Why the stimulus won't work

The reason the so-called stimulus bill will not achieve the goals set for it is twofold: Ideology plus the Democrats' lack of understanding of how the economy works. Democrats do not seem to grasp the concept of the “money multiplier effect”. It’s important what you spend money on, not just the spending in itself. Spending needs to actually increase the size of the economy, and not merely be a transfer money from one sector to another.

** To “soak the rich” in the name of “fairness” shrinks the economy. Every $100 the government takes in taxes, only $65 ever makes it back into the economy, the rest is absorbed in bureaucracy. Punitive tax rates also discourage business (and jobs) formation, making the viability of proposed projects harder to achieve. That is why government to an economy is like mistletoe to an oak tree: it burdens the tree and leaches out its vitality. Yet the “economics challenged” Democrat public sector types will raise taxes to “get the corporations who have millions” and mumble “Justice! ” with great satisfaction.

** Vast portions of the spending have been earmarked for things like “bailing out the States”, (keeping the mistletoe healthy but not the tree) extending Medicare benefits (40% of which is absorbed in paperwork and HIPPA Compliance reporting requirements), more unemployment benefits, repairing Federal office buildings or constructing parks and public recreation centers. Infrastructure spending is beneficial, but it will take years. It addresses years of neglect and deterioration rather than adding to our capital stock. In all these cases once the money is spent the economic activity peters out. The ultimate result is filled medical waste bins behind hospitals, more housing project sewage, cleaned up Federal office buildings, fewer potholes, and empty new parks and recreation centers. None of this spending results in sustained increased economic activity! English major Democrat activists fail to understand or grasp this. They think any spending will do.

** The Government spending multiplier effect is typically less than one: $100 taken in taxes goes to $65 in spending which quickly peters out once the contractors finish their government projects. And another aspect: sometimes it takes government contractors months to get their money: (the layer of bureaucracy that “safeguards” the public purse must be satisfied). The “stimulus” then languishes in slow pay Accounts Receivable, pushing some contractors into bankruptcy.

** Real stimulus is in starting businesses. When a business starts, it generates jobs and demand for goods and services. The spending ripples through the economy sometimes at a ratio better than ten to one! Every dollar spent on a business results in ten dollars of economic activity in the economy. But this would entail “tax breaks for the rich”, ideologically unacceptable to the Marxist Progressives who now run the country. They cannot tolerate money NOT funneling though their hands and the power that goes with it. Yet with no understanding of the “multiplier effect”, they will continue pour resources into projects that will increase the size of government (the leaching mistletoe) and shrink the economy. Democrats are setting the stage to break the Japanese record for “stagflation “and misery. They will blame everything and everyone but themselves.

Keep the change, Mr. President

Will Obama deliver on his oft-repeated promise of “change"? Probably not, and let's hope not. For one thing, his chosen team largely recreates that muddled, discredited Clinton administration. Recall that officials of Clinton’s administration initiated the unsound Freddie/Fanny loan policy that brought us the current mortgage crisis. Similarly, Obama’s “new New Deal” gravely threatens America’s injured economy. As explained by economics professor Thomas DiLorenzo, FDR’s New Deal substantially worsened and prolonged the Great Depression. Applying those failed Big Government concepts to today’s crisis makes no sense. When a scheme doesn’t work, you don’t repeat it.

You’re smarter than that. The Dems apparently aren’t.

Big Government cannot promote a healthy, thriving economy. What the “nanny state” offers is theft disguised as “redistributing the wealth” by which the deceptive nannyists mean taking your hard-earned income, keeping or wasting most of it, and doling out a pathetic pittance to recipients of their choice.

If you believe that you deserve the earnings of your bright ideas and plain hard work, you must equally uphold that for others as well. In his first inaugural address, Thomas Jefferson stated, “… a wise government … shall not take from … labor the bread it has earned.”

Jefferson illuminated another severe flaw in Clinton/Obama nannyism. By its very nature, Big Government is a profound insult to every one of us. We are, according to the nannyists, too stupid to formulate sensible decisions. By definition, nannyists deem us inferior. Jefferson described “two parties: Those who … distrust the people and want to draw all powers from them … [and those] who identify themselves with the people, have confidence in them….”

So, after all, we will all be better off if Obama’s oft-promised “change” doesn’t materialize. We don’t need a repetition of Dems’ insulting and economically destructive nannyist policies.

Colorado Dems flunk basic econ

As Obama pledges to use taxpayer money to hand out cash and prizes in the name of jump-starting the economy, Colorado Democrats seem to be taking notes. But perhaps they should start taking a basic college economics course. Their chosen model just won't work. A quick read through the daily papers and opening day remarks by the state's leading Democrat lawmakers revealed their plans to increase government regulation and taxation, two actions all but guaranteed to worsen the state’s economic prospects.

Here’s just a quick sample of their plans. Democrats want to mandate new business regulations. Rep. Mark Ferrandino, a Denver Democrat, is introducing legislation to force banks to give loan defaulters a “temporary timeout” to renegotiate their loans. Rep. Andy Kerr of Lakewood hopes to force businesses to grant a week of unpaid leave so parents can go to school events.

The trouble with these nice sounding ideas is that they will increase government intrusion into private businesses and increase costs that are in turn be passed on to consumers.

Democrats also want to increase the size of government. Only the state’s projected $604 million budget shortfall restrains their ambitions. According to the Rocky Mountain News, a $13 billion price tag for start-up costs is the only thing stopping some Democrats from moving forward with a socialized medicine scheme.

Even so, Rep. Mary Hodge of Adams County thinks a smaller version is doable. Never mind that government takeover of healthcare is a prescription for long lines, escalating costs, deficit spending, and loss of personal freedom.

To improve education, Rep. Karen Middleton of Aurora suggests that we should increase government bureaucracy by creating an "Office of Dropout Prevention and Student Reengagement." State Rep. Debbie Benefield of Arvada wants the government to guarantee every student has access to a high-quality teacher. I’m guessing parental choice isn’t what she has in mind rather the creation of yet another government teacher training program or teacher salary initiative. On the welfare front, legislation is poised to create an “Economic Opportunity Task Force” (at least it’s not a blue ribbon panel) to develop a “strategic, integrated and comprehensive plan to help lift families out of poverty.”

Bear in mind that every dollar spent on state bureaucracy is one not spent by entrepreneurs to create jobs, charitable organizations to provide real help, or individuals to invest in their own future.

Democrats think they can create jobs, stimulate growth, and generate prosperity through the creation of more government programs, hand-outs, and regulations. Unfortunately, they missed the lessons of the 20th Century, subtle as they were, like the Great Depression, 70's stagflation, and the collapse of centrally planned economies.

“There are severe limits to the good that the government can do for the economy, but there are almost no limits to the harm it can do,” observed Nobel laureate economist Milton Friedman. The direction sought by the majority party this legislative session points to darker days ahead.

Krista Kafer is a Denver-based education consultant, frequent cohost on Backbone Radio, and regular columnist for Face the State.com, from which this is reprinted by permission.

Stimulate with tax cuts, not giveaways

The United States of America is deep in recession. Our new President, Barack Obama, intends to spend $800 billion or more on a “fiscal stimulus package” intended to jumpstart the economy. As part of this package, Obama talks of injecting $300 billion in government funds into the economy, direct to consumers in the form of tax rebates, in a belief that by sending taxpayers a check, it will increase consumer spending and stimulate aggregate demand, thus spurring a recovery. Yet a review of the effectiveness of such policies reveals the folly of tax rebates as fiscal stimulus. According to economist Martin Feldstein, CEO of the National Bureau of Economic Research, when tax rebates went out as economic stimulus last spring, only around 16% of the checks were actually spent, with nearly five times that amount going into savings. Most of the rebates were used to pay off loans, not to buy new products and services, and the stimulus package utterly failed to preclude the recession.

Furthermore, by the time the checks would be in the mail, the economy will likely be improving, as happened in the 1970s. If implemented now, the benefits of a stimulus package based in tax rebates—a small burst in increased consumer demand—are minimal at best and will not outweigh the substantial costs.

While the value of the dollar has lately gained in strength, it still has the potential to continue its recent decline. As its value goes down, creditor concerns over their holdings of U.S. bonds will rise, resulting in the likely increase in interest as creditors rethink their holdings. By spending $300 billion on a stimulus package that will likely have minimal effect, the U.S. government is essentially assuming even more debt, which has already increased 86% nominally in the last eight years, at greater national risk.

We must therefore institute wide-ranging, permanent, pro-growth tax cuts, starting with making the Bush tax cuts permanent and expanding them. Beginning in 2010, the Bush rate reductions on income, capital gains and the estate tax will start to dissipate. With the dire need for capital injections into the market, allowing the 15% capital gains rate to return to the 20% rate would discourage investment in the economy. Instead, the capital gains tax should be cut in half to 7.5% so as to incentivize greater investment.

Former House Speaker Newt Gingrich has proposed that the 25% income tax rate be reduced to 15%, thereby “establish[ing] a flat-rate tax of 15% for close to 90% of workers.” Such targeted tax cuts would give the economy the boost it needs to create jobs and increase consumer demand and investment. We must then cut back the corporate tax rate from 35%, the second-highest in the world, to 25%, the average in Europe. This would expand incentives for businesses to create jobs in America and lessen the enticement to outsource.

If the Bush tax cuts expire, taxpayers will reduce spending before the expirations take effect, stunting the benefits of the rebates further. Alternatively, the knowledge that tax rates will be cut and individuals will be permitted to keep more of their income will give a sense of comfort to the beneficiaries. By cutting marginal tax rates now, the short-term effect will be a rise in consumer confidence, resulting in a boost in consumer spending.

The long-term relief that came in the form of broad-based tax cuts in 2003 resulted in the largest single-quarter GDP growth in 20 years, 7.2%, and the creation of 8 million new jobs through 2007. The aforementioned cuts would especially aid America economically in the long term, opening the door to greater and more sustained long-run economic growth as we come out of the recession.

History shows that the net benefit of tax rebate stimulus packages is minimal, and he who does not learn from history is doomed to repeat it. A fiscal stimulus of tax rate cuts, not tax rebates, would stimulate an economic recovery by putting more money in people’s pockets long-term and increasing demand in the short-term.

Jimmy Sengenberger is a political science student at Regis University in Denver, a 2008 honors graduate of nearby Grandview High School, a national organizer for the Liberty Day movement, online radio host, and a columnist for the Villager suburban weekly. He is also College Liaison for BackboneAmerica.net, working through the Backbone Americans group on Facebook.</em

Tax holiday a potent plan

"That's real economic stimulus," says John Andrews about GOP tax-holiday proposals in the January round of Head On TV debates. Susan Barnes-Gelt prefers the Keynesian approach, arguing that "shovel-ready projects need funding." John on the right, Susan on the left, also go at it this month over Senate appointee Michael Bennet, state budget woes, the Bush legacy, and Denver schools. Head On has been a daily feature on Colorado Public Television since 1997. Here are all five scripts for January: 1. RECESSION REMEDY: WHAT’S BEST?

Susan: There was neither accountability nor strict guidelines attached to the $700 billion financial bailout. Shame on Congress and the White House. Ditto the billions given to automakers. Shovel ready projects need funding and may be a catalyst for economic recovery. But my confidence in the feds is shaky.

John: As far as guiding the economy, the very words “confidence in the feds” are an oxymoron. Both Washington and New York have forfeited our confidence with years of unwise policies. The best recession remedy now is real tax cuts. Not handing out checks. Not vast construction spending with long lead times.

Susan: Obama's swift action - separating himself from Bill Richardson when the threat of scandal appeared - is a good sign that he will not abide arcane and opaque Beltway practices. With state and local government strapped, the feds must inject significant resources into rebuilding the nation's failing infrastructure.

John: Every American could have a total tax holiday – no income taxes, no payroll taxes – for most of 2009 if Congress would simply pay for government operations out of the unused portion of last year’s $700 billion bailout and this year’s proposed trillion dollar spending spree. That’s real economic stimulus.

2. MICHAEL BENNET NAMED AS U.S. SENATOR

John: Educator and businessman Michael Bennet will be a capable senator. His appointment shows that Colorado Democrats have imagination, youth, and depth. He has many Republican friends, including me. But as an ally of Ritter and Obama, Bennet has a big government vision that’s wrong for America. My vote goes elsewhere in 2010.

Susan: I don't know that Bennet has a big government vision. Fact is, I don't know what Bennet's vision is. He's not a knee jerk liberal, may oppose card check and certainly is more center than left. Time will tell . . .

John: We don’t know, and that’s the problem. Appointive senators went out with the buggy whip. Ritter could have named Mike Miles, the Democrat runner-up to Salazar in 2004. Or an elder statesman like Dick Lamm or Roy Romer. Voters next year may prefer Bill Owens, Hank Brown, or Scott McInnis.

Susan: Why name a benchwarmer when the Dem's A-list is so good? Still - Bennet is an odd choice, particularly with the uber-talented Andrew Romanoff available - he has all of Bennet's assets - intelligence, thoughtfulness, a moderate, problem-solver plus a proven record and statewide support. Go figure!

3. LEGISLATURE FACES DEEP BUDGET CUTS

John: Weak revenues will force the legislature to find half a billion in painful spending cuts with half the fiscal year gone. Ritter and the Democrats did this to us. Dems ignored Republican warnings to create a rainy day fund years ago, or to reduce spending last spring. Bad show, liberals.

Susan: Colorado's budget, hamstrung by TABOR, makes it impossible to implement the type of investments in infrastructure and the social safety net the state needs going into this tough recession. Every state is hobbled by arcane budget regs creating even greater dependency on the federal government, something you, John, should abhor.

John: Without the Taxpayer’s Bill of Rights as a guardrail, Colorado’s deficit would be over the cliff like California’s. TABOR spending limits are currently suspended anyway, Susan, and the problem right now is weak revenues from a soft economy. The 2009 state budget mess came from poor planning by Democrats.

Susan: You're half-right John - weak revenues and a soft economy account for Colorado's budget woes. But 2 years of Democratic leadership aren't to blame. Lack of flexibility, failure to invest in public infrastructure - roads, higher ed, health care - and myopic fiscal policy are the real culprits.

4. BUSH EXITS

Susan: Bush's feeble attempts to recast his legacy in the waning days of his term are pathetic. He took us to the edge of an abyss - economically, internationally, domestically. Who knows how long it will take to rebuild the nation's confidence, reputation abroad and fiscal integrity?

John: President Bush deserves the gratitude of all Americans for courageous wartime leadership against radical Islam. After 9/11 he kept the homeland absolutely safe for seven years. After Congress and the allies agreed Saddam must go, he persisted for victory in Iraq when others favored surrender. History will honor George W. Bush.

Susan: History will revile George W. Bush. His legacy will be defined by Katrina, the burning of Iraq, the re-emergence of a more violent Taliban, Abu Grahb, domestic wire taps, the collapse of Wall Street, Main Street, scandals aplenty and comprehensive incompetence.

John: Susan, Susan. Derangement syndrome does not become you. Take a deep breath. My guy from Texas had a mixed record in his eight years. So did your guy from Arkansas before him. And guess what, your new guy from Illinois will have a mixed record too. America will be just fine.

5. NEW LEADERSHIP FOR DENVER SCHOOLS

Susan: Michael Bennet's departure for Washington leaves Denver Public Schools without leadership at the top. The chief academic officer resigned last fall and there is no deputy or natural successor. The Board of Ed has its work cut out, given the unfinished initiatives on their plate.

John: Inner city kids continue to be cheated of a good education by a Denver teachers union that cares more about pay scales than learning performance. The answer is competition and market forces, charter schools and parental choice. Fortunately, that’s the agenda of Senate President Groff and House Speaker Carroll.

Susan: The Board of Education must consider the needs of its ever-diminishing and continually failing student body and identify leadership with strong credentials and a track record of improving achievement in urban school districts. A non-traditional superintendent may not be the right answer.

John: Denver citizens, especially the black and Hispanic community, should be outraged at a teachers union that recently played chicken with strike threats, like factory workers, while dropout rates remain high and scores remain low. Speaker Carroll and Senator Groff get it. So does Lt. Gov. O’Brien. Gov. Ritter does not.