session into President's Day weekend if need be to pass this legislation. I say to GOP Senators, begrudgingly... just let them pass the damn thing already. You're not going to be able to stop it and I suppose it's better for them to give it a try now then to wait a week and then implement it. Yes, I think it will be as big of a blunder as you do (Granted, probably for different reasons). But, there's really nothing you can do about it now except try to shave off a few billions more.

That being said, let me synthesize what I've come to learn over the past few weeks about my views of the economy versus those of people that I talk to who are much more supportive of the plan:

I don't think that the United States' economy at present is a viable economy. We are a debtor nation. 70% of our GDP is consumption. We have had a negative trade balance almost every year since 1971. In 1971, the trade balance was only -$1,303 (in US millions). In 2007, the trade balance was -$700,258 (IN US MILLIONS). Sadly, this year was actually a banner improvement, down from -$750,000 (approx.) in 2006. In almost every year since 1971, this trade balance has decreased as imports rise and exports fall. In Lehman's terms, we buy way more than we sell. Some fields that were once American strongholds: automobile manufacturing, electronics, etc. became fields in which our imports dwarfed our exports. We don't make things anymore. Instead, our economy consists of buying all of the things that the world makes. When America goes down, the rest of the world takes a hit too. Why? Because people aren't buying from them as much anymore.

Why is this a problem? Because, at some point in time, if no change is made, other economies will realize that having a consumer nation to buy all their stuff becomes more of a burden than a benefit. Our creditors begin to learn that the money they give us won't ever be repaid. Why? Because we bought TV's and cars with it. We didn't use it to start new companies or invest in technology with which to further our economic well-being. We get money, we spend money. For the time being, countries are luke warm about lending to use because it means a better market for their goods. But, there will come a time when someone puts a stop to the tab and our economy will really be on its ass.

Many proponents of the Obama stimulus believe that the economy must only be stimulated and the investors must only be encouraged. They believe that with renewed market confidence, the US economy will resume what has become its usual charade. But, I believe otherwise. I believe that this economy requires substantial change in the coming years or we may be looking at something more serious than we can imagine.

I believe that the US economy needs a major overhaul. I believe that these staggeringly negative trade balances must disappear. I believe that we must make our industries competitive again. I believe that we must return to an economy that does more than borrow and spend; it produces.

Some great articles on the stimulus

Here are a couple articles that pretty clearly articulate where I'm coming from in the stimulus. Mankiw's article is all about going through the stimulus and making sure each item helps economic well-being. Barro's article is on the fallacy of government spending as a fix to all economic problems and how the main plan of the stimulus should be to provide incentives to work and produce.

(Barro and Mankiw are both Economics professors at Harvard)

"People don’t usually spend their money buying things they don’t want or need, so for private transactions, this kind of inefficient spending is not much of a problem. But the same cannot always be said of the government. If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being." - Mankiw

http://online.wsj.com/article/SB123258618204604599.html - Barro
http://www.economics.harvard.edu/faculty/mankiw/files/Is%20Govt%20Spending%20Too%20Easy.pdf - Mankiw

GOP pushing for changes to Obama Stimulus

GOP Senators presented their alternative stimulus plan today. The plan is $714 billion as opposed to $819 billion. Small changes? Absolutely not. The stimulus plan is completely restructured towards tax cuts and away from government spending. Let's take a look at the numbers:

$430 billion for tax cuts
$114 billion for infrastructure projects
$138 billion for unemployment insurance
$31 billion to "address the housing crisis"

To be frank, this proposal will not help. Yes, it eliminates almost everything that I didn't want in the stimulus (i.e. the insane government spending). In the Obama bill, the one that passed in the House, there was $550 billion in government spending. This is/was a ridiculous amount of money. Furthermore, government spending will NOT create permanent or long lasting jobs in this economy. We need less government, in size and in scope. Creating expanded government departments does absolutely nothing to help the economy except create a temporary decrease in unemployment.

I fear that most of these tax cuts will be used for consumer purposes. I don't believe that these tax cuts will do anything except cause people to pay off debts or buy TV's. This is not the capital that this economy so badly craves.

Also, this plan gets rid of the only thing that excited me about the Obama plan (the large amount of money dedicated to primary and secondary education). I say the economy needs capital: both these bills are very scarce in that regard. The Obama bill will create a HUGE government in size and scope. The GOP bill will, in theory, create a lot of extra money to be used for capital or expenditure to kick the economy out of recession and restore confidence in the market. However, the effect will be light on capital and heavy on spending and debt payoff. The Obama plan will provide money towards human capital in the form of a more educated workforce (assuming throwing money at education will fix things). This encourages me. But it's only a glimmer of hope in a pile of 550 billion pitfalls.

I want to be clear; I DO NOT SUPPORT A STIMULUS PLAN. I want smaller government... the Obama plan will achieve the opposite. I want less consumer spending... the GOP plan will achieve the opposite. I want to see an increase in capital which I think can conceively be bolstered with business tax cuts. Both plans have far too many detractors for me to believe that they will provide any meaningful recovery. Obama's plan is a pork-filled, government-expanding bill the likes of which I don't think we have ever seen before. The GOP plan is the same thing they've been at for 4 years, just bigger.

I hate to be too much of a "doomsday" kind of guy. However, we should all expect there to be huge blowback in terms of inflation and government expansion (into the economy and into all other aspects of life) when the Obama plan is passed in the Senate (which it almost certainly will be after minor revisions).