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Libs to Obama: Back off Promises, Especially Tax Cuts! January 12, 2009

Posted by neoavatara in Economy, Health Care, Politics.
Tags: , , , , , ,

We moderates and conservatives knew it was coming.  Now we are just waiting for the other shoe to drop.

Left wing advocates in the Democratic Party are strongly pushing for Obama to give up several of his major ‘moderate’ policy initiatives in place of more ‘liberal’ concepts.

The headliner?  Nobel Laureate Paul Krugman, who recently must be off his medication.  Today in an Op-Ed in the NY Times, Krugman asks Obama to give up all of his tax cuts.  Krugman’s argument is that the tax cuts will not help out the economy enough, and the money would be better spent with increasing unemployment benefits, infrastructure spending, and possibly universal health care.

Only one problem: none of those things have been shown to help the economy recover in past recessions.  For a supposed Nobel Laureate to be so stupid is beyond reason.  Even going back to the Depression, FDR’s massive government expenditures did not help the U.S. economy to grow at all; in fact, it continued to recede virtually until the start of World War II, which jump started the economy.

Now let us state a couple things.  First, definitely government spending can be used to jump start the economy.  But the spending needs to be focused, and limited, and must be used quickly.  Most government projects don’t do that; they usually take time just to get the beaurocratic process rolling.  Second, it is questionable whether tax cuts will stimulate an economy where people are not working enough; ultimately you need to get people into jobs to get the economy moving again; somewhat a chicken-and-egg dilemma.

The final problem that Krugman and others make is simply this; all of this is deficit spending.  Again, I am not against deficit spending per se.  However, Krugman goes to great lengths suggesting that this spending should be LONG TERM IN NATURE.  Obama, on the other hand, so far has been suggesting that it be shorter in time.  Long term yearly $1-2 trillion dollar deficits.  That is what Krugman is proposing.  And to what end?  Again, where is his proof that long term increase in government spending stimulates the economy?  He doesn’t provide it, for a simple reason:  the evidence doesn’t exist.

Major stimulus packages work generally because of two things:  first, the government provides an initial safety net (increased unemployment benefits, retraining, etc) to keep the population afloat during the down period; and second, an economic stimulus to the private sector to help them ramp up production, usually in the way of tax cuts.  Krugman et. al. look only to the  initial part, without answering how they will stimulate the free market.  Ultimately, that kind of strategy breaks down, because the government can only do so much; its power is limited, although liberals would like to think otherwise.  In the final analysis, only the free market can produce enough jobs over a longer period of time to provide sustained growth.  Just ask countries like China and India.

Mr. Obama and his team have been very practical so far.  But we are seeing the beginnings of the left wing of the Democratic Party take shape, and start their campaign toward a more liberal administration.  We shall see if the Obama administration has the backbone to keep their word.



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