James Pethokoukis

Politics and policy from inside Washington

Stimulus? Any day now …

Jun 29, 2009 19:07 UTC

White House economist Christina Romer says government stimulus is “going to ramp up strongly through the summer and the fall.”  This implies that a lack of stimulus explains the poor economy — not that the Obama stimulus plan is simply not working. Yet what stimulus is flowing into the economy isn’t working, as many predicted — including me and Milton Friedman. Listen to Gluskin Sheff economist David Rosenberg (bold is mine):

In April, total stimulus from the federal government to the personal sector, in the form of tax reduction and increased benefits, came to $121 billion at an annual rate. But that month, in nominal terms, consumer spending rose the grand total of $1 billion. Then we found out on Friday that in May, the total stimulus from the Obama economics team came to $163 billion at an annual rate, and consumer spending increased by a measly $25 billion (again at an annual rate). The big story is that the personal savings rate surged again to a new 16-year high of 6.9% from 5.6% in April and 4.3% in March. This is a repeat of the fiscal impact from the tax relief a year ago when the savings rate jumped from 0.2% in March 2008 to 4.8% in May 2008. This is what economists refer to as “Ricardian equivalence” — the money from Uncle Sam goes into the coffee can instead of being used to buy more coffee.

So let’s get this straight, the future taxpayer is being asked to contribute to a policy today that is aimed at perpetuating a consumer cycle — and yet for every dollar that is coming out of Washington to support a 70% consumption/GDP ratio, it is getting barely more than 8 cents worth of new spending activity. In real terms, as was the case with the tax rebates of just over a year ago, the real impact is on the savings rate, and it is very clear that not even the most aggressive monetary and fiscal policy since the 1930s is going to stop consumer spending in volume terms from rolling over in the second quarter.


This is a very good insight why the the government and business does not get the now consumer economics.

Posted by Alan Maddox | Report as abusive

The face of fear

Jun 29, 2009 18:26 UTC

Scott Grannis, the Calafia Beach Pundit, think market fears have ebbed, but they may not return to previous low levels:

Some of the lost ground may not be recoverable, however, and that would be the portion attributable to misguided policy actions of the Bush administration (e.g., the Paulson/Geither bailouts), and the Obama administration (e.g., the $800 billion stimulus package, the Chrysler takeover, the trillion-dollar-deficits budget, and more recently the cap and trade bill, all of which were rammed through with the mantra “there’s no time to look at the details, just vote yes”). These policy actions all share two dreadful features: they dramatically expand the scope and power of government, and they promise a significant increase in future tax burdens. And that, in turn, means that the future growth prospects of the U.S. economy have been diminished. Profits will be less than they otherwise might have been, and living standards will be less than they otherwise might have been


The real fear is not only in Government spending and rush to actions, but also in the growth of police agencies within the Government. For all you “head in the sand ostriches” may I recommend that you read “The Bridge and Andau” by Michener. It is my fear that we are going down the same path as the nation of Hungary.

Posted by f belz | Report as abusive

Obama’s techno-optimism

Jun 29, 2009 18:20 UTC

The president on cap-and-trade, via the WSJ): “My strong belief is, is that innovation and technology are going to accelerate our process beyond these targets, and that we’re going to look back and say we can do even more.” Despite conservative naysaying about alternative technologies, there could well be huge leaps forward. But the same is also true of nuclear energy technology, which is why it is such a shame that the Obamacrats want to push it out of the debate .


I do think that the idea is good, but with the economy being very unstalble it may not be the way to get it done. On the energy front we can use the shotgun approach and waste a lot of good money and have a bunch of useless programs along with a few good ones, or we can have an open discussion and listen to both sides and point to where we want to go. As a country we are very unstable right now and it may be our undoing.

Posted by f belz | Report as abusive

Krugman: Dem green job claims are bogus

Jun 29, 2009 18:13 UTC

House Speaker Nancy Pelosi said the cap-and-trade bill was about “jobs, jobs, jobs, jobs.” But liberal economist Paul Krugman tells National Public Radio a different story (thanks to OpenMarket):

There will be more wind farms built. There will be people retrofitting power plants to reduce their emissions. There will be people weatherproofing housing and commercial buildings.”

What economists would say is that employment would be just about the same as it would have been otherwise, but it will be a different mix of jobs.


There’s also the Keynes idea of job creation
- get a thousand or so workers to dig holes and put money in it, and another thousand to dig it up again :-)

The Bill supposedly was about energy and emissions and is still labelled as such (“ACES”).

Assuming a need to deal with emissions,
Electricity Generation (coal, gas) and Transport (mainly automobiles) alone account for nearly 80% of fuel combustion emissions.

No Trade Problems
Unlike Cap and Trade, which involves cement, steel and other industries having to face imports from unregulated countries, the here suggested electricity and transport changes are not just more limited, but also largely local.

Funding and Impact
Equity and long term loan finance can be used: Long term industrial loans from financial institutions, particularly if federal/state guaranteed, give low yearly interest repayments and lessen the effect on electricity bills or transport cost.

The impact on the businesses is further lessened by the stability and predictability surrounding the funding.
Since only electricity and transport are involved, other business continues as usual and consumers and society in general are spared expense and disruption.
This is even more obvious from having no energy efficiency regulation either – see below.

Compare with
today’s all-encompassing Cap and Trade (emission trading) suggestions, with unpredictability, expense, and needless disruption from normal business practice on one hand, or unnecessary profiteering from free allowance handouts with little actual emission reduction on the other hand – together with extensive regulation on what people can or can’t buy and use.

Understanding Cap and Trade, and why it is bad for America and bad for lowering emissions http://ceolas.net/#cce5x

Market Reduction of CO2: Cap and Trade – or Not?
Basic Idea — Offsets — Tree Planting — Manufacture Shift — Fair Trade — Surreal Market — Real Market — Allowances: Auctions + Hand-Outs — Allowance Trading — Companies: Business Stability + Cost — In Conclusion

Instead, A New Electric America: http://ceolas.net/#cc10x onwards

Sotomayor watch

Jun 29, 2009 14:54 UTC

Will the Supreme Court decision on the Ricci case affect Judge Sonia Sotomayor’s chances of making it on the Supreme Court? It gives GOPers a stronger handhold during questioning, no doubt. I will be keeping an eye on the betting markets with this one. So far they are not moving and still rate her a 95 percent probablity of being confirmed.

Tracking the ‘Nanny State’ deficit

Jun 29, 2009 14:49 UTC

From Ed Yardeni:

Meanwhile, the “Nanny State Deficit” soared to a record $740.9bn (saar). It is simply the gap between the social benefits provided by the government minus the payroll taxes paid by employees and employers to pay for them. This deficit was close to zero at the start of 2001, the start of the data in the monthly personal income release. Such benefits were equivalent to 34.1% of wages and salaries in May. That’s a record high and well above readings of 10% before the start of the Great Society in the mid-1960s.

America, don’t let this happen to you!

Jun 29, 2009 14:46 UTC

Stick with me on this. The WSJ outlines three economic options for Germany, whose trade-based economy has fallen nearly 7 percent during the past four quarters: 1) do nothing and wait for the global economy to pick up; 2) increase domestic consumption via higher union wages; 3) innovate!

This is a choice bit:

The third option would be to foster entrepreneurship in new sectors, to supplement Germany’s traditional strengths in cars and engineering.  …  ”Somebody created a comparative advantage in machinery and BMWs in the 1960s, but nobody has created anything much since,” says Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. German public policy and the country’s state-dominated banking system focus on rewarding existing companies rather than new ones, Mr. Posen says. … But Germany is second last in the number of business start-ups among 18 advanced economies surveyed by the Global Entrepreneurship Monitor, an international research project.  … A recent study by consultants McKinsey & Co. says Germany could double its average economic growth to 3% a year if it got serious about new industries, from research-led sectors to services for the growing number of elderly consumers. Without such an effort, German living standards will decline relative to other advanced economies, the report warns.

My spin: Perhaps the key part of the article was when Posen pointed out that the nation’s state-dominated banking system tends to reward existing players, not startups.  This is why it is so important to get Uncle Sam out of the U.S banking system ASAP.  American economic policies must also be graded as to whether they enterpreneurial innnovation and competitiveness. It’s not just green energy, gang!