Economics

The New Era of Irresponsibility

We don't have a moment to spare, but evidently we have $1 trillion.

|

Last October, while campaigning in Toledo, Barack Obama called for "a new ethic of responsibility." The nation's economic troubles, he said, occurred partly because "everyone was living beyond their means," including politicians who "spent money they didn't have." In his inaugural address last month, Obama regretted "our collective failure to make hard choices" and heralded "a new era of responsibility."

Now President Obama, as one of his first priorities, is pushing a gargantuan "stimulus" plan that will add around $1 trillion to the national debt and cannot possibly work as advertised. Welcome to the new era of responsibility.

Remember when the problem with Americans was that we saved too little, preferring instant gratification even when we couldn't afford it? As Obama put it in October, "we were allowed and even encouraged to spend without limits, to borrow instead of save."

Economists worried that our low saving rate made our economy and our government dangerously dependent on the whims of foreign investors. Yet on Monday, when Commerce Department data showed that the U.S. saving rate had risen sharply, from less than 1 percent of after-tax income a year ago to 3.6 percent in December, the press treated the increase as bad news.

"Putting away money and paying down debt may be good for one family's kitchen-table economics," The New York Times reported, "but the broader economy suffers in the short term when millions of families do it." The Associated Press agreed: "What's good for individuals—spending less, saving more—is bad for the economy when everyone does it."

This is the theory underlying the "stimulus" package: Since we can't depend on consumers to spend money they don't have on stuff they don't need, the government has to do it for them.

Never mind the disappointing history of using government spending to jump-start the economy. Although it didn't work in the United States during the 1930s or in Japan during the 1990s, Obama is eager to try again, like Bullwinkle reaching into his hat for a rabbit after getting a lion and a rhinoceros, exclaiming, "This time for sure!"

Even if the mechanics of Obama's trick were sound, his timing would be off. According to the Congressional Budget Office, only a fifth of the spending and tax breaks in the House version of the "stimulus" bill would be felt in 2009. The vast majority of the money, ostensibly intended to jolt the economy out of recession, would be spent after the recession is expected to end.

Spending a trillion bucks is not as easy as it looks, even for a government accustomed to throwing money around. The House bill allocates $9 billion to the expansion of broadband Internet service in rural areas, for instance, but the CBO predicts the resulting projects would not be completed for five to eight years, partly because they would require "technological features that are not widely available today." Similarly, "much of the construction and procurement work associated with highway and transit projects would occur over an extended period of time, leading to federal outlays over several years."

A particular telecommunication or transportation project may or may not be a sound investment, but nothing funded by the "stimulus" package has to meet that test, since spending the money is an end in itself. Hence there is no need to justify the $127 billion for health care and the $150 billion for education (which would more than double the Education Department's annual budget) as proper and wise uses of taxpayer money.

Indeed, pausing to ask whether offering Medicaid to millionaires, giving $1 billion to perpetually penurious Amtrak, devoting $44 billion to "clean energy," or boosting the budget of the National Endowment for the Arts is a good idea would be reckless at a time like this. "When it comes to rebuilding our economy," Obama warned just before the House approved the pseudo-stimulus bill, "we don't have a moment to spare." Acting responsibly, in other words, would be irresponsible.

Jacob Sullum is a senior editor at Reason magazine.

© Copyright 2009 by Creators Syndicate Inc.

Advertisement

NEXT: Kick'em When They're Down!

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Well spake sir! Probably the best non-prohibition article by Mr. Sullum ever.

  2. You know, I read this article and other opinions about the “stimulus”, and all I can think is how much scorn there is in Washington (and in the media) for we mere citizens. We should save money or spend it as directed by the Central Committee, should we? Maybe the fundamental flaw in their view is this: They should follow our lead, not the other way around.

    A recession will always include people and companies spending less money. That’s what a recession is, in large part. We’re waiting for things to get, or at least to appear, better. Sure, if we all rushed out and spent money now, it might make it look like a recovery, but we have good reasons for holding back.

    Back the hell off.

  3. If governments could plan economies the Soviet Union would still be around.

  4. “No plan is perfect, and we should work to make it stronger,” he said. “Let’s not make the perfect the enemy of the essential. Let’s show people all over our country who are looking for leadership in this difficult time that we are equal to the task.”

    * * *

    “A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future,” he said in his prepared remarks. “That’s why I feel such a sense of urgency about the Economic Recovery and Reinvestment Plan.”

  5. The comment about ‘saving is good for individuals but bad for the economy as a whole’ underscores the fatal flaw in Keynesian economic thinking. There are two considerations when running a business: money coming in and money going out. Part of the money going out is usually interest charges for capital investments and operating expenses. If the population as a whole saves more and spends less, sure, there is a decrease in volume of goods & services sold but interest rates should go down and lower the cost of doing business, which should stave off gross changes in employment that lead to positive feedback recession (for example, lower production volume lowers the requirement for workers in current production of goods & services but if the savings is spent on capital investments then employment increases in those sectors). Currently the government has attempted to decouple interest rates from savings rates through monetary policy tweaking, which leads to inflation.

    Incidentally, I think the reality of this current situation is that ‘real’ interest rates are actually higher than economists recognize, in that yes you can get a 30 year mortgage cheaply now or a zero % auto loan BUT there’s a huge number of people who due to marginal or bad credit who now are effectively seeing an infinite interest rate (cannot get a loan). I’m not saying we should go back to the free-wheeling, anyone with a pulse days of two years ago, but the ‘credit crunch’ we have now is also a bit out of check with what it should be in a more stable economic situation.

  6. I love newspeak, now please Government, tell me who we love and who we hate so that I may correctly bray at my TV.

    I just can’t wait to turn people over to the thought police.

    Orwellian references aside, there is a necessary evil (stimulus package) that needs to be done, but for goodness sake, either give every American a chuck of that trillion bucks to pay off our debts so we can buy shiny new things again, or send us all prophylactics to wear when uncle Sam comes looking for us, at least we’ll be wearing protection.

  7. or send us all prophylactics to wear when uncle Sam comes looking for us, at least we’ll be wearing protection.

    I wonder if there’s such a thing as a “butt condom”? Because if not, good luck getting Uncle Sam to bother putting the condom on before he sticks the long dick of the law up your bloddy anus.

  8. Translated from Obamaspeak to English, the “new era of responsibilty” means we are all obligated to endorse and support socialism.

    Even though socialims is the antithesis of real responsibilty.

  9. More translations from Obamaspeak:

    “We can not afford partisan bickering,” means, “How dare you question my ideas.”

    “We must sacrifice,” means, “People who don’t typically vote Democrat must sacrifice.”

  10. Obama “socialism” is no doubt better than Bush fascism – with the embryo police, constant citizen survelleince, Schiavo police, bank nationalization, internet poker police, drug wars, disregard for privacy, etc.

    Can’t tell an aborto-freak Bushpig that though.

  11. We’ll see, shrike, how much Bush fascism Obama actually does away with. Otherwise, its Bush fascism coated in a thick creamy socialist frosting, wouldn’t you agree?

    Although, I have to say I am not familiar with the embryo police and Schaivo police of which you speak.

  12. I wish I could say I was amazed at how fast the press switched from criticizing Bush’s policies to applauding the EXACT SAME CRAP from Obama. I’m not though. My problem is that when Bush was in office we could at least expect reasonable opposition in the left-wing media. Now that their guy is running the show all we have is Faux Nuz and a few conservative radio personalities to sputter out objections, and they’re so disingenuous they only serve to make the left look better in contrast.

    Maybe it’s finally time to turn off the TV entirely and leave the newspapers in the rack.

  13. At least we will know whatever the Democrats will say if/when the stimulus is shown to be a failure will have all the gravity of “Better get a new hat!”.

  14. The article is laughable in its lack of grasp of the issue. The Bush tax cuts when the econcomy was already strong, lack of regulatory oversight over the credit markets, and wasteful engagement in and spending on the Iraq war overstoked the economy and led to the current credit crisis. This, in turn, led to the current economic recession. The stimulus package is not “more of the same”, but the only way out of the recession. Its Economics 101. The only debate in Congress is over how the stimulus will best incent the economy–Spending or tax cuts. Its only the fringe idiots that believe that no stimulus is necessary.

  15. Lack of regulatory oversight? Or too much government meddling? The tax cuts caused a recession? How on earth is that even possible?

    I’ll give you the war. Damned if that helped anything, blowing hundreds of billions on that.

    The stimulus is a stupid idea in theory, and what’s been proposed won’t stimulate anything more than the sexual organs of people in Washington.

  16. Liberal politicians exist for one reason and one only- to spend money. Whether it is there in the first instance is a question that does not concern them. Digging the US into a deeper financial hole to squander almost a trillion dollars we don’t have is an act that even an insane man would avoid doing. Assinine liberals!

  17. “Kelly | February 4, 2009, 4:23pm | #”

    A friend of mine recently declined to join me in a debate against a Keynesian, citing, “It’s pointless. Whatever they say is true, just because they say it.”

    Kelly’s comment is an excellent example. All history shows that you are wrong, yet you cling to your theory.

  18. Please…fiscal stimulus is not “Economics 101.” Economists abandoned the idea of fiscal policy thirty years ago when I was in college…when we all had first hand experience in how fiscal policy led to double-digit inflation while doing nothing to cure double-digit unemployment.

    Let us call things by their true names. “Fiscal stimulus” is a fig leaf for “every pork barrel-earmark-christmas tree project we can think of.”

  19. We’ll see, shrike, how much Bush fascism Obama actually does away with. Otherwise, its Bush fascism coated in a thick creamy socialist frosting, wouldn’t you agree?

    Although, I have to say I am not familiar with the embryo police and Schaivo police of which you speak.

    And Congress intervening on a state legal issue is unfamiliar to you? C’mon, I know you’re smarter than that.

    Yes, I agree. I expect better from Obama.

    The “socialist” garbage? Red herring at best.

    A top rate of 35% with huge deficits is “capitalist” while a top rate of 39% and a balanced budget is “socialist”? Are you that simplistic?

    I have the LP mindset, I know your shit. A 100 basis points in a tax rate is a “revolution” – but this crappy site dedicated to “freedom” can’t get past the partisan squabbling.

    The LP movement is DOA.

  20. Obama won the election with his “rhetorical flourishes” that included tax cuts for 95% of Amricans. Now he wants to spend instead. And spend in ways that will INCREASE taxes of those famous middle class Americans that he loves so much. He is mortaging the future of those taxpayers. And their kids. And their grandkids. The tax cuts have shrunk to inconsequential levels. That, in spite of the fact that 72% of Americans oppose a “stimulus” bill that is a spending only bill. Throwing a small bone to “prove” the bill is about tax cuts is not going to cut it. This is not the change ANYBODY voted for.

  21. “This is not the change ANYBODY voted for.”

    Sadly, it is. Some of us knew it before election day.

  22. It is way, way too late in the game to be writing this sort of article without so much as mentioning the words “liquidity trap.” I hope people criticize the fuck out of any government action this massive, but you’re just not even showing up for the right debate if you’re not going to address the liquidity trap argument.

  23. I think gas should be 1$ with a 50 cent states tax and a 4% intrest on the houses and this should help the economy alot more than people thing

  24. If planned economies were successful the Soviet Union would still be around (ditto Communist Poland, Czech, E Germany, etc etc).

    By what conceit does Washington think they know better how to spend OUR money than we do?

    Help me, government, I just can’t make it on my own!!! /s

  25. The techniques Obama used to get people’s votes are not as effective at getting a trillion dollars of their money.

    This is not your campaign audience, President Obama.

  26. The stimulus package is not “more of the same”, but the only way out of the recession. Its Economics 101.

    MULLTIPLYER EFFECT!!!

  27. Obama did and is doing exactly what FDR did. Ridicule your opponent on the campaiagn trail and say that he was irresponsible for spending so much money and that we needed more fiscal responsibility and then when getting elected go and do the entire opposite.

    Now most of us here knew that would happen but enough idiots still voted for him and we are getting excatly what we expected. now the liberals are getting all the pork they wanted when they elected him, but I don’t know if they are ready for all of the unintended consequences of doing so.

  28. Purists say that the whole stimulus concept is wrong in that it is an unwarranted government intrusion. But this is not a pure situation, since government intrusion caused the problem in the first place. So who among us is smart enough to say that the stimulus package is not the optimum solution under the circumstances? NOBODY! That’s why we must revert to the theory of a minimal role for government, regardless of temporary pain, to reset the playing field. But it’s a rigged game, with luminaries such as Barney Frank and Nancy Pelosi making up the rules as they go along. It’s becoming more and more difficult to charitably award them the benefit of the doubt.

  29. The problem with the statement “What’s good for individuals-spending less, saving more-is bad for the economy when everyone does it,” is that it assumes everyone is putting their money in a mattress. When people put that money into a bank it increases the amount the bank has to lend, which increases investment spending, which is good for everyone.

  30. (From 1978)Good evening. On Tuesday, we Americans will have the opportunity to exercise our role as citizens in a free democracy. Yet, only a third of the eligible voters will actually cast ballots. The other two-thirds are, in a sense, very lucky. Because they do not know what’s going on.

    Last week, I delivered a message on inflation. Since then, the dollar has dropped in value, the stock market has sustained record losses, and the wholesale price index increased 0.9%. In other words, our economic system is screwed, blued and tatooed! We just have to face the fact that there is simply no way to fight inflation in a capitally-intensive, highly-technological, conflict-riddled, anything-for-a-thrill world of today. That’s why, tonight, I want you to try to look for in inflation, an entirely new word: Inflation is our friend.

    For example, consider this: in the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean – most Americans will be millionaires. Everyone will feel like a bigshot. Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would! But what about people on fixed incomes? They have always been the true victims of inflation. That’s why I will present to Congress the “Inflation Maintenance Program”, whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash. Then you may say, “Won’t that cost a lot of money? Won’t that increase the deficit?” Sure it will! But so what? We’ll just print more money! We have the papers, we have the mints.. I can just call up the Bureau of Engraving and say, “Hi! This is Jimmy. Roll out some of them twenties! Print up a couple thousand sheets of those Century Notes!” Sure, all these dollars will cause even more inflation, but who cares? Everyone will be a millionaire!

    In my speech last week, I said that America would have to undergo an austerity program, but since this revolutionary new approach welcomes inflation, our economy will be free to grow, and we can spend, spend, spend! I believe the watchwords for the 80’s should be “Let’s Party!” And in that spirit, I’d like to say, “Live, from New York, it’s Saturday Night!”

  31. Hurry, we MUST ACT NOW – lest the market begin to correct itself. Let’s borrow and spend so damn much that we burst out into economic vitality and soundness. Reminds me of a brilliant plan by a couple of buzzed fratboys – “Hey, instead of stopping, let’s drink so freakin’ damn much, that we smash through all the limits and come out on the other side, sober”.

  32. OMG I could be sick……..I am moving to China. Facebook this article and send it to all you know.

  33. Dear United States Government,

    Please don’t attempt to force me to buy more stuff that I don’t need. I am more than a consumer and for the government, media, etc., to say that if we all went out and spent money, all would get well is infuriating. I was not put on this Earth to buy stuff and keep the economy afloat.

  34. President Obama was right saying that we should take extra responsibility. We all need to understand should take responsibility at this jucture where our economy and country needs us more than anything else.

  35. What a great post! Very Informative! Carry on the good work…

Please to post comments

Comments are closed.