Written on Tuesday, September 20, 2011 by Nathaniel Davidson
“If you love me, you got to help me pass this bill.”—King Barack
“Insanity: doing the same thing over and over again and expecting different results.”—sometimes attributed to Albert Einstein
Remember how we had to pass the last stimulus right now, so unemployment would not climb above 8%? It has now been above 9% with the stimulus. Some of Obama’s thralls are denying that Obama made such a claim, but even the leftist magazine Time had to concede: Obama’s Stimulus Plan: Failing by Its Own Measure.
But now Obama wants to do the same thing again, and right now. Well, as Nancy Pelosi said about Obamacare, we must pass the bill to find out what’s in it. And this time it will work, he assures us. And if we don’t, his ally Mike Bloomberg, in the typical liberal mob way, warns of riots if they don’t get their way.
Yet, this has never even worked in history. Economic historian Burt Folsom writes in The sad story of presidents who think they can spend to create jobs, about two big-spending presidents who prolonged the Depression:
“The first two presidents to challenge this common sense method of creating jobs were Herbert Hoover and Franklin Roosevelt, back to back presidents in the 1930s. Hoover sharply expanded government spending for infrastructure improvements. When that failed, FDR expanded government spending to “jump-start” the economy with targeted spending for key voting groups in battleground states he needed to win re-election. Those states enjoyed the infusion of federal cash, but the economy remained in depression because FDR had merely spent money on federal programs by taking it from people who would have spent it on themselves—which would have created new jobs in industry. Hoover and FDR showed that so-called stimulus packages don’t create jobs, and neither do targeted spending programs for key voting groups and businessmen.”
Indeed, there is no reason to believe that it will ever create real jobs. It might have been different if the money came down like manna from heaven, but it really comes from other taxpayers. So this is money that can’t be spent on businesses of the taxpayers’ choices, but on the politicians’ choices.
Many conservatives are just naive in thinking that Obama wants to fix the economy. But the whole point is the tried and proven FDR strategy: bribe voters and never mind the economy. In this case, Obama is pouring still more money into his union buddies, so they will continue to campaign for him. No wonder he calls for money to “fix schools” which will more likely end up with the solidly Democratic teachers unions. But schools are a local responsibility—why else are we gouged with high property taxes? If the localities can’t budget properly, why should the rest of the country bail them out?
So it should surprise only the most naive that invariably, while we can see jobs created by such “stimuli”, we don’t see the greater number of jobs lost elsewhere in the economy. Even Obama’s own figures admit that his new plan would cost well over $200,000 per job. How many more jobs could be created in the private sector for that amount?
Then Leftists throw up their hands in despair that the overall unemployment mysteriously goes up despite their best efforts. See also my early Patriot column Spendulus Spin. All they can do is claim, without the slightest evidence, that things would have been even worse without the stimulus: “It’s heads I win and tails you lose,” as economist Thomas Sowell put in his recent Patriot column Obama’s Plan Is Lousy Economics.
Sowell points out a far better solution for the government : stay out of the economy!
“What about the track record of doing nothing? For more than the first century and a half of this nation, that was essentially what the federal government did—nothing. None of the downturns in all that time ever lasted as long as the Great Depression.
“An economic downturn in 1920–21 sent unemployment up to 12 percent. President Warren Harding did nothing, except for cutting government spending. The economy quickly rebounded on its own.
“In 1987, when the stock market declined more in one day than it had in any day in 1929, Ronald Reagan did nothing. There were outcries and outrage in the media. But Reagan still did nothing.
“That downturn not only rebounded, it was followed by 20 years of economic growth, marked by low inflation and low unemployment.”
Similarly, Harding’s vice president and successor Calvin Coolidge “did nothing” but slash tax rates and spending. American debt was reduced by 25%, unemployment plummeted to 2.4%, and there was a huge increase in entrepreneurship that developed Kleenex, scotch tape, the zipper, sliced bread, and especially the radio. See the Patriot column Remembering Calvin Coolidge: how he rescued America from a Depression.
The late Milton Friedman should be well known to Patriots as a great defender of liberty, as well as a top economics scholar with the ability to explain it lucidly.
But Friedman himself regarded his most important scientific work as the permanent income hypothesis. That is: what consumers spend is proportional to what they perceive as their long-term income. Conversely, temporary fluctuations didn’t affect their spending behaviour, at least for those who plan in a rational manner.
This explains why temporary tax holidays have not had the expected (by leftists) boost to employment. An employer can be considered as a consumer of labor. A temporary reduction in costs is hardly going to tempt him to take on new staff, because he must consider his long-term costs. Employers typically need a three- to five-year time horizon for investing and hiring decisions.
A permanent tax cut, and permanent elimination of red tape, would do far more to increase hiring. A permanent cut of our high corporate tax rate—35%, the highest in the developed world—would encourage growth of companies in this country rather than outsourcing. It would also encourage repatriation of over a trillion dollars held by American countries overseas, gaining hundreds of billions for the Treasury alone, and helping jobs here, as Michele Bachmann has pointed out:
There is an important lesson from the above: low taxes that are paid bring in more revenue than high taxes that are avoided. Trillions of dollars are staying overseas, out of reach of the IRS, because of our rapacious tax rate. Indeed, high tax rates have never brought in the expected income. Sowell, who is a scholar of the history of economic thought, as well as a top columnist, points out:
“In 1921 — federal income tax policies reached an absurdity that many people today seem to want to repeat. Those who believe in high taxes on ‘the rich’ got their way. The tax rate on people in the top income bracket was 73 percent in 1921. On the other hand, the rich also got their way: They didn’t actually pay those taxes.”
Just as we see now, the wealthy just avoided taxes—legally—and the country’s economy remained stagnant:
“What happened was no mystery to Secretary of the Treasury Andrew Mellon. He pointed out that vast amounts of money that might have been invested in the economy were instead being invested in tax-exempt securities, such as municipal bonds.
“Secretary Mellon estimated that the amount of money invested in tax-exempt securities had nearly tripled in a decade. The amount of this money that the tax collector couldn’t touch was larger than the federal government’s annual budget and nearly half as large as the national debt. Big bucks went into hiding.”
Mellon proposed a cut to the high tax rate. But just like now, the Left were more interested in class warfare than what was best for the economy, and what happens to actual flesh and blood people, not only including the rich. So they similarly demagogued about “tax cuts for the rich”. But fortunately, sanity prevailed under Presidents Harding and Coolidge:
“As for the 1920s, Mellon eventually got his way, getting Congress to bring the top tax rate down from 73 percent to 24 percent. Vast sums of money that had seemingly vanished into thin air suddenly reappeared in the economy, creating far more jobs and far more tax revenue for the government.”
Even if all that were not enough, let’s grant all the premises of the taxophiles: assume that the money would be spent on real improvements to America, rather than to Obama and his friends. Let’s see some simple math about the money involved:
Mark Steyn writes in his brilliant new book After America: Get Ready for Armageddon:
“The United States is still different. In the wake of the economic meltdown, the decadent youth of France rioted over the most modest of proposals to increase their retirement age…. Everywhere from Iceland to Bulgaria angry mobs besieged their parliaments demanding the same thing: Why didn’t you the government do more for me?”
“America was the only nation in the developed world where millions of people took to the streets to tell the state: I can do fine if you control-freak statists would shove your non-stimulating stimulus, your jobless job bills, and your multimillion-dollar pork-athons, and just stay the hell out of my life and my pockets.”
“That’s the American that has a fighting chance ….” [pp. 22–23]
So we need the GOP to get some spine and stand up to Obama’s games—and make sure the country knows that they are not about American jobs, but about Obama’s job. And if they don’t, the Tea Party should replace the RINO appeasers with titanium-spined Republicans in the next primaries.