5 reasons why “Son of Stimulus” is a bad seed

May 26, 2010

The American Jobs and Closing Tax Loopholes Act? Really? Even by the disingenuous standards of Capitol Hill, calling the $174 billion spending package making its way through the House “a jobs bill” takes some real moxie.

Die-hard Keynesians, of course, will contend that so long as money gets pushed into the economy, how it gets spent isn’t so critical. But for a government running trillion-dollar budget deficits, at least every billion or so should count. And it’s hard to argue that this bill is optimized for job creation or economic growth.

1) For instance, the bill includes a one-year, $6.7 billion extension of the federal research and development tax credit. By not making it permanent, the credit is less likely to foster long-term investment. The bill also extends tax breaks for NASCAR and Hollywood, ensuring both Red and Blue state residents get fed their respective helpings of pork.

2) More than a quarter of the spending — $47 billion over 10 years — goes toward extending unemployment insurance benefits. Economists worry the increased availability of such assistance may reduce the intensity with which the jobless look for work and lengthen the duration of unemployment by nearly 10 percent. It’s also tough to pin down the job-creating impact of spending $63 billion to increase Medicare payments to doctors and $24 billion for higher Medicaid spending.

3) Even worse, the proposal enlarges the budget deficit. Less than a quarter of the tab is paid for, showing again just how easy it is for Congress to avoid self-imposed limits on deficit spending. And increased Medicare spending was excluded from healthcare reform so the bill could get a better score from the Congressional Budget Office.

4) The White House will argue that given the high unemployment rate, bringing down the deficit is less of a priority. But listen to what economist Carment Reinhart told the president’s deficit panel today (via The Hill):

The gross U.S. debt is approaching a level equivalent to 90 percent of the country’s gross domestic product, the level at which growth has historically declined, said Carmen Reinhart, a University of Maryland economist. When gross debt hits 90 percent of GDP, Reinhart told the commission during a hearing in the Capitol, growth “deteriorates markedly.” Median growth rates fall by 1 percent, and average growth rates fall “considerably more,” she said.

Reinhart said the commission shouldn’t wait to put in place a plan to rein in deficits. “I have no positive news to give,” she said. “Fiscal austerity is something nobody wants, but it is a fact.

5) Barack Obama’s original stimulus plan was $787 billion (though costs have pushed it up to $862 billion). While some advisers argued for $1.2 trillion, the president sided with those who believed an amount of such Brobdingnagian size would alarm financial markets — and probably voters, too. This latest legislation, combined with a $17 billion jobs bill passed in March, would put the tally at around $1 trillion, not counting interest. In due course, the math will be easy enough for the markets to understand.

2 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

[...] James Pethokoukis, Reuters. [...]

[...] This post was mentioned on Twitter by Dan Spencer and Robert L. McMahon, James Pethokoukis. James Pethokoukis said: 5 reasons why "Son of Stimulus" is a bad seed http://tiny.cc/y43hy [...]

[...] the administration continues to barrage us with more bailout, more spending, more debt. James Pethokoukis takes a glance at the proposed American Jobs and Closing Tax Loopholes Act (emphasis added): [...]

[...] James Pethokoukis gives us 5 good reasons why “son of stimulus” is a very bad idea.  But what caught my eye was a quote by one of the economists on President Obama’s deficit panel said yesterday: [...]

LEATHER Chairs

Everybody thought that main enemies for countries were those ready to begin a war against them, mainly in terms of guns and bombs, as common army interventions.

Latest events are showing us how in this new world order, the real menace for countries are speculators, finance speculators. 35 year old traders sitting on their City skyscrapers leather chairs, betting against CDS and Countries by just clicking some computer buttons.

George Soros achieved to force british pund to leave international change standards for a while by betting against it some time ago. So, all this happening now is not that new in the financial arenas.
But, what makes it so surprising is how the governments seem to do nothing to stop these attacks, no international call against leveraged positions against CDS, no international calls to brake exposure to currency speculation positions … no international call at all.

Greece had to be rescued by IMF last friday since its debt renewal climbed till astonishing levels, paying more than 8% per year for its sovereign issued debt, mainly due to CDS risk premium scalating non stop.
Now, Spain and Portugal seem to be next. But, are there enough reasons to attempt against these countries debt ???

Spain´s unemployment is at 20%. Obviously, an incredibly high level, but public deficit is well below United Kingdom´s, Italy´s, or even the USA. Do you imagine an speculative attack against the USA to force the americans to pay 8% for their T-Bond issues ??? … Probably not.

So, and only for those weak internationally imaged countries, the easy profits for bear speculators may arise more easily.

How can a government stop this attack once started ?? … Extremely difficult to say, but obviously, the first idea that seems more feasible would be that of sending signs to the international community that reforms to reduce public deficit are going to be undertaken seriously.

Not because these measures were extremely necessary to accomplish but just to stop artificial attacks from the international finance titans that get countries in real troubles to refinance its public debt, elevating the CDS or risk premiums to incredible sommets.

We are living in a world that wars do not get along the battle fields but in luxury meeting rooms, with fancy leather chairs, and many, many quotations running the bloomberg and reuters screens.

Wars fought by 35 year old traders, becoming billionaires attempting against countries by simply pressing computer buttons as playing video games.

Obviously, times have changed. At these times, Napoleon ( history´s most famous war strategist ) could not be that short any more, and obviously not that ugly. He should be more than 6 inches tall and look hot and sexy, necessary suited by Armani or Valentino,… and without any doubt, he would not be wearing that big hat or wear watches,… Instead, he would be wearing a ROLEX SUBMARINER bathed in gold.

Jose Luis Revilla Escudero
Chairman & CEO
WWShares, Inc
-Private Wealth Advisors-
http://www.worldwideshares.blogspot.com

Posted by WWS | Report as abusive

[...] Jobs are not currently being created because of the FUD created by complete Progressive governance. Successful entrepeneurs and businesses are smart and predictive and they see that our current financial model is unsustainable, and that the intellectualoids runnning the government element of the economy are busy reading Keynesian entrails and prescribing more leeches, which is not going to work. [...]

Simply want to say your article is as astonishing. The clarity in your post is simply cool and i can assume you’re an expert on this subject. Fine with your permission let me to grab your feed to keep updated with forthcoming post. Thanks a million and please keep up the gratifying work.