Economic Stimulus Package

Many of my conservative friends have expressed dismay, to put it politely, and many more throughout the rest of the spectrum have expressed confusion as to how this stimulus package will actually work.

First off it’s not socialism – The United States still collects a smaller percentage in taxes than every other developed nation, except for South Korea.  Don’t let the rhetoric of Sarah Palin or the Republicans on the Capitol Hill fool you. We pay the second lowest percentage of taxes in the entire developed world. “Pure” free market capitalists meanwhile still bash the overall economic recovery plan to bits, for everything from bank takeovers to the dramatic actions with fiscal policy.

To me it’s like a kid who ate all his candy while his mom was gone and then complains to mom that his tummy hurts.  Through lax regulation, greed, and a supply-side monetary policy the free market champions ate all their candy. Now they’re complaining when mom is trying to make them feel better and puts the candy bowl on a higher shelf.

Having so poorly managed our monetary policy to keep the troubled real-estate and credit markets afloat for far too long, we’re stuck with few alternatives.  We can bailout the corrupt banking system (against every good instinct in my soul), we can set new regulations for sub-prime lending and bank balance sheets, (requiring all banks receiving federal assistance to be subject to federal oversight is a start), and we can watch the market swim along like a catfish, but we can’t do much else without some strong fiscal action.

Fiscal policy is the lone remaining tool in the government’s arsenal. And it sucks. George W. Bush ran up the deficit for years with economically retarded tax cuts – Instead of spurring economic growth and government revenue the way the Bush Administration and flawed economist Art Laffer claimed it would, the tax cuts generated a 90% reduction of their value in revenue. Meanwhile committed ourselves to a $1 trillion war.  Our fiscal situation deteriorated rapidly during the Bush Deux Presidency, but unfortunately it’s the only tool we have left.

So what do we do…?

The big question in any economic stimulus package is doing a fair and mathematical estimate of the multiplier effect. How far will each dollar spent go?  A multiplier of anything over 1.00 is decent, in that you get your money’s worth (though the depth of our recession and expectations of American’s, demands that we seek a higher calculable multiplier). Basically, if we’re to begin a strong economic recovery in the next 24 months we need to pump some life back into the economy in the most effective way possible.

John Ensign sums up the Republican perspective by arguing “If we could lower the corporate tax rate, that would be one of the best things that we could do to make American business more competitive in the world and actually help stimulate the economy.”

And Rep. Spencer Bachus (R-AL) echoed that sentiment “We have said let’s do tax cuts, let’s let the American people make the decisions on how they’ll spend the money. That will stimulate the economy more than bringing all that money to Washington and then distributing it out in all sorts of government programs.”

Senator and Congressman, that’s not right. And any half decent economist will tell you that you’re fools and full of shit. Even one of Senator McCain’s top economic advisors, Mark Zandi, argues that for economic stimulus tax cuts, especially corporate tax cuts, produce the least ‘bang for your buck,’ of any fiscal approach.

Here’s the multiplier tables as calculated by a Republican economist…

You see, the fraudulent, ideological claims being made by Republicans in Congress have absolutely no basis... Big tax cuts might help their buddies at the country club, but they don’t stimulate the economy. The Bush tax policy, based on trickle-down economics, has the least return of anything, with corporate tax cuts a close second! For every dollar spent under the bush tax plan approximately 60% percent left the market for the savings accounts of the top 1% (90% of the tax cuts went to the top 1% with 71% of that money seeing no return).

An across the board tax cut, might see some action, but with our economy teetering on collapse and our fiscal situation in the shitter we need a better multiplier than 1.03%. By reaching out to the people most affected by this economic downturn – extending unemployment benefits, temporarily increasing the food stamp program, issuing general aid to state governments, and improving healthcare facilities, roads and internet access in poor communities, we see the greatest return on investment. Almost 50% greater of a return than the Republican alternative, even using numbers generated by a Republican economist.

I would argue the overall benefits of injecting large amounts of money into the economy through fiscal policy produce a far greater multiplier than Zandi calculates. The effects of this stimulus will be far more wide spread than what can be mathematically quantified. We don’t know how many companies are barely holding back from laying people off, how many small businesses are facing bankruptcy, and how many homeowners are pillaging their savings and kids’ college accounts to try and hold on to their homes… One thing we do once again appreciate in times like these is every penny counts.It might be a new road project 20 miles away that keeps the local lumber yard from closing, or a new healthcare facility that generates enough jobs to save several people in a town from losing their homes, thus collapsing the local market further. There simply is no way to calculate the anti-tumbling effect this stimulus will have.

Whether the governments infusion of $800+ billion generates real growth and jumpstarts this economy with a high multiplier effect or whether it gets thrown down the drain with another tax cuts has far more real consequences than the last time we argued about fiscal policy on such levels. Back when Bush and the Republican controlled Congress passed $1.2 Trillion in tax cuts a little over five years ago – Tax cuts that failed miserably to stimulate the economy left our government burdened with a Trillion dollars in new debt.

Bush, Boehner, McConnell, and that slimey little prick Cantor, have already proven their ineffectiveness at understanding basic economic principles, why would anyone want to listen to them again?