A Second Stimulus

I have yet to hear a discussion from our leaders about how a fiscal (spending) stimulus will work now when similar policies failed during the great depression under Roosevelt and Hoover. The first $787 stimulus was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent, and almost 200 more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media, or someone needs to be discussing this as a debatable idea.

Current evidence indicates that the first stimulus has not worked as it appears to have had no influence on unemployment - see graph below or link here.



Source here via Greg Mankiw


So now, supporters of a second stimulus have to explain, after the New Deal stimulus spending failed in the 30's, and the first $787 stimulus failed , why do we expect a 2nd stimulus will work? I aknowledge that there is a lag time for stimulus spending, but that only strengthens the argument AGAINST a second stimulus. If we have not had enough time for this to work, then we don't know if we truly need a second stimulus or not. If we need more spending now on infrastructure to create more jobs as Pennsylvania Governor Rendell says ( from TheHill.com) , then why didn't we spend more of the $787 billion on things that would create jobs the first time. Why not reallocate what we have already committed in the $787 billion to these ends?
Instead of ‘returning to the failed policies that got us where we are today’ perhaps we should consider other policies that have shown success in the past. I’m referring to lowering marginal tax rates and reducing the corporate tax rate.


The basic argument for cuts in marginal taxes is that lower tax rates provide an incentive for increased economic activity. In addition, lower taxes reduce the incentive for the wealthiest Americans to engage in activities to avoid paying taxes . Why pay high management fees, and risk lower returns if a reduction in taxes will lead to higher after tax returns than what you will get in a tax shelter?

Is there any evidence for these supply side effects? Do we actually see increases in economic activity and increases in revenue in the face of cuts in marginal tax rates?

In his book 'Vision of the Annointed,' Thomas Sowell provides data from the US Budget Historical tables ( I checked these ) indicating that with the Regan tax cuts, we saw revenue increases.

This is corroborated by Lawrence Lindsey ( 1987) who found that for those earning > $200K per year, we saw the following increases in collections:

1982 – 3%
1983 – 9%
1984 – 23%

( see Lindsey, Lawrence B. 1987. “Individual Taxpayer Response to Taxcuts, 1982-1984.” J. of Public Economics 33 (July) 173-206 , also noted in: Robert Barrow. Macroeconomics- 5th Edition MIT Press 1997 )

And for the recent Bush tax cuts: ( see this from the Wall Street Journal )

"Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003." ( see historical tables link above )

Also, straight from the historical tables provided by the office of management and budget you will see that from 2004-2007 there was a 25% surge in tax revenues, ( in face of tax cuts) which was the largest 3 yr surge since 1966.

Further evidence is given by President Obama's chief of the council of economic advisers, Christina Romer. She finds that a dollar of tax cuts raises the G.D.P. by about $3. According to this research the benefit from tax cuts is more than twice what other researchers say we get from spending increases.

Dr. Rand Paul on the Glenn Beck Show

ADDITIONAL LINKS ON NATIONAL HEALTH CARE

Sarah Palin Inarticulate?

Is Sarah Palin inarticulate? On what basis of comparison? Would this be an issue if she were to actually run for president?

Maybe not. Despite both President Obama's confusion about basic economics, gaffs, and inarticulate mishaps, he was quite successful in his campaign.
For example see here, here, and here. This is not to bash or disrespect the POTUS, but to illustrate how unfair or biased this criticism of Sarah Palin has been.


As far as Palin- what happened to all of the interviews like this( On Larry Kudlow)- where are the gaffs? This is inarticulate? ( this is prior to Governor Palin joining the ticket- so no tricks)

If all you saw of the campaign were the above videos of President Obama and the above video of Governor Palin, who would you judge as being 'inarticulate'? This is exactly the flavor of the campaign coverage provided by the national media, and illustrates exactly why so many Americans have such a poor perception of who is or isn't 'articulate.'

To continue with this criticism of Sarah Palin, while dodging the issues like taxes, spending,the stimulus, regulation, inflation, and natural resources is intellectually dishonest on the part of all of her critics, political opponents, and anyone in the media that continues to play this game.

The Road to Serfdom And The Car That Will Take Us There

See The Environmental Motor Company Making Detroit a subsidiary of the Sierra Club ( Wall Street Journal)

Palin 2012?

Maybe, maybe not. Sarah Palin does not have to run for president to make a difference for the republican party or the country. As she is, she is a force for change regardless, by setting and example for the rest of the party. The best thing to have happened to her may have been for John McCain to lose the election. If he would have one, his lukewarm, bipartisan, ( or 'maverick') policies ( like taxing health insurance, cap and trade, McCain-Fiengold) would have painted Sarah into a terrible corner that she may not have been able to get out of.

As his running mate, she was catapulted into the spotlight, and given a taste of what was needed to win an election. Americans are tired of the politics as usual, the bailouts, higher taxes, and increased regulation. They are tired of being told that deregulation and capitalism ( read: our personal freedom and way of life) is what got us into trouble and it not only has destroyed our economy, but will destroy our planet as well. Regardless of party, people are tired of being punished and treated like children. They want leaders that are willing to reason and weigh evidence before embarking on unprecedented changes in our national life. ( recall the $787 billion stimulus bill was passed and sold to us as necessary despite the warnings from hundreds of economists).

Sarah has been dubbed as 'inarticulate' and 'inexperienced' by the media, all the while forgetting the ascension of Barak Obama from the obscurity of community organizing, with no executive experience, to being president of the United States in the matter of just a couple of years. His strategy was very similar- he has goals and values and he has pursued them from day one without compromise- despite the onslaught of criticism from the right. He has shown great leadership for his party, and cast aside lukewarm politics. He has been quite successful, despite both he and Joe Bidens confusions about basic economics, gaffs, and inarticulate mishaps.
For example see here, here, and here. This is not to bash or disrespect the POTUS, but to illustrate how unfair or biased this criticism of Sarah Palin has been.

A great explanation of Sarah Palin's strategy can be found here from NewsMaxTV


As economist Thomas Sowell points out, this is the strategy that works, as opposed to the moderate stance taken by Bush and McCain.


Sarah Palin may be criticised for stepping down, or being radical, but as Rush Limbaugh states:

"It boils down to this," Limbaugh said. "When you have so many establishment types, inside the beltway, establishment, elitist types.... just so eager to destroy this woman, it means they're still scared to death of her, and that to me, is the bottom line, and I'm living proof that if you do things outside of the box.... you don't have to be part of a formula."


This is a way that Sarah can distinguish herself from the rest.( like John McCain should have done by voting against the stimulus).Instead of staying in office as a lame duck, but having to commit her time and energy to that role, she will not be free to focus on national issues, where she has found a new comparative advantage in politics. This is also good for Alaska, in that the Lt. Governor can take up issues without the distraction of an ongoing national media campaign. Learning from the failures of the lukewarm moderate republicans, and the success of the democrats, she can start a national dialogue about where we are headed today. ( the democrats had been campaigning for president, against Bush for 8 years prior to President Obama getting elected). Americans are tired of the conventional, if that means more taxes, more spending,double digit unemployment and more government created financial crises. Being unconventional can only be to her advantage whether she runs for president or not.

Freedom Rallies: What are they about?

Freedom rallies, also known as tea parties by some, have been proliferate these past few months. What are they all about?

One of the first criticisms that comes to mind is 'where were all of these protesters under Bush'? No one was happy about the expansion of medicare and entitlement spending under Bush, and who can deny that the 1st round of lump sum tax cuts were poorly structured- although the the later cut in marginal taxes did work well- nor were very many of the tea party protesters likely very happy about the tariffs that came and went under Bush. Bush was not successful in reforming social security, and he should have vetoed the job and opportunity crushing minimum wage increases- if only to take a symbolic stance against poorly designed policies. For many of the protesters, I assume that president Bush left a lot to be desired. We too often forget the outrage over Bush starting the bailouts.

Unfortunately, I think many of them came to accept this brand of 'compassionate conservatism' or 'bipartisanship' to be a reality under the two party system. Electing John McCain would have meant more of these bipartisan ('maverick' as he called it) policies - like McCain- Feingold, cap and trade, and taxing our healthcare benefits. Sarah Palin was popular only because she was truly a Washington outsider, and seemed to bring balance to the ticket as someone willing to stand up to business as usual in DC. Unfortunately (or maybe fortunately) for her, McCain lost.

I think these parties represent a referendum on all parties, they are sending the message to everyone that many Americans are tired of bailouts, and hearing that the financial crisis is the result of deregulation under Bush ( even though they have not cited a single act of deregulation by congress since Gramm-Leach-Bliley in the 90's) or that it is a crisis of capitalism (basically our own fault).The participants are outraged to be punished for it with higher taxes, bigger government, inflation, and unprecedented deficits.

I think many of the participants are tired of having their intelligence insulted in this manner. They are looking for leadership- from whatever party- that is willing to look at the facts, and provide a solution as the result of carefully weighing and considering all of the evidence. They are sick of the big government ideology and bipartisanship that has brought us to where we are today.

I think the last straw may have been with the passage of the $787 billion stimulus package. We were told that it was necessary, as we faced the greatest financial crisis since the great depression. It may have been more accepted if those favoring this massive increase in spending could have offered some reasoning as to why this would work today, even though similar policies failed us during the great depression under Roosevelt and Hoover. This was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent, and almost 200 more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media,or someone needs to be discussing this as a debatable idea. It is the burden of the supporters and the media to explain why this will work, and while all of the other evidence is flawed. I don't recall any of the supporters of the legislation having a discussion like this- I don't remember seeing or hearing mention of any of these economists' research being discussed or debated on the news in relation to the stimulus. In short, I think the protesters probably feel like they have been lied to to a great extent about the stimulus and current budget deficits, or greatly insulted by the arrogance of its supporters. Not only are they likely upset with the republicans and democrats that have supported these policies, but they are also growing more and more impatient with a national media that has failed to ask tough questions.

To add insult to injury, evidence indicates that the projections of how much better off we would be under passage of the stimulus have turned out to be wrong. Unemployment has surpassed what it was projected to have been without passing a $787 billion stimulus package.



Source here.


The excuse seems to be 'we didn't know how bad it really was.' This excuse might be acceptable, were it not for the big I told you so coming from the hundreds of economists listed above. And the original projections did account for the lag we would expect from fiscal policy, so the excuse of 'giving it more time' isn't really much more acceptable.

Given what we have experienced through the bailouts and the stimulus package, many of the participants in the freedom rallies are even more skeptical of the policies to come such as national healthcare and cap and trade.


Those participating in the freedom rallies across the country this past independence day weekend have a lot grievances on their plate, and a lot of questions they want answered. Will they get answers, or will they be arrogantly dismissed as fringe radicals, closed minded, anti-progressive sore losers? Will they be answered by an offer to have a serious discussion? Will they be offered evidence, or cowboy style ideological shots from the hip?

Agriculture, Obesity, and Poverty

The agriculture industry has and will continue to come under attach for contributing to obesity. These attacks are based on narrow special interests and ideology, but they will be used to justify more regulation and an attack on the personal liberties of millions of Americans. It will be done in the name of protecting the poor from themselves and the greed of agribusiness.

Back in 2007 in the New York Times Micahel Pollan makes the following comment:

"So how is it that today the people with the least amount of money to spend on food are the ones most likely to be overweight?

This perverse state of affairs is not, as you might think, the inevitable result of the free market.

Like most processed foods, the Twinkie is basically a clever arrangement of carbohydrates and fats teased out of corn, soybeans and wheat — three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year. (Rice and cotton are the others.) For the last several decades — indeed, for about as long as the American waistline has been ballooning — U.S. agricultural policy has been designed in such a way as to promote the overproduction of these five commodities, especially corn and soy."

Mr. Pollan has it all wrong on a number of accounts. I'm not here to argue about the distortions created by this or that component of any particular farm bill, but the farm bills are structured around these crops because that is what we grow, they are the staples that feed the world. We don't grow these crops because they are included in the farm bill, they are included in the farm bill because we grow these crops. Eliminate the farm bill, and yes the free market will still call for American farmers to grow the staples that feed the world.

Mr. Pollan and many of his adherents are not interested in what foods free markets ( or lets be more precise- the foods that free people) dictate. Most of these food activists would love to see a farm bill or other legislation that penalizes our efforts to feed the world with the environmentally superior technologies and science based techniques we are using today, and subsidize the production of fruits and vegetables and politically correct foods.

Also is the concern that the 'poor' are choosing to eat these unhealthy fast foods and processed foods. That may certainly be the case, but we should really be concerned with overall health, not just obesity. While the poor may be dealing with some issues of obesity, research ( from the national bureau of economic research) indicates that the relationship between socioeconomic status and health is weak. Still, if we are going to be concerned with obesity, we should be concerned with all factors contribute to obesity, not just the hand that feeds us. As indicated in a recent piece in the Rocky Mountain News, a study from the 2007 International Journal of Obesity concludes, “The obesity epidemic is often speculatively blamed on fast food, when the actual evidence shows very little, if any, association of fast food with weight gain.”

To concentrate on diet alone, and omit exercise will lead to perverse results, but it can justify a lot of government intrusion on our valued freedoms.

One approach is to inadvertandly tax small businesses and consumers with labeling requirements as done recently in Tennessee. ( See the Tennessean)

"Providing consumers with accurate, easy to understand nutritional information about the content of the food they are purchasing is a common-sense measure that could help Tennessee address its obesity epidemic" Bredesen wrote.

Governor Bredessen, common sense tells us that the gravy and fried chicken at the local diner or national franchise probably is loaded with calories and fat, labeled or not. Will this change the habits of a marginal number of people? Maybe, but at great costs with minimal benefit.

The case is similar with fat taxes. Research from the Mercatus Center at George Mason University indicates that the taxes required to have any real affect on obesity would be in the 1200 percent range, and even if taxes eliminated ( in this case soda) consumption, the impact on obesity would be very small. The study concludes that "the sensitivity of individuals to changes in relative food prices is
not sufficient to make “fat taxes” a viable tool to lower obesity."

Taking on the challenge of 'fighting obesity' in the name of helping the poor ( or reducing climate change) is likely misguided, or for some activists maybe even disingenuous. In the words of economist Thomas Sowell, many of the arguments for these policies 'invoke the name and mystique of science in order to override other people's choices."

We should be thankful that we live in a country were people of modest means have access affordable energy dense foods. We can't forget that fast food provides jobs and opportunities for advancement for millions! In producing staples like corn, soybeans, wheat, beef, pork, and chicken our farmers are utilizing modern science and technology ( like biotech) to improve nutritional quality and minimize our impact on the environment.

Many of the ideas being proposed by food activists and righteous eaters if ever implemented will truly bite the hand that feeds us.

The best approach is to maintain policies that support rather than hinder the spontaneous order of the market that allocates resources and provides incentives to produce the necessary technologies for better food, a better environment, and the economic growth that reduces poverty.

Green Jobs

Recently there has been a lot of hype created regarding the creation of 'green jobs' and even excitement that the creation of green jobs may help stimulate the economy. This may be counter to what we would expect given basic economic theory.

Recent research by Gabriel Calzada Álvarez (link) indicates that job losses may result from what economists refer to as the broken window fallacy.

'we find that for every renewable energy job that the State manages to finance...that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.'
'Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.'

With the broken window fallacy, as the analogy goes, breaking the baker's window leads to jobs for glass repair workers, and thus acts like a stimulus to the economy. It is a fallacy in that it does not consider the jobs that other wise would have been created had the baker not had to fix his window, but expanded his business or invested the funds. Jobs may be created on both accounts, but who is to say which jobs create the most value for the economy.

If green jobs are created by taking money and resources away from other businesses to subsidize green enterprises (breaking windows) then they are not created without consequence.

Green jobs created by government are not equivalent to those created by the free market. A recent story from the Charlotte Observer points out that according to a study by Pew Charitable Trusts "Green-jobs growth has occurred without consistent regulatory support... "All the states that grew were responding directly to consumer demand."

A prime example of green job creation via the free market can be found when we look at modern agriculture. As pointed out in a recent AgWeb blog post 'Biotechnology: An Agriculture Success Story' recent research from PG Economics indicates that biotech crops have greatly reduced agriculture's carbon footprint and reduced pesticide applications. For additional peer reviewed research related to the 'greening' of the ag industry see the references below.

Green jobs created by the biotech industry are created voluntarily. Investors and entrepreneurs recognized that the money they invested in biotech would yield more benefits to society than any alternative at the margin. Otherwise they would have invested their money elsewhere.

When government tries to create green jobs, it has to arbitrarily take money from one place and put it somewhere else. Because they base their decision on the limited knowledge and preferences of at most a few voters, politicians, and bureaucrats instead of market returns, they have no way of knowing whether the additional benefits to society from their program are greater than the costs. ( and they risk destroying more jobs than they create).

If we truly want increased growth, decreased poverty, and improved environmental quality, our best chance is going to be to leverage the power of the 'invisible green hand' and let the market create green jobs where they are needed most. The ag industry has already set the example.


Enterprise and Biodiversity: Do Market Forces Yield Diversity of Life?
David Schap and Andrew T. Young Cato Journal, Vol. 19, No. 1 (Spring/Summer 1999)

A Meta-Analysis of Effects of Bt Cotton and Maize on Nontarget Invertebrates
Michelle Marvier, Chanel McCreedy, James Regetz, Peter Kareiva
Science 8 June 2007:
Vol. 316. no. 5830, pp. 1475 - 1477

Smith, J.S.C.; Smith, O.S.; Wright, S.; Wall, S.J.; and Walton, M. (1992)
‘‘Diversity of United States Hybrid Maize Germplasm as Revealed by
Restriction Fragment Length Polymorphisms.’’ Crop Science 32: 598–604

Munkvold, G.P. et al . Plant Disease 83, 130-138 1999.

Dowd, p.J. Economic Entomology. 93 1669-1679 2000.

Miller, Henry I, Conko, Gregory, & Drew L. Kershe. Nature Biotechnology Volume 24 Number 9 September 2006.

Agricultural Outlook ERS/USDA Aug 2006.

Dr. Roger Leonard, LSU Agricultural Center and Dr. Ronald Smith, Auburn University. Research in Bt Cotton


http://www.beefusa.org/uDocs/cattlenumbersandbeefproduction347.pdf

Gregory Conko “The Benefits of Biotech” Regulation. Spring 2003

San Diego Center for Molecular Agriculture: Foods from Genetically Modified Organisms

Food Inc

Steve Cornett of AgWeb sums it up pretty well. My response to his post and commentors:

Thanks for sharing this.These sentiments reflect a basic unbiased, common sense science based response to Food Inc. which from what I gather is turning out to be using the prestige of science as a facade to override other people's choices. As far as where I get my news, I would say, as someone else very well known has said, ALL OF THEM. Fox, NPR, ABC, CBS Bloomberg, CNN, CSPAN, NYT, WSJ, WP, etc. Isn't it kind of silly to list all of these sources this day in age. ALL OF THEM.