Seems a lot of folks are getting riled up over a column I just penned comparing and contrasting “Obamanomics” and “Reaganomics.” The gist of the negative sentiments is that Obama’s plan will produce a federal budget deficit that may never be repaid and government’s excessive involvement will be unduly harmful.
I understand. Recognize that I am a Tulane University-trained MBA – a program that teaches that the private sector is a better guide to economic prosperity than the public sector and one that professes that wealth cannot be multiplied by dividing it. But such teachings certainly do not preclude the need for government intervention during economic distress or when free markets unfairly tip the balance of power.
Reagan and Obama ostensibly have two different approaches during recessionary times. Reagan touted tax cuts while Obama is now pushing a mix of monetary stimulus (65 percent) and tax cuts (35 percent.) To be clear, President Reagan also injected billions into the economy during the 1982 recession – money that went to the defense sector. Obama, by comparison, is sending federal funds to infrastructure projects.
The critical question is this: Which pursuit will matriculate quicker throughout the very sick economy -- a government infusion or deep tax cuts? During recessions, people save. Hence, the Obama administration’s thinking is that people will pocket their tax cuts whereas the stimulus must be immediately spent under the rules.
If you disagree with this thinking, you are not alone. One Energy Central colleague, Mike Smith, expressed to me that Reagan’s goal was to win the Cold War. “He believed in the power of the U.S. economy and on that basis felt that if we invested enough in defense programs that the Soviets would have to try to keep up with us, destroying their own economy in the process. Score one for capitalism and freedom.
“Today we see a program that is based on blind ‘hope’ in a process that has been tried twice in history: in the U.S. in the 1930s and in Japan in the 1990s – the effect of both efforts was somewhere between ineffective and disastrous.” Smith, head of the Sierra Group, is concerned that Obama’s approach will make millions of people dependent on the government. It’s a model that he says has failed around the world throughout history.
Relax Mike. The U.S. won’t become a socialist country. Just the other day, Obama said that his administration would begin immediately to address the huge deficit by cutting some government programs and by eliminating earlier tax breaks for those making more than $250,000 a year. The president furthermore underscores the logic behind the recently enacted stimulus by saying that the federal government is on the only entity with the resources necessary to invest during such troubled times. We’ll see – in four years.
If you still believe infrastructure spending is helpful as a stimulus, the "defense sector" has more "shovel ready" projects by far than the states or non-defense sectors of the federal government. Not that I necessarily think that's where the money should go but if we are looking for more immediate results, then the military is actually ready to build.
Finally, a breakdown of the total $787 billion package shows "only" about $90 billion in true infrastructure spending with $31 billion of that mostly for government buildings. Contrast this to over $400 billion allocated for education, health care and job/welfare related spending. While one can argue the long-term benefits, they are hardly economic stimulus areas.
John
Putting more money in the hands of consumers would be great to spur consumer spending, but average consumers do not normally spend money from their own pockets to make the investments needed to start new businesses, or for new technology R&D ventures. Consumers' money is typically spent on goods and services that already exist and have already been developed and commercialized, not new ones. To start new ventures requires sizeable credit loans, or large companies who have deep pockets to invest already. Both are severely lacking without the credit system working properly.
The key is conversion from non-producing assets to producing assets. The most effective stimulation is tax policies for companies to invest and hire now. This has both a short term and a long term positive impact for the economy.
Concerning energy investment, the only known solution that is proven, has a low carbon footprint and is environmentally sensitive is nuclear power, but, surprise, Obama and his minions don't like it. They reject the real world in favor of fantasy. Well, one thing is for sure, a lot more money can be spent chasing after rainbows than addressing the problem economically.
We were told by Obama that we need to listen to other nations. Well, this is what they are telling us: Europe is 33% nuclear and rising, with France at 80%. Japan is heavily nuclear and the Chinese are building them as fast as they can.
A convenient little fact that keeps getting ignored is the massive economic and environmental cost of backup power for alternative energy schemes and/or energy storage facilties, such as huge damns and reservoirs for pumped storage. This is not an argument against alternative energy, but an argument to employ it when it makes economic sense. The same for the so-called "Hydrogen Economy".
At the same time, eliminating useless government functions, such as the federal Department of Education, would allow the nation to function more efficiently and force the dead wood to get real jobs. In the case of the Department of Education, there are 12,000 bureaucrats in Washington teaching no one anything, true parasites on society along with so many other government functions.
The mortgage debt crisis was a creation of government through Barney Frank and company encouraging and mandating risky mortgages and then insuring the risky debt with our tax money. Barney Frank and company told President Bush, John McCain and others "hands off" right up to the bitter end, that there was nothing wrong!
Now we are in the early stages of creating the next giant fiasco, the Obama Debt Crisis that has the potential in future years of rivaling the Great Depression. The federal government has a National Debt of $11 Trillion NOT including $59 Billion in unfunded liabilities. Enough insanity. Isn't there anyone other than junior G-Men and fiscal morons avaialble for public office?
Just remember, bananas do not grow well in the USA. My advice is to stop aspiring to Banana Republic status.
http://www.energy.gov/energysources/nuclear.htm
and draw your own conclusions.