Commentary on Deficit Debate

The issue at hand isn't with the current budget and the huge deficits that may not be possible to cut in this time of crisis. It is with the continuation of these deficits for as far as the eye can see. Furthermore, the administration has attempted to enact additional programs that would be permanent and add to that already endless morass of large deficits. This is what people are concerned about.

There would be no issue if we ran -10%GDP deficits for 3 or so years, but the problems are structural and the current administration and congress refuse to acknowledge or deal with the long term problems that will impact us as soon as more Boomers begin to retire. No one wants to deal with tough issues and choices, but our leaders were elected for that purpose. The country has every right to be pissed, the buck has been passed for long enough, it can no longer be delayed for the next administration to handle.

We don't want to play the blame game. Fine past administrations and congresses put us in this place, but the current crop of officials were elected because we needed change. We needed people who would deal with the buildup of debt and crap and obligations. We didn't elect these officials just so they can whine and continue ignoring the problems of the country like past administrations. We expected real change, and change is difficult. These people who ran on change have failed to be different from the people we wanted to change. Enough excuses, it's time to deal with the situation at hand. Americans do not like whiners in our leadership, they expect decisive actions, not more finger pointing!

It's the Details Stupid! Wisdom of a Second Stimulus

It's the details that are important! Government spending can only be good NET DEFICIT if the spending produces long term benefits that will outweigh the costs. In other words, it has to be a good value or else the spending will be a hindrance.

It's like someone at age 18 with a host of choices. Going into debt $80,000 or more can be worthwhile if they are able to get something, like an education, that allows them to more than make up for what they've spent. But if they blow $80,000 on girls and drugs, there'll be a temporary lift, but after the money is spent, their future will be even more bleak being $80,000 in debt.

Obama's problem is that he doesn't seem interested in the details. He let Congress waste the first stimulus instead of crafting his own stimulus plan. That's why there is no support for a second stimulus. The 18 year old has shown himself to be irresponsible by blowing the first installment of his loan. Why bother loaning him more money? There are consequences to waste and ineffective legislation!

Creating Government Jobs Through Stimulus

The problem with government job creation is that most are hired on a permanent basis. Union rules either prevent layoffs or make it extremely costly due to buyout provisions and similar measures. Since government jobs are not downwardly elastic, over-hiring beyond the optimal level required to provide services would represent a persistent burden long after the stimulative effects are no longer needed. That would hamper recovery and stifle economic growth.

Why? Because these jobs have to be paid for and so eventually higher taxes will have to be levied to pay for the extra government employees. Most state governments must run a balanced budget and can't run long term deficits, and the federal government which can, must eventually pay back the debt with interest. Even assuming some debt never has to be paid back, the federal government still has a market imposed debt ceiling beyond which it becomes increasingly more difficult and costly to finance.

It's the stickiness of government jobs that has to be taken into consideration. An increase in taxes has a negative effect on the economy, and because the outlook for the budget looks so bad already with total debt increasing faster than GDP (thus an increasing debt/GDP ratio) for the foreseeable future, there simply isn't any room for more.

As with any spending, the issue of value is important. Excess government jobs provide very little value, some of the worst bang for the buck available. Mish, I think, has a very credible analysis on the issue of "wasteful" stimulus, though the quote below is from HB.

http://globaleconomicanalysis.blogspot.com/2009/10/us-faces-second-lost-decade-because-of.html

"In reality, the entire inflationary mini-boomlet-within-the-depression was simply an illusion. 'GDP growth' that is bought with monetary pumping and feckless fiscal spending only misdirects and ultimately consumes even more scarce capital.

Fiscal stimulus may temporarily give the impression of a recovery, but it is not a genuine recovery. It makes things worse. The moment the pumping is abandoned, the true state of affairs is simply unmasked. That is what happened in 37/38 - a slight tightening of monetary policy revealed the fact that the mini-boomlet was as unsound as its predecessor boom in the years prior to the '29 crash."

In theory, these recessions and depressions happen because of mis-allocated resources. Mis-allocating more resources will only prolong the recession, not make it better. We need to allocate resources to productive uses, in other words, hiring people to dig holes and fill them up again just to create jobs isn't going to get us out of recession. As soon as the spending stops and the workers are laid off, we end up back where we started, but on even worse terms because of the added debt required to pay for those workers in the first place. Value seems to be the most important aspect missing from the discussion.

Against the Stimulus: Examples of Pork

Huge amounts of pork is the main reason I and others are against the stimulus. I have repeatedly said in prior posts that I support a stimulus bill as long as the money is used wisely. There is far too little going into infrastructure and improvements that will net a gain for society in the long term. And the infrastructure spending itself is questionable.

For example,

"For an amount for "Broadband Technology Opportunities Program", $4,700,000,000: Provided, That of the
10 funds provided under this heading, not less than
11 $4,350,000,000 shall be expended pursuant to division B
12 of this Act, of which: not less than $200,000,000 shall
13 be available for competitive grants for e:A.1)anding public
14 computer center capacity, including at community colleges
15 and public libraries; not less than $250,000,000 shall be
16 available for competitive grants for innovative programs
17 to encourage sustainable adoption of broadband service"

"For an amount for "Digital-to-Analog Converter Box
17 ProgTam" , $650,000,000, for additional coupons and re18
lated activities under the program implemented under sec19
tion 3005 of the Digital Television Transition and Public
20 Safety Act of 2005: Provided, That of the amounts pro21
vided under this heading, $90,000,000 may be for edu22
cation and outreach, including grants to organizations for
23 programs to educate vulnerable populations, including sen24
ior citizens, minority communities, people with disabilities,
25 low-income individuals, and people living in rural areas,..."

People should go read the first few pages of the text where i got the above spending from. The link is below, if the rest of the 1000 page bill is as filled with crap as I suspect it is, this does not qualify as a wise use of funds. I skipped over the first few pages which was more subsidies for farmers, and a large amount of spending seems centered on construction of government buildings and improvements to government buildings housing already bloated administrative agencies. Giving government workers a nicer workspace doesn't seem to have much long term value for ordinary citizens. And you see that millions are routinely allocated to "outreach" programs through private sources. In other words, $90 million will be used to advertise that there is money for people who want to get the digital converters. $650 million is allocated to purchasing new digital converters! I haven't mentioned either the billions for more food stamps and WIC which already has so much money that they have to advertise to encourage people to sign up for food stamps so that they can spend all the money they're currently given. Come on people, this is obvious waste.

$250,000,000 for programs that will "encourage sustainable adoption of broadband service"? Let me translate, $250,000,000 will be given away to special interests who will set up some fake program to waste the money that they don't steal. The best way to get more affordable broadband is to encourage competition, allow telephone companies like Verizon to offer DSL wherever they want instead of having to apply for licenses from States and local governments. Of course cable companies are fighting tooth and nail to prevent more competition. I found all of this just within the first few pages..., think of what the rest of the bill contains!!!

http://www.house.gov/billtext/hr1_legtext_cr.pdf