The $787 Billion Stimulus is Failing by Gregory Hilton

Unemployment hit 9.8% today. This chart compares actual unemployment with what the Obama Administration promised in February from the $787 billion Stimulus. The Stimulus was enacted without a single Republican vote in the House and only two in the Senate. You should pay attention to this chart when listening to the Obama projections regarding deficit reduction, and the costs of health care reform as well as cap and trade.
Consumer confidence is down, we are expecting poor holiday sales, and many companies will have to struggle to survive the next six months. Robert Reich and Larry Summers are saying high unemployment will be a significant factor for years to come. That is a projection I believe.
Many of these unfortunate people are tapping or depleting their 401K’s and other retirement plans. There will not be an easy fix to this.
According to the Congressional Budget Office the true cost of the stimulus is $3.27 trillion over ten years, and 100% of this money is borrowed. The bill gives American workers $13 a week in their paychecks in exchange for passing along a $1 trillion debt to their grandchildren.
Spending for the entire New Deal in today’s dollars is only half of what this one bill costs. The New Deal equaled no more that 2 percent of the nation’s gross domestic product while the stimulus is over 5 percent, and this is just the beginning of the Obama expenditures. The Chairman of the House Appropriations Committee, Rep. David Obey (D-WI), acknowledged this by saying “The bill is the largest change in domestic policy since the 1930s.”
There is an excellent case for a stimulus and this was acknowledged by Republicans. With the markets functioning so poorly, we proposed ways to jump-start the economy. Less than a third of Obama’s American Recovery and Reinvestment Act meets the definition of stimulus — namely, that it is timely, targeted and temporary.
The legislation is 25 years of government spending proposals jammed into one bill and labeled stimulus. That is why not one House Republican voted for it. We had an outstanding stimulus in 1997 when Bill Clinton signed legislation lowering capital gains rates from 28 to 20%.

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“Putting People First:” What Would Have Happened if the Clinton Agenda Had Been Enacted? by Gregory Hilton

My August 25th article outlined the six critical factors which led to a balanced federal budget in the late 1990’s. This happened on President Clinton’s watch so of course he is entitled to some of the credit, but he is also the person who diligently fought practically all spending reductions, as well as many of the policies that are now an integral part of his legacy. If his 1992 “Putting People First” agenda had been adopted the Clinton Administration would have left office with a large deficit.
It is important to reexamine the original Clinton agenda because it is so similar to President Obama’s current proposals. The major difference is that our outlook is far worse today. Our national debt is $11.7 trillion dollars and our GDP is approximately $14 trillion. Our debt to GDP ratio will be 85% by the end of this year and over 90% next year.
Liberal columnist John B. Judis of “The New Republic” best described the comparison between the Clinton and Obama agenda’s:
“I would draw a distinction between the Clinton of 1992-1994 and the Clinton of 1995-2000. There is enormous political continuity between the Clinton of “Putting People First” (his 1992 campaign manifesto drafted by Robert Reich and Derek Shearer) and today’s Obama administration.
“When Clinton was elected, the economy was in recession, and Clinton’s initial proposals (including a stimulus program, industrial policy, and national health insurance) anticipated what Obama has proposed during his first year. Like Obama, Clinton imagined himself as Franklin Roosevelt’s successor–even paying a conspicuous visit during his first hundred days to Hyde Park. . . after getting repudiated at the polls in November 1994, Clinton had to pursue a much more cautious policy for the rest of his six years. Clinton’s last six years were dominated by incremental reform and “new economy” boosterism. . . Obama is the president Clinton aspired to be in 1993.”
Based on Clinton’s original budget which he submitted in 1993, the deficits from 1995 to 1999 turned out to $902 billion less than the administration’s projections. That is what the deficit would have been if Clinton’s priorities had been approved by Congress and stayed in place. A major part of the reason why we achieved a balanced budget is that Republicans in Congress rejected many of Clinton’s spending proposals.
Because of Clinton’s veto, Republicans were not successful in cutting existing programs during the first two years, but after the 1994 election most of the expensive elements in the President’s domestic agenda were no longer feasible. The expansion of the 1990’s was not because of the administration’s economic agenda, but in spite of it. Some major elements of the Clinton agenda were as follows:
1) In 1993, President Clinton’s $19.5 billion stimulus program was stopped by a Republican filibuster which held despite four Democratic attempts to break it. Not one of the 43 Senate Republicans voted to cut off debate. The GOP emphasized that the stimulus added to the deficit instead of having its spending matched by cuts elsewhere in the budget. This was Clinton’s first serious legislative defeat.
2) The Congress denied the administration the sweeping nationalization of health care they sought during the first two years in office. The total new tax burden that was to be imposed under the Clinton Health Plan was a staggering $1.511 trillion over the first five years, according to the Congressional Budget Office. This included $1.384 trillion to pay for Clinton’s mandatory health alliances, would have entailed a new payroll tax of between 14% and 17% on every working American. In addition, the Clinton Plan would have imposed 17 other new taxes that would have cost $127 billion over 5 years, and $300 billion over ten years. Thus, the average American family would have faced a massive new tax bill of $3,056 per year to pay for Bill Clinton’s plan. The Administration also admitted that health insurance premiums would rise.
3) The budget Clinton submitted in January 1995 called for $12 trillion of new spending over the next seven years and this would result in annual $200-billion deficits. David Broder of the “Washington Post” described this budget buster as a “symbol of Clinton’s failed leadership.”
4) Similar to other Presidents, Clinton was unable to rein in entitlement spending. Social Security, Medicare and Medicaid were not reformed. In his first address to Congress in 1993 Clinton vowed to reform Social Security. He made the same pledge in his last State of the Union Address. President Clinton also promised to slow the growth of Medicare and Medicaid, but nothing happened.
If the Clinton Health Plan had been enacted it would have created new federal entitlements that would have exploded the deficit. By 1998, just the second year in which Clinton’s plan was to be in effect, the total cost of these government subsidies would have been larger than any federal program except Social Security and Medicare. This plan alone would have stopped the balanced budget.

Rick Santelli: The Government is Promoting Bad Behavior by Gregory Hilton

CNBC's Rick Santelli on the trading floor at the Chicago Mercantile Exchange

Reporting from a trading floor in Chicago, CNBC reporter Rick Santelli heatedly blasted President Barack Obama on February 19th over his plan to ease the housing crisis. “The government is promoting bad behavior. . . This is America. How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? President Obama, are you listening?”
White House Press Secretary Robert Gibbs had an angry response today and says Santelli should read the President’s plan. He used Santelli’s name five times, and the CNBC reporter is being portrayed as the next Joe the Plumber. This is ironic in light of the recent debate on the Stimulus Bill.
Santelli published a long post on CNBC’s website defending himself and denying any connection to the “tea party movements that have popped up” since the rant aired, such as those orchestrated by FreedomWorks, a conservative nonprofit group that put Santelli’s image on its home page soon after the rant aired, along with the words “Are you with Rick? We are.” Santelli says his goal is to spark a debate. “I want the new administration to win this one,” he said. “It’s a question whether spending our children’s money is going to make us win or not, or is it going to take its own time to heal, like a cold going away?”
Santelli noted that numerous Members of Congress said they were forced to vote on a $750 billion bill without reading it. The promise to post it on-line for 48 hours prior to the vote was broken. When it did go on-line the search function was disabled.
Many of my friends are in real estate and some of them have to wait for 7 months before financing is approved. That has to change, and perhaps it is not so bad for the market to find a natural low which determines a true fair price. A 20% down payment on a house sounds like a realistic requirement to me.

Obama’s Legislative Victory is Stimulating Taxpayer Anger by Gregory Hilton

Chart by Greg Mankiw, forner Chariman, Council of Economic Advisers. He is now a professor of Economics at Harvard.

This above chart vividly demonstrates the enormous debt problem our nation will be encountering in the years ahead, and it is an example of why the current legislation has succeeded in stimulating taxpayer anger. The chart was developed by Greg Mankiw, Ph.D., of the Harvard economics faculty. He previously served as Chairman of the Council of Economic Advisers during the Bush Administration.
The major news outlets are incorrect in saying the stimulus bill has a meager $789 billion price tag, and according to Mankiw it will be far higher. The Congressional Budget Office says the true cost of the stimulus is $3.27 trillion over ten years, and 100% of this money for the stimulus is borrowed. The bill gives American workers $13 a week in their paychecks in exchange for passing along a $1 trillion debt to their grandchildren.
Spending for the entire New Deal in today’s dollars is only half of what this one bill costs. The New Deal equaled no more that 2 percent of the nation’s gross domestic product while the stimulus is over 5 percent, and this is just the beginning of the Obama expenditures. The Chairman of the House Appropriations Committee, Rep. David Obey (D-WI), acknowledged this by saying “The bill is the largest change in domestic policy since the 1930s.”
There is an excellent case for a stimulus and this was acknowledged by both parties. With the markets functioning so poorly, the government is seen as the only game in town capable of jump-starting the economy. A stimulus is both necessary and appropriate. However, many lawmakers also believe this bill is not the proper road to recovery. Tax relief for individuals and small businesses would have have doubled the number of new jobs created at half the cost. Less than a third of the American Recovery and Reinvestment Act meets the definition of stimulus — namely, that it is timely, targeted and temporary.
To many the bill appears to be 25 years of government spending proposals jammed into one bill and labeled stimulus. That is why not one House Republican voted for it. Despite repeated requests, the bill was not even posted on line for 48 hours prior to the vote. No one knew the details of what they were voting on, and very few lawmakers believe this will be a temporary program. There’s also the problem of time. Much of the stimulus is to be spread over a two-year period or longer — and 2009 looks increasingly bleak. During the debate several lawmakers wisely noted that it took 230 years to get to $5 trillion in debt, and just another 8 to double it.
There is little evidence any stimulus package during the past 80 years has jolted economic growth. It did not work for FDR in combating the Great Depression, Japan’s massive spending only resulted in 13 years of recession beginning in the 1990s, and George W. Bush’s initiatives in 2001 and 2008 were not successful. As Amity Shales says in “The Forgotten Man,” “The evidence suggests spending packages actually prolong the misery.”
In his testimony on Capitol Hill this week, Treasury Secretary Tim Geithner said he is delaying his proposal until he gets everything right. That is a wise move because there can be unintended consequences with even good ideas. As the chart demonstrates, we had an outstanding stimulus beginning in 1997 when Bill Clinton signed legislation lowering capital gains rates from 28 to 20%. Clinton first advocated this before the 1996 Democratic Convention, “Tonight, I propose a new tax cut for homeownership that says to every middle-income working families in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”
This gave people a new incentive to plow more money into real estate, and by favoring this sector, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. Combined with the mortgage-interest deduction the law gave people a motive to buy more real estate. Lax lending standards and low interest rates gave them the means to do so.

Harvard Professor Calls Stimulus “Worst Bill Put Forward Since The 1930s” by Gregory Hilton

Dr. John Templeton and Dr. Robert J. Barro

Commentary by Gregory Hilton — The current “Atlantic” magazine interview with Harvard Economics Professor Robert J. Barro focuses on the impact of the Stimulus Bill. Barro says it “is probably the worst bill put forward since the 1930s.” Barro is the author of the widely used college text book “Macroeconomics,” and the interview can be found at http://business.theatlantic.com/2009/02/an_interview_with_robert_barro.php
Many of the leading U.S. economists commented on his article in last week’s “Wall Street Journal”. Barrow says “it’s wasting a tremendous amount of money. It has some simplistic theory I don’t think will work, so I don’t think the expenditure stuff is going to have the intended effect. I don’t think it will expand the economy, and the tax cutting isn’t really geared toward incentives or lowering tax rates. It’s more along the lines of throwing money at people. On both sides I think it’s garbage. So in terms of balance between the two it doesn’t really matter that much.”
The architect of the Stimulus is Treasury Secretary Tim Geithner. The controversy regarding his failure to pay $43,000 in taxes is occurring at the same time the House Ethics Committee is reviewing the returns of Rep. Charles Rangel (D-NY), the Chairman of the tax-writing Ways and Means Committee.
Geithner is the head of a Federal Reserve Bank and Rangel has been on the tax committee for three decades. If they can’t understand the basics of the tax code it really says a lot about the need for tax simplification.
Americans spend 7.6 billion hours annually trying to figure out their federal taxes. Working eight-hour days, five days a week, 52 weeks a year, that’s the equivalent of 3.8 million full-time workers. At the average hourly wage of $27.54, that tax-preparation time amounts to $193 billion, or 14 percent of aggregate income tax receipts. A staggering 60 percent of individual taxpayers are so bewildered by the tax code that they hire outside preparers.
Barro’s Harvard faculty colleague Greg Mankiw also has an excellent op-ed article in the “New York Times.” Mankiw is the former Chairman of the President’s Council of Economic Advisers, and he has the unique ability of explaining complex economic issues in simple terms.
His most recent columns emphasize the $1 trillion cost of the stimulus and the fact that we will be borrowing this money. At the same time the Obama Administration is in effect telling the Chinese to stop lending us money! That is how they support their currency, through the purchase of dollars and investing them in U.S. securities. The undervalued Chinese currency is an enormous help to U.S. consumers who receive significantly reduced prices at stores such as Walmart and Target.