Sunday, February 1, 2009

7 Arguments Against the Stimulus Package

Photo from Republic Domain

The Senate is poised to discuss and vote on the American Recovery and Reinvestment Act of 2009. Standing at upwards of $800 billion in (deficit) spending, looking to have a final price tag of more than $900 billion by the time it sees passage in the Senate, and -like most big spending bills- likely to swell in size (to over $1,000,000,000,000) by the time all costs have been incurred over the next decade... this so-called "stimulus package" is the largest piece of legislation in history. Ever. That means we just might want to take a little more time to debate and discuss its merits before rushing into an endless, expensive quagmire, which given recent history, is something Americans have exhibited a strong tendency to do.

Though I just don't realistically see anything stopping this bill from passing into law and becoming a reality, I do want to encourage all of you who are opposed to it (and are likely to be even more so after reading this article) to take action by calling US Senators and encouraging them to vote against it (and to read this blog post!). More importantly, now that passage of this bill seems all but inevitable, I hope to salvage the damage it causes by using this as an opportunity to dispel economic myths and help bring people to a better understanding of why the stimulus package won't work. After reading, I heartily encourage you to share this in as many ways as you can with as many people you know. Our future can be very different (much brighter!) if we understand the principles I explicate below:


1. The Stimulus Package Won't Stimulate The Economy

On the surface, it seems to make sense. The economy is doing poorly, so give it a fresh infusion of billions of dollars, and it will start to perk up. But the thing is that it isn't a fresh infusion of billions of dollars. This money won't be coming from some magical government storehouse of wealth to inject the economy with new cash- it will be coming from the economy. All the money the government will be spending to stimulate the economy is in the economy already. If you understand and can share just that one simple principle with others, the public will go a long way towards understanding why the stimulus package won't stimulate the economy. All this package does is move around money that already exists and is already in our economy.

And the likely scenario is that the government will move the money to less productive places than it would flow naturally, causing the opposite of its intended effect by making the economy less productive and stifling rather than stimulating it. This plan which seems so necessary and urgent to America's political leaders, is basically just a plan to destroy billions of dollars worth of productive capital. And even if the bill does work to create economic stimulus, most of it will take until 2010 to go into effect (only 11% of the funding will be released in 2009 and some of the funding won't be released for ten years), which doesn't jive well at all with our politicians' insistence that this stimulus is required by the utmost urgency. When one stops to remember that Congressional mid-term elections take place in 2010, the timing suddenly makes sense and it becomes clear that our leaders just might be more interested in political rather than economic considerations.


2. The Stimulus Package Isn't Really Aimed At Creating New Jobs

While the American Recovery and Reinvestment Act has been thinly veiled as an attempt to stimulate the economy and create jobs, just a brief review of its provisions is enough to see that it is nothing more than a political grab bag full of pork and pet projects designed to please every politician's constituents, every lobbyist, and every government bureaucrat happy to have more power and fun spending more money that isn't theirs to spend. Under all the scare tactics and all the sanctimony about unemployment rates and a possible second Great Depression, this legislation is little more than a glorified cash grab by the government, its greedy constituents, and lobbyists.

This is why the GOP unanimously voted down the Democrats' legislation and proposed an alternative that would release more funding and create more jobs now (but it's an alternative that I would also be very unhappy with for many of the same reasons that I am unhappy with the current stimulus bill). The media and American people should be taking President Obama and the Congressional Democratic leadership to task for so brazenly misleading the American people about the real purpose for this legislation. But as I said, I would still be unhappy with the GOP's solution, not only because it shares many of the same defects as the Democrats' solution, but because focusing on full employment and job creation is misplaced. Our real aim and end should be full production and value creation, which will result in the kind of employment we want as well as a higher standard of living and a robust economy. Here's an excellent explanation as to why this is true.

Last of all, even if the stimulus package did create a lot of jobs right now, they would not be sustainable, and as soon as the money from the package dries up and the projects are finished, the workers will go back to unemployment under worse conditions because the future capital that could have gone to employing them in productive, sustainable jobs will have been dried up to fund the stimulus package and will continue to be sucked dry by taxes and inflation to fund today's deficit spending on the package itself. This bill doesn't solve the problem of unemployment. It's a quick fix that pushes the problem into the future and simultaneously creates a worse future and more difficult future economic conditions for the unemployed.


3. The Stimulus Package Is Morally Wrong

As I noted in my criticisms of the Auto Bailout:

The proper role of a government is to maintain a civil society, meaning a society free from aggression, a society in which no human being can threaten any other by aggressing against them to destroy, diminish, or expropriate their lives, or their liberty or property- which are necessary preconditions of and corollaries to a human being's right to his or her own life. When government forcibly takes from some in the form of exorbitant taxes, deficit spending, or inflation to give to others, it does the very thing it exists to safeguard against happening. When it takes such an action, it becomes an aggressor. It ceases to be an impartial arbiter between free and equal citizens to ensure their liberty, and it becomes a biased, partisan advocate for some people, using the legal power and force of its laws to favor them at the expense of the lives, liberty, and property of others without their consent and voluntary cooperation, which is morally outrageous.

4. The Stimulus Package's Unemployment Benefits Destroy Productive Capital.

The stimulus package's "safety net" provisions, amounting to over $100 billion for the unemployed, essentially destroy $100 billion worth of productive capital, which would actually be useful in helping to employ these people in productive and sustainable jobs if it were left to be used at the discretion of the individuals and businesses that actually own this money. This has a negative effect on growth, productivity, and -ironically- sustainable job creation. It amounts to welfare statism and an unsophisticated understanding of economics. As I also wrote in my criticism of the Auto Bailout:

While the desire to prevent people from going through the pain and stress of losing a job is a natural one and springs from a healthy, caring disposition towards other people, it is not a moral blank check or a justification to use whatever means to accomplish that end. For all the reasons given above, regardless of anyone's best intentions, implementing this policy would be morally wrong and practically disastrous.

A moral person would do the right thing and disavow such welfare statism, well-intentioned though it may be. Supporters of the stimulus package do not have the moral high-ground or a monopoly on compassion and humanitarianism. If we really care about the unemployed and we have a sound understanding of economics, the compassionate thing to do would be to oppose legislation that will worsen and extend an economic downturn.


5. The Stimulus Package Takes From Individuals and Gives To Corporations

How did we miss this one? A Democrat in the White House and a Democratically-controlled Congress have conspired to pass a bill that will ultimately work to tax and inflate away the money of hardworking, middle-class Americans to give a multi-billion dollar influx of cash to businesses and corporations because the benefits will "trickle down" as they use the money to create jobs for the unemployed(?)! And the pro-business, money-grubbing GOP unanimously opposed this bill in the House. (But only because they liked their version better.) Does anyone else feel like we're getting screwed by both parties and that our politicians don't have any real principles after all? So much for change and a new kind of politics in DC. Tim was correct to note in the link I provided above that "Honest liberals who resent corporate welfare must really have a headache at this point." For the same reasons that welfare for the unemployed is an immoral and improper government policy, welfare for businesses has absolutely no legitimate place in a civil society.

On this note, I just want to mention that the construction industry and companies that manufacture, process, and sell construction tools, implements, and raw materials must be laughing all the way to the bank. First our government creates a massive housing bubble scam by encouraging excessive and unwise lending to sub-prime candidates for mortgages and creating an inflationary bubble (an elaborate Ponzi scheme), which inflates the demand for housing construction and gives construction companies and their suppliers a handsome windfall. Then when the bubble bursts because it's unsustainable, our government and media go into a frenzy and manufacture an economic crisis that they argue requires them to spend billions on infrastructure to create jobs- another major windfall for construction companies and their suppliers. This should just be called The Construction Company Welfare Act of 2009.


6. The Tax Cuts In The Stimulus Package Aren't Matched By Reduced Spending

If the government cuts taxes without reducing spending, it hasn't really cut taxes. The tax cuts in the stimulus package- amounting to over $200 billion in tax cuts and credits- are made possible not by reductions in Federal spending, but by deficit spending. In other words, the government is borrowing the money to pay for the tax cuts and will have to pay it back, plus interest. When that time comes, it will have to raise taxes and inflate the value of the dollar to pay up. These tax cuts are really just tax deferments. "Spend it all today and we will bill you tomorrow." Accepting these tax cuts is like going to a loan shark for fast cash now that you'll have to pay back later with interest. I'm all for tax cuts, but as Representative Ron Paul from Texas emphasizes over and over again when he speaks publicly about fiscal policy, tax cuts don't do us any good unless they are matched by reductions in spending.

The remarkable thing about the so-called stimulus package is that it doesn't do the one thing that actually would stimulate the economy by infusing it with new money- drastically reduce government spending and put the money leftover into the economy in the form of permanent tax cuts. That would fill the economy with new money that isn't there because it's being siphoned off to support the unprecedented and unsustainable levels of government spending. So even the tax-cuts that Republicans love so much are worthless (and even harmful) unless we get government spending under control. And while the government pays for these tax cuts with borrowed money, it hogs up the market for credit and crowds out other borrowers who could put the credit to productive use by investing it in productive ventures and start-ups. So while complaining that credit isn't flowing freely enough (and supporting bizarre policies to artificially glut the economy with credit), our country's leaders stupidly and hypocritically advocate government policies that monopolize credit.


7. The Stimulus Package Is Being Sold To Americans on False Premises and Fear Mongering

There are many striking parallels between The American Recovery and Reinvestment Act and such misguided policies as the war in Iraq, the Patriot Act, and the Global War on Terror. They all:
  • Expand the role, power, and influence of government
  • Drastically increase government spending
  • Diminish individual liberties
  • Have questionable aims and unresolved practical complications
  • Lack exit-strategies and clearly defined standards of success or accountability
  • Have been sold to Americans by manufacturing a crisis and claiming that we simply must act, that there is no other way, and that without these laws, the development of some kind of worst-case scenario is inevitable.
  • Have official names that are confusing, misleading, and often contradictory to the real aims and results of the legislation itself.

Despite his promises for change and a new kind of politics, President Obama's administration is shaping up to be a lot like George W. Bush's. In selling his stimulus package to Americans, Obama has learned a lot of lessons from how Bush sold his war to us, and is taking plays right out of Bush's playbook. His shrill assertion that we must act (and quickly!) or face economic disaster is the exact same fear-mongering that the White House and Congress used to rush into another poorly-planned and not so smart decision. Also remember Bush's infamous line: "You're either with us or you're against us." Then note that supporters of the stimulus package have framed the debate in terms of a similar black and white, either-or, false dichotomy: "You're either with me... or you're with Rush Limbaugh!" What a disagreeable alternative! So if I don't support the stimulus package, I'm with Rush Limbaugh? Give me a break.


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