Stimulus spending

Aug 012009

Some of the descriptions of the the cash-for-clunkers program make it sound like an attempt to show that trickle-down economics works, after all. The money goes from the government to dealers, not from government to customers. Dealers of course use the money (or rather, the hope of getting reimbursed) as a way to lower prices and compete for customers. How much of the discount actually ends up in consumer hands will be hard to say, given that the dealer price from which a discount is taken is a squishy concept at best. But it gives them something to work with, so probably a good share of it really is trickling down to consumers.

Next thing to do: Find out how the CBO scored this program. If one billion wasn’t enough and now they need three, does that mean Obama’s health care program is quickly going to be three times as expensive as originally planned, too?

Apr 062009

“GM’s fate, government response will determine if job-letting is over.” That’s the headline on yet another opinion piece in Sunday’s Kalamazoo Gazette, this one by Peter Luke.

Here’s the online version. It’s headlined somewhat differently: “As GM, Chrysler downsizing looms, White House must find ways to keep Michigan employed.”

Like Rick Haglund and indeed like most newspaper people, Luke’s outlook is more government-centric than people-centric. An example is the closing paragraphs of his article:

The president’s overseer for the recovery of auto communities, former MSU economist Ed Montgomery, visited Michigan last week to say Obama is “committed to having a strong, viable auto industry” and to helping us “deal with the situation.”

GM’s downsizing is inevitable. But any reorganization — even a structured bankruptcy — designed to build a stronger, viable company should at least mitigate further job losses. Otherwise, Montgomery’s recovery efforts will be that much more expensive.

The economic stimulus, responding to a national recession that is 15 months old, does not do the whole job. Michigan’s downturn started nine years ago and has shredded the economic fabric of whole regions of the state.

Montgomery said he “gets” Michigan’s situation. Which is: If Detroit, Pontiac, Flint and Saginaw don’t get the federal help they need to rebuild, the state will continue to bleed income, population and, to borrow a word from Obama, hope.

So in other words, according to Luke, the fate of our economy depends on the feds spending money. But if he was a better-informed reporter, he might realize there are other ideas out there as to how economic growth takes place. That may be a little much to ask, but he could start small and think about what happens when the federal government spends money.

His current thinking is much like that of the old industrialists. For example, there was the idea that “the solution to pollution is dilution.” Or that the way to improve sanitary conditions in cities is to dump the sewage into the nearest river. At one time it was acceptable to think that getting rid of the problem locally was good enough. Now we know better than to just solve our local environmental problems at the expense of the global ecosystem. If only reporters like Peter Luke would apply the now-commonly-known principles of ecology to economics, and keep in mind how everything is connected.

For example, take those federal stimulus dollars. They have to come from somewhere. Mitigating job loss in Michigan through stimulus dollars is going to mean people in other parts of the country losing their jobs to pay for them. Or maybe we can borrow the money and do it through inflation, taking jobs away from the next generation to save those of our own. It’s not right to think we can solve our local problem without paying any attention to the problems the solution might cause for those in other times and places, or even in other sectors of the local economy.

That doesn’t mean there isn’t a place for federal action in dealing with our economic crisis. There might even be a place for federal spending. But the beginning of wisdom is to quit taking such a narrow view of the problem, and realize that there are more interconnected parts than the federal government and the Michigan auto industry. It’s ironic that on the facing page to Luke’s column there is an editorial titled, “How much do you really know about the media?” In it there is this paragraph:

Yahoo and Google don’t generate news, newspapers do: Yahoo and Google use Associated Press or local news organizations’ news reports, create a headline and a link and make it look as though they have news on their pages. This is called “aggregation.” The truth is that without newspaper staffs reporting the news in print and online, there would be precious little credible local news available anywhere on the Internet to aggregate or blog about.

Ignore for a moment the unfortunate wording that suggests that newspapers invent or manufacture news. The writers probably meant something like “report” rather than “generate.” At least I hope so.

But if newspapers want to give themselves credit for reporting local news, they ought to start by encouraging people like Peter Luke to broaden their horizons and truly cover the local news. Perhaps pay less attention to government people like Ed Montgomery, and more to all the interconnected people and businesses that constitute the economy. We do get lots of news stories about people who are affected when government program X is cut, but there is a lot more to the economy than government spending on individuals and on industry.

Mar 162009

Horses may be going hungry, but here’s some food for thought. It’s inspired by a front page story in Sunday’s Kalamazoo Gazette.

The article explains that people can’t afford to take care of their horses, but they’re required to anyway, even if they’ve lost their jobs and incomes. There is no longer a market for the animals, so they can’t be sold. And the other alternatives (such as euthanasia) are even more expensive or non-existent. Kalamazoo County’s Animal Services and Enforcement director explains:

Winter time is tough, with people being laid off and home foreclosures. Hay’s expensive — all these things add up. But I don’t want to hear their excuses. They’ve taken on this responsibility. You can’t have an animal that’s solely dependent on you for food and care and let it starve just because things have changed. You’ve got to find an alternative, even if you have to go shovel driveways.

Leave aside for a moment the question of whether it’s appropriate for a law enforcement officer to get all moralistic and emotional like this. His statements suggest a way to handle some similar situations involving humans.

Leftish people have enacted entitlement programs, such as Medicare and Medicaid, which have turned out to be way more expensive than originally projected. Now the economy is down, and they are becoming unsustainable. People are now soley dependent on the government for these services.

The leftish people have basically created pets out of people, who have become dependent on their care. The recipients can’t just be released back into the wild at this point. They can’t be euthanized (though some societies that have found themselves in similar circumstances have adopted that as a partial solution). These leftish people have taken on a responsibility, and now need to find an alternative. Shoveling driveways won’t do it, so we’ll probably need to confiscate their homes and property and garnish their incomes to pay for these services. No excuses.

And what about the people who put these leftish persons in a position to do this? What about the citizens who voted for legislators who enacted the social security tax increases of the 1980s? I suggest that the thinktanks get to work and come up with formulas by which the citizens of the states and congressional districts that elected these people be charged additional surtaxes to pay for their bad judgment.

“Wait a minute!” you might say. “This is a collective responsibility that we’ve taken on as a nation. The country as a whole has a responsibility to tax itself into oblivion to pay for these obligations!”

Under certain circumstances, you would be right. If our national legislature did things in a collective manner, for the nation as a whole, then perhaps we’d all bear some responsibility. But that’s not the way things work.

Take earmarks, for example. The latest stimulus package is full of them, no matter the claims by some people that they make up only a small portion of it. Lots of the money is designated for particular programs in particular districts. Spending decisions are not made objectively on the merits of competing programs. Instead they’re made based on political clout and for the exchange of political favors. And even where funds are turned over to granting agencies that might use objective criteria to disburse the funds, they are subject to “oversight” and meddling by members of Congress who lobby on behalf of constituents. Representatives run for re-election on the basis of the bringing home the bacon to their district, and leftish newspaper editors endorse politicians on the basis of their ability to do favors for their districts.

Under this system of crony corruption, the people who vote these people into office need to be the ones who are financially responsible for ponying up when entitlement programs prove to be unsustainable.

“Wait just another minute!” you might say. Just because some spending decisions are made on the basis of corrupt favoritism, that doesn’t mean all the entitlement programs work that way.

Oh, yes, they do. All these programs are inter-related. Congressman Bacon votes for Congressman Upright’s entitlement program, in exchange for Congressman Upright voting for Congressman Bacon’s pet project. It isn’t always an explicit trade — in fact it rarely is. But implicit in this system is trading of votes — “I’ll vote for your boondoggle because otherwise you might not vote for mine someday.”

The people who create these problems need to be the ones to pay extra.

[Late note:  Cross-posted to the Conservative community on LiveJournal.]

Mar 102009


The Battle Creek Enquirer tells us that Calhoun County (where I live) is going to get $3 million in stimulus spending, and Governor Granholm is requiring $300,000 of it to be spent on a bike path along Columbia Avenue. The county commissioners are outraged at this, as they should be. It’s a bad decision, and it’s a bad way of making decisions. It may be the result of lobbying by bicycle activists, but it’s not a good thing for bicyclists — at least not for those who use their bicycles for transportation.

Our county’s roads are in terrible shape. I’m told the county has gotten a new highway commissioner in the past year, and some of the things I’ve heard about new equipment and methods for maintaining the roads seem to indicate a good attempt at better maintenance than we’ve had in the past. But this is a step in the wrong direction. Money spent on resurfacing roads would in many cases do a lot more for bicyclists than would money spent on a bike path.

I’ve blogged about this topic of bike paths vs roads before, in “Bike paths and falling bridges,” and over at The Spokesrider, in “Multi-use trails in Holmes County.” In the first of these articles I talked about the bike path in the above photo, which is one of the most pointless I’ve ever seen. It’s an example of where the money should have been spent on the road instead. A bike path along Columbia Avenue wouldn’t be pointless — but it still wouldn’t be the best thing for bicyclists.

Close to my home, some of the roads are so pot-holed that we now drive extra miles to avoid the worst sections. The alternate routes only add about 2/3 of a mile to a trip toward town, and 1/2 of a mile on my commute to work, so I can’t complain a lot. But even the alternate routes have potholes. Even on the alternates, there are places where I fear that the pothole avoidance will cause an accident someday. And when I’m riding them on my bicycle, I don’t like the idea that cars will be too busy swerving around the craters in the road to notice a bicycler who is doing the same.

BTW, in general I am not writing my legislators regarding stimulus funding. Some of that funding, if spent in the right places, would be of direct benefit to me in my place of employment. But I find it highly improper to lobby my legislators for money to be spent on my job. It’s a huge conflict of interest to say, “Please, please, spend money on X. It would make the world a better place, and oh, by the way, it would help keep my job in existence.” The idea that it’s improper to lobby for things of monetary benfit to one’s self is an ethic that needs to be adopted more widely, otherwise we’ll continue to have problems like that described in the WSJ in “When Congress Spends, Worse Is Better.”

I’m not sure it’s right for me to lobby for better bicycle routes, either, since there would be so much of ME to what I say. But if I were to do so, as a bicyclist I would lobby for more money to be spent fixing our roads, and doing it in a way to make them bicyclable, too. (And that means taking it easy on installing rumble strips, which sometimes make riding difficult or dangerous.)

Mar 022009

The Democrats seem determined to give Congressional voting representation to the District of Columbia, whether it’s legal or not. I suppose it’s bound to happen sooner or later. It’s just another step in the process of giving a greater role to those who govern, whose center is in the capital city.

The Hatch Act, which had been a check on the political power of the governing class, was gutted during the Clinton administration. But it started long before that.

King Banion, in an article titled, “It’s good to be the king’s castle,” points out that the role of the capital city grew along with the New Deal during the 1930s, as shown by a population growth that exceeded even that during the 1940s when there was a world war to fight. New York’s economy is now shrinking along with those of many other cities, while that of Washington D.C. is growing. According to Business Week, “While New York Bleeds, Washington Thrives.”

As the nation’s most populous metro area feels Wall Street’s pain, the fourth-largest—Washington—is barely sensing the recession. In fact, Moody’s estimates that metro Washington’s economy will actually grow 2.5% from mid-2008 through mid-2010. New York’s economy is expected to shrink 4.2%.

It wouldn’t be the first time that Washington benefited from a national crisis. Back in 1930 the District of Columbia was a quiet Southern town, scoffed at by New York sophisticates. But as the federal government ramped up to fight first the Great Depression and then World War II, its population grew 65% in two decades, vs. just 14% for New York City.

It’s in the nature of government for this to happen. A capital city that does not rule over the provinces, whose representatives in turn carry tribute to it, is a historical and geopolitical anomaly. In Russia, Moscow is magnificently wealthy while the other oblasts and districts are desperately poor. The history of France is the history of Paris consolidating its power over the provinces and imposing its culture and language on them, and then obliterating them during the French Revolution.

The placing of our U.S. capital in a non-state was part of a unique compromise that was designed allay the jealousy of states that didn’t want Philadelphia or any other city given a position of power and primacy over the others. The proper thing to do now would be to extend this policy with additional reforms. Some possibilities:

  • Reverse the Clinton era gutting of the Hatch act and go a step further by disenfranchising all federal government workers during the period when they work for the government.
  • Require all government buildings to be quonset huts. At one time when our nation was barely a nation, it was necessary to build imposing marble structures to overawe the public and make people willing to submit to a national government. The national government is now very well established. Mission accomplished, and then some. Now it’s time to go in the other direction. Now it’s time for public servants to have to look up out of their quonset huts at those whom they are supposed to serve, instead of looking down at them out of the windows of their edifices on high hills (like the Federal Building in Battle Creek, Michigan). It might instill a better attitude in federal workers.

But what’s likely to happen under the Obama administration is quite the opposite. The historical picture I get with each new proposal of this administration is one like this:


It’s from the Titus arch in Rome, and depicts the result of the sacking of Jerusalem in 70 A.D. Institutions which were seen as a threat to the power of Rome were destroyed, and the booty hauled to the capital city in triumphal procession to enrich the governing class, while crumbs were thrown to the plebians of that capital so they could take part vicariously. There were many other triumphal processions in ancient capital cities. Conquered kings were led in chains in front of the cheering spectators, who were given a part of the spoils. But it was not just in ancient times. Think of banking and auto executives now being made to humiliate themselves before their Congressional overlords, and the giddy crowds cheering on inauguration day.

Once upon a time Calvin Cooledge could say “The business of America is business.” But now, more than ever, we have to say, “The business of America is government.” Giving a vote in Congress to the capital city will help establish that fact and make it irrevocable.

Feb 272009

This was fun to watch, but I should have paid more attention to the title: “1933 Pro-Inflation Propaganda Film.” Up until almost the end I thought it was making fun of the “Inflation is Wonderful” idea. But it wasn’t. Maybe Obama could use it as part of his sales campaign.

I enjoyed some of the pronunciations, such as the way Nineteen Thirty-Three is pronounced — especially the first syllable of “thirty”. I wonder if that’s a pronunciation that’s still heard anywhere.

Feb 212009

An article at summarizes Obama’s first 30 days:

…so far the reaction to the new administration’s programs has been decidedly negative. Investors, among others, have panned the plans; the stock market is off nearly 10% from the day before the inauguration, or more than 800 points on the Dow Jones Industrial Average.

That made me wonder what happened to the stock market in FDR’s first hundred days. I didn’t find the kind of chart I was looking for, but I did find this summary in Washington Business Journal:

On March 4, 1933, Franklin Roosevelt inherited a Dow that had lost 82 percent of its value in the previous four years. That was the day Roosevelt famously declared that “all we have to fear, is fear itself.” Once Wall Street reopened after the bank holiday immediately imposed on Inauguration Day, the Dow Jones rose 15 percent in the first day of trading March 15, 1933, and rallied 75 percent in the first 100 days of Roosevelt’s presidency.

So is the market telling us that we already tried these Keynesian theories once, and unlike last time we now know what to expect? That’s probably not it, exactly, because in a way they have been tried more than once.

But I did find an interesting tangent at, in an article by George Bittlingmayer and Thomas W. Hazlett titled, “The market is shorting Obama’s ‘stimulus’.”

Many claim that World War II brought us out of the Great Depression, but the lesson to be learned is still being debated. Federal budget deficits soared (reaching 26.5 % of GDP in 1942 as calculated by Harvard economist Robert Barro), providing Keynesians an argument for spending as stimulus. But WWII also brought a profound shift in the New Deal’s regulatory policies. Attorney General Thurman Arnold’s vigorous campaign to break-up “the bottlenecks of business” in major industries like steel, chemicals and electrical equipment was shuttered, and America’s largest corporations enjoyed a respite from threats of dismemberment (Arnold was kicked upstairs to a judgeship). As Thomas K. McCraw writes in his superlative Schumpeter biography, “Under the life-and-death pressure of war mobilization… the Roosevelt Administration, which had been hostile toward alleged monopolies, now decided that big business must lead in the job that had to be done.”

What’s interesting about this is that phrase about a “shift in the New Deal’s regulatory policies” with the onset of World War II. I had recently come across references, I don’t remember where, that suggested the national government had great difficulty making itself unregulate the economy after WWII was over. So if WWII-era regulation was itself a respite from New Deal regulation, then I need to learn more about 1930s’ regulation.

Despite having been brought up from childhood on a steady diet of anti-New Deal sentiment, I either wasn’t told about this aspect of the New Deal when I was young, or I wasn’t paying adequate attention.

Feb 182009

When I saw the portrait of Andrew Jackson, I was expecting John Steele Gordon’s article, “A Short History of the National Debt,” to compare the national bank of Jackson’s day — the one he abolished — with the nationalized banks we’re getting now. (See “Bank nationalization gains ground with Republicans“)

Gordon didn’t go into that, but he did talk about the big real estate bubble that burst in 1837. And that made me think of another comparison between then and now.

In 1837, a real estate bubble burst, causing 6 years of economic contraction. The State of Michigan drew the lesson from it that it should never again get involved in running and owning private businesses, and even should draw back from public infrastructure projects. (It had lost the money it had invested in railroads and canals, not entirely unlike the way Fannie Mae an Freddie Mac have lost money.) When it rewrote its constitution in 1850, it included these provisions:

  • The state shall not subscribe to, or be interested in, the stock of any company, association, or corporation.
  • The state shall not be a part to, nor interested in, any work or internal improvement, nor engaged in carrying on any such work, except in the improvement of or aiding in the improvement of the public wagon roads and in the expenditure of grants to the state of land or other property.

So now in 2009 we’re having another economic collapse. Again, public investment in private business has turned sour. And again, there is talk of changing the role of government. Except this time, instead of doing less of the government activity that contributed to the collapse, we’re going to solve the problem by doing more of it.

Feb 162009

So the Obama administration is trying to downplay expectations for the outcome of the stimulus package. (NYT: “White House says stimulus won’t be a quick fix.”)

I think I understand it now. If we didn’t get the big government stimulus package right away quick before anyone had a chance to examine it, we’d have a terrible catastrophe. But if we do pass it, we should not be so quick to expect things to get better.

I guess it’s better than the alternative, which would have been to go a little slower and pass a stimulus package that would have quick results. For example, a tax holiday on the FICA tax. And not only would it have provided the quickest of all possible stimuli, it could have been a logical first step to a reform by which ALL income would be subject to FICA tax, which was an election promise of Obama’s, but one which would be very dangerous to his agenda. (It’s one of his campaign ideas that I would support if it would be netzero.)

But if Obama kept that campaign promise, it would lead to expectations that he meant what he said at other times, too. No, it’s much better to move quickly, without thinking and without transparency, to pass a stimulus that will work slowly, at best.