March 24th, 2009 10:51 EST
Hey Dummy! How Can You Get Your Stimulus?
With dueling economists and back and forth between Democrats and Republicans over President Obama`s economic recovery package, the Center on Budget and Policy Priorities has provided us with a Stimulus Guide for Dummies. Actually, it`s a report by Chad Stone, the center`s chief economist, titled, "Attacks on Congressional Package Don`t Withstand Scrutiny."
"The plan for the most part is well-designed to produce as much stimulus as possible as quickly as that can be done," the report states. "It includes fast-spending, high `bang for the buck` items such as expansions in food stamps and unemployment insurance - provisions that a broad range of economists and CBO [Congressional Budget Office] have rated as the most highly stimulative types of spending. It also includes state fiscal relief, which is essential to moderate the depth of the budget cuts and tax increases that states otherwise will have to impose; such budget cuts and tax increases would withdraw demand from the economy and make the downturn deeper. In addition, the package includes infrastructure investments, which are highly stimulative once projects are underway but sometimes require significant lead time. Finally, the package includes tax cuts, some of which are targeted on low and moderate income households, making them more effective as stimulus, and some of which are less well-targeted and, according to CBO, likely to have far less of a stimulative effect."
Now you have an overview of the plan written in plain English, something hard to find these days in Washington. But there`s more.
"Effective economic stimulus and recovery measures work by increasing the demand for goods and services at a time when there is insufficient existing demand to keep businesses operating at full capacity and to generate full employment. Measures that increase demand stop the destruction of jobs and begin to put people back to work during times when business and consumer confidence is low and economic activity is spiraling downward."
House Republicans have been especially critical of President Obama`s stimulus plan, saying it wastes money on social spending, a charge Chad Stone rejects.
"Some critics, for example, argue that spending on safety net programs like food stamps and unemployment insurance may be justified on humanitarian grounds but does not provide stimulus or create jobs in the way that reductions in, say, taxes for businesses would. In fact, this argument is completely backward in a recession," he observes. "When the problem is that businesses have excess productive capacity and can`t sell everything they can make, the way to reduce pressure on them to lay off workers and to give them a greater incentive to expand is to give their customers more money to spend. When you increase benefits for unemployed workers or food stamp recipients, they spend the money quickly and the benefits spread through the economy."
Of course, there is the complaint that a deeply indebted federal government cannot afford to send money to the states.
"Critics are similarly confused about fiscal relief measures for cash-strapped states. Here, too, some critics have mistakenly charged that such measures are not stimulus and do not create jobs," Stone argues. "... In an economic downturn, states see their revenues fall off and their caseloads for social safety net programs like Medicaid increase. Unlike the federal government, states have balanced budget requirements for their operating budgets. As budget deficits begin to emerge, states must take actions to cut existing programs or raise new revenues."
"Those actions translate into layoffs of state workers, cancellation of contracts with vendors, and a diminished response to the hardship that beneficiaries of safety net programs experience. Without help from the federal government, those state actions will reverberate through the economy, adding to the job losses and further weakening economic activity. States currently face budget shortfalls projected at more than $350 billion over the next 2Â½ years, a stunning amount that, in the absence of federal relief, would translate into budget cuts and tax increases that would make the recession longer and deeper."
Republicans still propose additional tax cuts as a means of jumpstarting the economy. Again, Stone is not impressed.
"A persistent argument heard in the stimulus debate is that tax cuts are more effective stimulus than government spending. That is not the conclusion of mainstream macroeconomic theory or evidence," he notes. "... Tax cuts are most effective as stimulus when they are targeted on low- and moderate-income households that will likely spend a high proportion of the benefits. Tax cuts are far less effective as stimulus when they go to high-income taxpayers who will likely save a large proportion of the tax benefits or, as discussed above, to businesses that will not likely spend the tax cuts on expansion when their sales are depressed and they are laying off workers."
Now that we have raised are economics IQ, no one can play us for dummies.
George E. Curry, former editor-in-chief of Emerge magazine and the NNPA News Service, is a keynote speaker, moderator, and media coach. He can be reached through his Web site, www.georgecurry.com.