Three Right-Wing Myths about the Stimulus

Filed in Gather Politics News Channel by on January 23, 2009 0 Comments

Last week, House Democrats released an $825 billion economic recovery package, which consists of $550 billion in government spending and $275 billion in tax cuts. The provisions in the plan were marked up by various congressional committees this week, with the goal of passing a full stimulus package sometime in mid-February. Though they voiced some support when President Obama initially laid out his vision for a stimulus plan, conservatives balked upon seeing the bill that emerged from the House. Minority Leader John Boehner (R-OH) made his opposition known by simply saying "Oh. My. God." Conservatives have coalesced around "alternative" stimulus proposals like one crafted by the Republican Study Committee (RSC). But in their opposition, conservatives have propagated several myths about the stimulus and its potential effect on the economy. Here are the three most prominent conservative stimulus myths, and why they amount to nothing more than hot air.
MYTH 1 — SPENDING IS NOT STIMULATIVE: In response to the stimulus plan, conservatives on the House Budget Committee released a report stating that the proposal "pours taxpayers' money" into projects, "many of which may be worthy in themselves, but have little to do with 'stimulating' the economy." Harvard professor Robert Barro derided the plan as "voodoo economics," while right-wing pundit Michelle Malkin claimed that it will "at most be useless." However, an analysis by Moody's found that government spending results in more significant "bang for the buck." For every dollar invested in specific types of spending, the boost in real GDP is more than $1.30. The most benefit comes from extending unemployment benefits ($1.64) and increasing food stamps ($1.73), but strong returns result from infrastructure investment ($1.59) and aid to state and local governments ($1.36), as well. Furthermore, Moody's also noted, "A well-timed, targeted, and temporary stimulus could in fact cost the Treasury less in the long run, since a debilitating recession would severely undermine tax revenues and prompt more government spending for longer." Mark Zandi, chief economist at Moody's and former adviser to Sen. John McCain's (R-AZ) presidential campaign, released his analysis of the House plan on Wednesday, and concluded that it would "provide a vital boost to the flagging economy," without which full employment would not return until 2014.
MYTH 2 — STIMULUS WON'T CREATE JOBS: Last week, Boehner claimed, "When it comes to slow-moving government spending programs, it's clear that it doesn't create the jobs or preserve the jobs that need to happen." Former Massachusetts governor Mitt Romney said that "even if consumption were to bump up, it would not lead businesses to expand and to add jobs." However, as former Secretary of Labor Robert Reich explained, "The stimulus plan will create jobs repairing and upgrading the nation's roads, bridges, ports, levees, water and sewage system, public-transit systems, electricity grid, and schools." It stands to reason that investing in infrastructure is going to lead to job creation, as someone needs to be hired to actually complete the various projects. By investing $100 billion in clean energy infrastructure alone, the Center for American Progress (CAP) has estimated that 2 million jobs can be created in the next two years. Aid to states through bolstering Medicaid also "generates business and gets people into jobs," as a recent report by Families USA showed: "The new dollars pass from one person to another in successive rounds of spending, generating additional business activity, jobs, and wages that would not otherwise be produced." Council of Economic Advisers Chairman Christina Romer and Vice President Biden aide Jared Bernstein, meanwhile — by using the "1% of GDP equals 1 million jobs rule of thumb" — estimated that a stimulus plan will create or save three million jobs. According to their calculations, "30% of the jobs created will be in construction and manufacturing," while "the other two significant sectors that are disproportionately represented in job creation are retail trade and leisure and hospitality."

MYTH 3 — PERMANENT TAX CUTS ARE THE BEST STIMULUS: The only stimulus idea that conservatives are wholeheartedly supporting is permanent tax cuts. At a hearing before the RSC, Romney, former eBay CEO Meg Whitman, and Americans for Tax Reform President Grover Norquist all claimed that the stimulus should include permanent corporate tax cuts, while Barro claimed that fully "eliminating the federal corporate income tax would be brilliant." But CAP'sWill Straw explained, "The track record for such steps is poor in general, but they are particularly ill-suited for a recessionary period. After all, the reason that businesses and individuals are not investing at the moment has little to do with the taxes they may pay in the future and everything to do with a fear of losing money because there is no demand in the economy." The Heritage Foundation, meanwhile, proposed an "alternative" to the House stimulus: "permanent tax reductions such as the ones Congress passed in 2003." "Tax cuts like those have a proven track record of encouraging economic growth," wrote Heritage. But this is simply the same supply-side approach adopted by the Bush administration, and the evidence that it helps economic growth is "weak at best." An analysis by the Center for American Progress Action Fund shows that every $10 billion spent on this kind of cut would create or save just 10,000 jobs, "versus nearly 60,000 jobs which could be created or saved by extending unemployment benefits and food stamps or investing directly in energy, transportation and education infrastructure." Furthermore, permanent measures will exacerbate the long-term debt much more than temporary measures will.

~ The Progress Report

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