 Dummy Says: Families across America are cutting back on their spending. Government should cut back, too!
Stimulus For Dummies Responds: When times get hard, people cut back on spending. While this makes sense for the individual, it's bad for the economy because everyone cutting back on spending means less income for everyone else, creating a vicious circle that drives the economy deeper into recession. Government spending can break this vicious circle by pumping money into the economy when everyone else is pulling money out. But it has to be enough spending to make a difference, just as it takes enough effort to push a car uphill and over the top. Otherwise, the car will just run back downhill again. Not spending enough in the first place or cutting back prematurely will undercut the effectiveness of spending to get out of a recession. This happened when Franklin D. Roosevelt prematurely cut back on spending in 1937, causing a recession that lasted two years. And, it happened repeatedly in the 1990s in Japan, giving rise to what's known as the "lost decade."
Dummy Says: The Stimulus hasn't created any jobs!
Stimulus For Dummies Responds: You've heard this a lot from Republican politicians when they're in the District of Columbia. They said this when almost all of them voted against it originally and they've said it repeatedly since then. But either behind the scenes or out in public when they're in their home districts, they sing a very different tune. "Sen. Christopher S. Bond regularly railed against President Obama's economic stimulus plan as irresponsible spending that would drive up the national debt," the conservative Washington Times reported on Feb. 9. "But behind the scenes, the Missouri Republican quietly sought more than $50 million from a federal agency for two projects in his state." The Times reported that, "More than a dozen Republican lawmakers" joined Bond in lobbying for stimulus funds from the Department of Agriculture.
But that's just one department. The liberal "Think Progress" blog has a list of Republican lawmakers - currently 114 of them - who tried to block the stimulus, but later praised it and/or took credit for its success. First on the list: House Minority Leader John Boehner, who said that stimulus funds would create "much needed jobs" in a June 15, 2009 statement. MSNBC's Rachel Maddow has done a number of segments featuring other particularly high-profile Republicans making similar statements denouncing the stimulus on the one hand, while touting it on the other. "When push comes to shove and it's their constituents on the line, Republicans know that the stimulus works," concluded Steve Benen, blogging for the Washington Monthly.
Finally, "About one-third of the stimulus was tax cuts, not spending," said economist Dean Baker, co-director of the The Center for Economic and Policy Research. Republicans have always touted tax cuts for stimulating the economy and creating jobs. But most economists agree that tax cuts do less to stimulate the economy than government spending because tax cuts more often go to paying down debt, rather than generating new economic activity. Nonetheless, the stimulus has been effective enough to dramatically reverse the mounting job losses that preceded its passage:
Dummy Says: Democrats say the stimulus has "saved or created" more than a million jobs. What's this mumbo-jumbo about "saving jobs"?
Stimulus For Dummies Responds: New job creation through spending was only a small part of the stimulus plan.
"The infrastructure part of the stimulus was relatively small. It was about 13 percent," Baker told Random Lengths. "Most of the spending went to support state and local governments so they wouldn't have to make cutbacks and for unemployment insurance."
Still, that support for state and local governments wasn't enough and will do even less as stimulus funds dry up. These job losses will offset the job-creating impact of the stimulus. A recent report from the non-partisan Pew Center on the States noted the "$300 billion in budget gaps states have faced since the start of the recession in December 2007," and went on to say, "[H]istory shows that the worst budget crunch for states comes in the year or two after a recession ends and that a full recovery can take years. Magnifying the problem facing states, the federal stimulus dollars that helped plug almost 40 percent of budget holes will start drying up at the end of 2010."
In addition, a November 2009 research brief from the National League of Cities warned that the municipal sector faced an "estimated shortfall of anywhere from $56 billion to $83 billion from 2010-2012".
What's needed now is much more stimulus funding to keep states and cities afloat to prevent massive job cuts in the next two years, but no one in Washington seems focused on this.
"It's clear that the existing model of federalism is broken, and will not recover," University of Texas economist Jaime Galbraith told Random Lengths.
Dummy Says: The Stimulus is driving the government to bankruptcy!
Stimulus For Dummies Responds: First, it's virtually impossible for the government to go bankrupt. The post-World War II debt-to-GDP was 115 percent -- much higher than today -- and we cut it rapidly in the following few years. Japan's current debt-to-GDP ratio is almost 200 percent and no one is panicking over it. Second, the vast majority of our current deficit is the result of Bush-era policies, including tax cuts and military spending. This will remain so for the next decade and more:
Third, almost every President since World War II has reduced the debt-to-GDP ratio, except for so-called "conservative Republicans," Reagan and the two Bushes:
Dummy says: The stimulus has made us dependent on foreign lenders like China!
Stimulus For Dummies Responds: Baker said it best. "We don't need China to lend us money and in fact would be better off if they didn't," Baker told Random Lengths. "China's lending is how it 'manipulates' its currency by keeping it low against the dollar. If it lent us less money, the yuan would rise and our trade deficit with China would shrink."
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