American Elephants

The Do-Something Disease, Expanded and Enlarged. by The Elephant's Child

After the Great Depression, many smaller recessions and the great inflation, economists have really studied government actions to find out what works and what doesn’t.  As David Brooks wrote in the New York Times today:

Christina Romer is Barack Obama’s choice to lead is Council of Economic Advisers.  In 1994, Romer and her husband, David, wrote an essay entitled “What Ends Recessions?”  In the first paragraph, the Romers noted that “economists seem strangely unsure about what to tell policy makers to do to end recessions.”

Thr Romers surveyed the recessions of the previous 50 years to try to reach some conclusions about what works.  “Our central conclusion is that monetary policy alone is a sufficiently powerful and flexible tool to end recessions,” they wrote.  Automatic spending policies like unemployment insurance have sometimes helped.  Discretionary policies, like tax cuts and stimulus plans, have not been of much use. As they put it “Discretionary fiscal policy, in contrast, does not appear to have had an important role in generating recoveries.”

The Romers briefly described how different administrations responded to recessions.  All the administrations, Democratic and Republican, resisted large-scale fiscal stimulus plans.  They didn’t believe they could time a stimulus correctly.  They didn’t trust Congress to pass the bills quickly or cleanly.  They decided they shouldn’t be making policy in what Kennedy administration economists called “an atmosphere of haste and panic brought on by recession.”

The Romers’ essay exemplifies the economic doctrine that reigned up until a few months ago; fiscal stimulus plans that try to time a recession are dangerous, unproven and unnecessary. (emphasis mine)

President-elect Obama’s plans seem to have been made without input from the Romers.  This is a different recession in that it is government caused.  The crisis of Fannie Mae and Freddie Mac filled up banks’ portfolios with sub-prime mortgages or, essentially, garbage.  The initial TARP (Troubled Asset Relief Program) was intended to buy up the garbage, get it off the banks’ books.  Over time those assets could be sold and the money repaid to the government. Everything in the paragraphs above recommends against the fiscal stimulus plan that Obama has announced.

Obama is going back and adding some tax cuts to attempt to get Republican votes, but with the input of a lot of smart people — this is a very dumb plan.  It features temporary things.  A quickie tax cut — you might get $500 — which in today’s economy doesn’t go very far.  Democrats are already howling that the Bush tax cuts are not being ended soon enough.  “Ending those tax cuts” is a tax increase, and a very big one.  What possible good does $500 do now, if the government is going to take away more as soon as possible.  Nancy Pelosi is determined to raise taxes on “the rich” without any understanding that the folks who actually create jobs — the small businessmen — who employ 10 or 50 people, file their taxes as individuals, and are technically “the rich.”  The mom and pop operations that many think of as “small business” like your neighborhood cleaners or flower shop are not the job creation engine.  “The rich” in our economy pay the highest percentage of all taxes of any country in the world.  Over half of the people in our economy pay no taxes.

People and businesses will buy, invest, hire and spend when they have confidence about what to expect tomorrow.  Tax cuts promote growth when they are permanent.  When they can be counted upon. Not when politicians are dying to take them away tomorrow.

There is a lot of funny language going on.  We have had much higher unemployment at many times in the past.  They are comparing today’s unemployment numbers with times when we had a smaller population and fewer workers.  Obama’s panic talk is just that — panic talk — to drive us into acceptance of an irresponsible plan that will do little to help the economy, and a lot to put the economy permanently under the thumb of Washington politicians. Those politicians are the ones who put us into a government caused recession, and their policies now will not get us out.

I want Barack Obama to succeed as a president, because I care deeply about this country. I think he is getting off to a very bad start with a very bad plan presented with propaganda that would have been excessive even during the campaign.

A story about best friends at an elephant retirement home. by The Elephant's Child
January 9, 2009, 6:39 pm
Filed under: Freedom, Heartwarming, News

We at American Elephants like nice stories about elephants.  Here’s a very nice one:

A conversation with distinguished economist John Taylor is worth your time. by The Elephant's Child

Uncommon Knowledge, is a series of five short videos from the Hoover Institution, of a discussion between host Peter Robinson and a distinguished guest — in this case Dr. John Taylor, an economist from the Hoover Institution.  Dr. Taylor explains the origins of the current economic crisis and what we are doing and should be doing about it.  It is available at National Review Online, and is well worth your time.  I recommend it highly.  You can find it here.

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