A Second Stimulus?
Jul 12, 2009
By Matt Bogard
Now we are starting to hear talk about a 2nd stimulus. But I have not heard anything about reversing the recent tax increases on thousands of farms and small businesses, or reducing capital gains or corporate tax rates. I have yet to hear a discussion from our leaders about how a fiscal spending stimulus will work now when similar policies failed during the great depression under Roosevelt and Hoover (UCLA Press). The first $787 stimulus was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion, ( MN Federal Reserve) Prescott,( MN Federal Reserve) Barro, ( Wall Street Journal) Becker,( Wall Street Journal) Rizzo, ( Think Markets) Mankiw, ( New York Times) Sargent, ( Mankiw’s Blog) and almost 200 ( via CATO Institute) more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media, or someone needs to be discussing this as a debatable idea.
Last February I noted in an AgWeb post that “The evidence indicates that ‘marginal’ tax cuts may lead to increased economic activity and therefore increased tax revenues. It is certainly something to consider for the next stimulus package.”
Current evidence indicates that the first stimulus has not worked as it appears to have had no influence on unemployment - see graph below or link here.
Source here via Greg Mankiw
So now, supporters of a second stimulus have to explain, after the New Deal stimulus spending failed in the 30's, and the first $787 stimulus failed , why do we expect a 3rd stimulus will work? I acknowledge that there is a lag time for stimulus spending, but that only strengthens the argument AGAINST a second spending stimulus. If we have not had enough time for this to work, then we don't know if we truly need a second stimulus or not. If we need more spending now on infrastructure to create more jobs as Pennsylvania Governor Rendell says ( from TheHill.com) , then why didn't we spend more of the $787 billion on things that would create jobs the first time. Some of that money was effective in saving state level layoffs of teachers, policemen, and firefighters, but why not reallocate what’s left of the $787 billion to infrastructure or return it to the people by reversing the recent increase in marginal tax rates?
If we are going to have a second stimulus, we don't need more of the failed policies that have put us on our current course of double digit unemployment and inflation. ( i.e. increased taxes, spending, regulation, bailouts, and deficits).