To Spend or Not To Spend

To examine the effect the stimulus had on the economy, it’s necessary to understand the economic philosophy behind it while parsing the figures. The conflict between Democrats and Republicans on this issue is largely a debate over the economic theories of two men: Milton Friedman and John Maynard Keynes.

Mitt Romney called it “the biggest, most careless one-time expenditure by the federal government in history.” Paul Ryan characterized it as “a case of political patronage, corporate welfare, and cronyism at their worst.”

“It” was the American Recovery and Reinvestment Act of 2009, colloquially known as the “Obama Stimulus.” The Republican narrative is that Americans would have been better off not taking on more debt and allowing the omniscient markets to work themselves out. (This argument was noticeably absent in 2008 when President George W. Bush signed a stimulus bill for more than $150 billion.) Before  Obama signed his stimulus bill into law, House Republicans had voted against it. Every single one of them. In the Senate, only three Republicans approved the bill.

So we know where the parties stood in 2009—pretty much where they stand today. Democrats largely believe that the stimulus prevented the complete, Depression-like collapse of the economy. Republicans believe it had no effect on the economy and, furthermore, the additional debt will be our ultimate undoing. Republicans are correct to say that the stimulus had few offsetting revenues and blew yet another enormous hole in the budget deficit. They did not make this argument, however, when our country decided to wage two decade-long wars abroad while simultaneously reducing taxes. But the reality of the unfunded stimulus expense exists. So the question remains: Did the stimulus work?

Both Democrats and Republicans point to FDR’s New Deal to answer this question historically. Republicans take the short view that FDR’s programs had little effect on the nation’s economy as the economy double-dipped in 1937. Democrats take the long view that this date coincided with the Roosevelt administration’s decision to back off federal spending and that a resurgence of federal funding ultimately mitigated the decline. There is general consensus that the tipping point that put the nation back on a path toward prosperity was World War II and the wartime economy. Despite this philosophical harmony, Republicans are still loath to admit that the top marginal income tax rate in 1941 was 81 percent, and by 1945 it was 94 percent. That’s how you pay for war.

So while it can be instructive to look back and apply historical lessons to the present, the picture is incomplete because the circumstances are vastly different. To examine the effect the stimulus had on the economy, it’s necessary to understand the economic philosophy behind it while parsing the figures. The conflict between Democrats and Republicans on this issue is largely a debate over the economic theories of two men: Milton Friedman and John Maynard Keynes.

Born in 1912, Friedman would come to be recognized as one of the great economic minds of the modern era. A Nobel Prize-winning economist who taught at the University of Chicago, Friedman held a wide range of core libertarian views and is often credited as one of the principals of the ideology. Throughout his career he argued the benefits of monetary policy and the folly of fiscal policy. Think TARP versus stimulus. In other words, maneuvering liquidity through the system in a centralized fashion was an appropriate measure of government intervention whereas providing government funding for programs via the Treasury was not.

This is not to say that Friedman would have approved of President George W. Bush’s TARP “bailout” of the banks (Friedman died in 2006 before the financial world came unraveled) or even of the Federal Reserve itself. In a perfect world, Friedman would have abolished the Federal Reserve altogether, which is a common rallying cry among Libertarians who also promote a return to the gold standard no matter how economically or politically impossible this would be. Again, the theory being that private markets would be more efficient, accurate and apolitical with respect to pegging the value of currency in real time.

But if Friedman’s economic policies have dominated the years since Gerald Ford was in the White House, it was English economist John Maynard Keynes who dominated the years prior, beginning in 1933 with his paper, “The Means to Prosperity.” Keynes’ recommendations for dealing with recessions and depressions would fundamentally alter Europe and America’s approach to the Great Depression. Keynes’ first assumption, considered revolutionary at the time, was called the “paradox of thrift.” Simply put, if businesses and consumers collectively tighten their belts during difficult times, the effect would be a downward spiral in the demand for goods and services.

Under Keynes’ theory, this self-perpetuating loop of plunging demand would necessarily result in a decline of both profitability and confidence. Keynes believed the antidote was government spending. Specifically, the further the funding went down the economic chain the better. Businesses and consumers, those with the greatest need for liquidity, were likely to circulate government funds through the economy faster than institutions such as banks that might be more prone to hold onto liquidity. The net result, due to what Keynes coined the “multiplier effect,” would be spending that works its way through the normal economic channels via the purchase of goods and services at the consumer level, labor and equipment at the business level.

A great deal of attention is paid to the short-term effects of spending on infrastructure as large public works projects during the Depression became the most visible and lasting testaments to Keynesian economy theory during the Roosevelt era. But many Keynesian theorists argue that these types of projects also contribute to the long-term health of the economy, with the best possible result being partnership with, and ultimately transition to, private industry. A great example of this is the Tennessee Valley Authority (TVA) established under FDR, which ultimately became a private utility. But long-term infrastructure projects don’t have the immediate effect of direct government spending at the bottom levels of the economy.

Larry Summers, the notoriously prickly economist, has had a remarkable career serving in both the Clinton and Obama administrations (Summers was Treasury Secretary briefly under Clinton) and as one-time president of Harvard University. Tapped to join Obama’s transition team, he is credited with determining the strategy for bailing out the faltering American economy. In his book, The New New Deal, Time magazine senior staffer Michael Grunwald writes, “At Brookings, [Summers] proposed a technocratic approach to Keynesian stimulus that has dominated the debate ever since. A stimulus package, he argued, should be timely, targeted, and temporary.”

This guiding philosophy would result in a three-tiered approach to Obama’s stimulus. The first would be accomplished through tax breaks for the vast majority of Americans. The second would be through entitlement spending such as extending unemployment benefits and prolonging health insurance coverage for laid-off workers. It also provided direct aid to states to help plug budget gaps to prevent the layoffs of teachers and reductions to Medicaid. The third was investment in programs deemed “shovel-ready.”

This last point is somewhat controversial because few, if any, infrastructure projects can begin work at a moment’s notice. But on this, Obama was clear that funds would be found to target America’s aging infrastructure and invest in new projects on the drawing board, even if their timetables weren’t immediate.

Keynesian economists such as Joseph Stiglitz quickly lauded Obama’s plan, though most of them  believed the $787 billion package was only about half of what was required to properly address the crisis. Another Keynes disciple, Nobel Prize-winning economist and columnist for The New York Times, Paul Krugman, has been extremely vocal that the stimulus, while swift and necessary, was “woefully inadequate.” Nearly everyone on Obama’s transition team would concur, but the thought of a stimulus package topping $1 trillion was politically radioactive. Besides, almost everyone involved at the time hoped for a second crack at stimulus funding in Obama’s first term. And while most of Obama’s political advisors understood how difficult this would be, no one could have predicted how hard the Republican Party was preparing to fight against any new proposal from the Democrats.

Perhaps the most astounding revelation in Grunwald’s book is how Obama’s inner circle — especially the most cynical among them like the explosive Rahm Emanuel or acerbic Larry Summers — understood that the package was political suicide. In fact, they were prescient in this regard as the stimulus provided the freshly-routed GOP with a rallying cry and a strategy to take back control of the House of Representatives during the 2010 mid-term elections.

In reality, the Recovery Act did more than just pump taxpayer dollars temporarily into the economy and drive up the national debt. It put federal funds into the hands of agencies and consumers who had the ability to spend them in a timely fashion. This came in the form of tax cuts for the middle class, an extension of unemployment benefits and medical coverage, state aid to support endangered Medicaid programs, healthcare and student loans. It was the ultimate return to Keynesian philosophy.

Opposition to blanket stimulus funding isn’t fundamentally misguided. After all, no government can sustain unlimited subsidies without someday having to recoup these costs. This brings us to the second half of Keynes’ theory. If the government is supposed to aid a recovery during a recession by pouring funds through the economy, then it must likewise increase revenue during the boom times that follow. There are only two ways to do this: raise taxes or cut spending. Or both. The problem is that we haven’t meaningfully done either in decades.

While cutting spending is very much a part of the Republican narrative, increasing taxes is anything but. In a perfect world of no government intervention or regulation, the markets would simply figure it out and restore balance because recessions and depressions are, after all, bad for business in the long run. Having said that, this type of “boom and bust” behavior creates great potential short-term benefits, as volatility is a savvy investor’s best friend. But Keynes never meant to eliminate the boom and bust nature of the economy. His policies were intended to mitigate the depths and the peaks.

Shedding all government spending and letting the markets work it out was precisely the advice President Hoover received from Treasury Secretary Andrew Mellon after the market crashed in 1929. Hoover didn’t actually follow his advice. Instead, he set in motion many of the public works projects and federal spending plans continued by Franklin Roosevelt. The Depression was hung around Hoover’s neck in part because he chose to portray an aura of calm and confidence even though Rome was indeed burning.

Hoover fought vigorously behind the scenes for some of the programs that would make Roosevelt one of the most popular presidents of all time. Hoover’s biggest problem was actually Roosevelt. Because Hoover rarely took the opportunity to point out that the economy collapsed as a result of his predecessor’s policies and then failed to defend himself against Roosevelt’s subsequent attacks, he became unfairly synonymous with the Great Depression. This little bit of history was not lost on Obama.

Today, comparisons abound between the circumstances surrounding both the Great Depression and the (dare I say) current depression. Politicians and historians will forever debate their similarities and how they both arrived. But there are also current comparisons we can draw relating to Keynes’ paradox. In Europe today, where austerity is the mainstay of the economic recovery attempt, unemployment remains untenably high. In both Spain and Greece it hovers around a bruising 24 percent. Before the stimulus, the US economy shed 800,000 jobs in January of 2009 and GDP growth was negative. Since the beginning of 2010 America has added an average of 143,000 jobs every month and experienced positive GDP growth, although everyone acknowledges it’s a slog. But this kind of forward momentum amply defends the stimulus.

Beyond facts and figures, be sure to listen closely for what you cannot hear. Perhaps the most incredible aspect of the stimulus is the lack of fraud associated with the spending. The oversight has been so rigorous and the process so astoundingly transparent that almost no one is crying foul at the veracity of the disbursements. Instead, opponents gnash their teeth and shout at the rain about Solyndra, the failed California solar plant manufacturer, at every turn. And that’s about it. Forget the fact that the mechanism for funding Solyndra was established in 2005 and Solyndra was selected to participate in the program in 2007; if opponents of the stimulus want to make this their Alamo, so be it. Out of nearly $800 billion invested, one failed solar manufacturer is all you’ve got? Even Bain Capital would have relished this level of success.

So, did it work? I side with Krugman. The answer is that the stimulus package was a good start, but it should have been bigger. Nearly all of those involved in creating the stimulus recognized at the time that it would prevent catastrophe but fall short of prosperity. Unfortunately, our politics are so poisoned today that uttering the phrase, “should’ve been bigger,” is truly the third rail. There is no more room for a reasoned debate in America. But the fact remains that without the stimulus several state budgets would have collapsed, all but bankrupting Medicaid, far more roads and bridges would have fallen further into disrepair, middle-class Americans would have had less in each paycheck and millions more people would have fallen off of the unemployment rolls and into poverty.

All told, Ryan’s claims of  “patronage” and “cronyism” fell apart the moment he lobbied to divert federal funds to his district; Romney’s claim that the stimulus was “careless” underscores either a deep misunderstanding of the shrewd, tactical and successful nature of the program or a further illustration of his belief that no person, corporation or municipality deserves financial support, even under the most severe economic circumstances. Romney’s recent disdainful comments about “47 percent of Americans” may give weight to the latter sentiment, which should give us all pause.

Not So Fast, 2012

While the national debate rages on through 2012 here at home there are local issues playing out that will have a significant impact on shaping Long Island. Including the lighthouse project, an island based casino, legacy village in Yaphank and Wolkoff’s mini-city in Brentwood to name a few.

Gearing up for 2012, Long Island let’s not forget about 2011.
Gop Candidate FieldThe heroic mission of the U.S Navy Seals to rid the world of the face of terrorism has created a new paradigm for the 2012 elections. Before this global event consumed the national political headlines the term “birther” was rekindled by Donald Trump’s potential bid for the Country’s CEO job which monopolized weeks of national broadcasts, only to have POTUS Obama hold a live news conference to finally provide his birth certificate after two years of countless debate, articles and even books on the topic. The seriousness of the global threats facing our nation weighed against such previous headlines certainly re-shifts the current debate played out in the news cycle.

Over the last several weeks we’ve had former Massachusetts Governor Mitt Romney and Minnesota Governor Tim Pawlenty announce their exploratory committees and GOP power broker Haley Barbour surprisingly bow out of running. Shortly we’ll see if former Utah Governor John Huntsman, Indiana Governor Mitch Daniels and Congresswoman Michelle Bachman officially declare their intentions to run for President.

On the Hill there was a fierce budget debate with clocks ticking down on cable news of a looming government shut down. Next up on the docket the debt ceiling vote. Get ready.

Now Democrat operatives are staging protests at Republican House Members town hall meetings across the Country using Congressman Paul Ryan’s forward looking budget as a wedge issue for 2012. A recent Rasmussen Poll shows those aware of the plan 51% of Republicans favor Ryan’s budget plan and 52% of Democrats oppose it. But a plurality of voters not affiliated with either party have no opinion. Again a classic example of party line support with the battleground being the independent voter’s support.

Without a doubt there are substantial issues that must be addressed in order for our Country to prosper. Sustaining isn’t good enough, growth should be our objective. Social Security, Medicare, cutting the deficit, sound job creation and pension reform are of all hallmark concerns.

While the national debate rages on through 2012 here at home there are local issues playing out that will have a significant impact on shaping Long Island. Including the lighthouse project, an island based casino, legacy village in Yaphank and Wolkoff’s mini-city in Brentwood to name a few. Oh, and while it is not significant to the “shaping of Long Island” I do predict very localized, heated debate on the zoning of Sonic fast food joints springing up on the Island. We’ll have to see if resident’s craving for burgers and roller skates will outweigh the traffic jams that may snarl local roads.

When you look at voter participation of national elections to local elections here on the Island the numbers are quite far apart. Let’s turn to Suffolk County as an illustration. The 2008 Presidential race between Barack Obama and John McCain had 75.18% of registered voters come to the polls. That’s substantially higher than the 61% national average from that year. The last off year election in Suffolk County was in 2009 where a mere 20.81% turned out county wide. Go back to 2003 with the race for Suffolk County Executive between Ed Romaine and Steve Levy to see a somewhat respectable 32.38% turnout.

Political strategists have spent campaign dollars trying to drive out presidential year voters in off years with limited success.

There are many root causes of voter apathy at the local level. One reason is that there is substantially less television coverage of local races with Long Island’s news market dominated by New York City based and national cable news. Secondly there is not enough public awareness demonstrating the importance of local elected offices. An extreme few can actually describe the job function of a County Comptroller, but yet they’re asked to vote for that office in an election. Don’t dare to ask your average registered voter to name both their Assemblyman AND County Legislator. Yikes. (No offense to all my friends in those offices).

Some thought needs to go into New York’s stiffer voting rules compared to other states. Many states in the Union have more convenient absentee voting rules and gives the electorate the ability before election day to cast their ballots through early voting. Giving people more flexibility to vote with today’s more demanding work and home environments should be studied further outlining its pro’s and con’s for such a reform.

What out of the box ideas can “electrify” the electorate to fill in a circle on their paper ballots for County Executive, Town Supervisor and local Legislator this year?

All the snazzy mail put out by these candidates won’t do the trick. Long Island’s media; Newsday, News12, TV55, the Long Island Press, the Patch and weeklies do an admirable job touting local elections, but we need a wider net to cast in more voter interest.

One idea in the true spirit of bi-partisanship is to have all the Presidential, U.S Senate and House candidates who are running in 2012 join together, along with the main stream media to promote a “vote local” initiative this fall urging everyone to vote in their local elections. At least then we’d have a new, high profile delivery method to bring more voters to the polls this year. Well call that idea very unlikely.

We then need to consider a wide-spread “calling of the guard” for Long Island based stake holders and media to join together to create our own non partisan “vote local in 2011” initiative. We have many groups with substantial monetary and human capital where through the use of PSA type outreach can connect with every Long Islander multiple times with an important, yet simple, education campaign on why it is important to vote in your local elections. If groups like the Long Island Association, HIA, Execuleaders, Melville Chamber, Hispanic Chamber, ABLI, Long Island Angels, Citizens Campaign for the Environment, our higher educational institutions such as Hofstra and Dowling along with our many trade unions pooled resources for a “vote Long Island” campaign, the message would certainly drive voter participation higher in local election years, including 2011.

Unfortunately the Sonic debates, the chants to keep the Islanders here and the potential for winning the slots at a local casino won’t be enough to drive out presidential year voters en masse this November. But hopefully Long Island pulling together can far eclipse recent off year voter turnout by educating the public on why 2011 is just as important as 2012.

President Obama State of the Union

President Barack Obama’s State of the Union address was as pitch perfect as the rebuttals were tone deaf. Incivility in our public discourse has been blamed for the great divide in our nation but the speech and the responses have proven that the greatest divide in America is the class divide. Not in the “haves” and the “have-nots” sense, but in the “high-brow” and “low-rent” meaning of the word “class.”

If you’re like most normal human beings, you pay very little attention to the trials and tribulations of politicians—especially if they’re not your representatives. But at the same time you’re missing out on some truly incredible political theater. No worries. The blessing and curse of the Internet is that every misstep, flaw and foible is read, viewed, Tweeted, shared, Dugg, liked, linked and Stumbled over and over for the world to see. Because most of you are busy, allow me to save you precious time by sharing with you America’s newest punch line: Michele Bachmann. If you haven’t done so already, Google her.

For a good laugh—or to throw up in your own mouth—watch her recent speech in Iowa where she declares that it’s high time we recognize the Founding Fathers for “working tirelessly” to end slavery. Yes, those “slave-owning-blacks-are-only-3/5ths human” Founding Fathers who died long before the Civil War. Tea Party activists and the pundits they adore love twisting history to match their own ridiculous vision of the world. Sorry, Sarah. Goodbye, Glenn. Minnesota Congresswoman Michele Bachmann is winning hearts and half-baked minds from sea to shining sea.

As the Tea Party’s official designee to rebut the State of the Union, she was awesome. Her speech starts off like an infomercial—as if she’s really selling tea—with Bachmann excitedly exclaiming, “The Tea Party is a dynamic force for good!” Then she spends a few minutes blaming President Obama for taxes, unemployment, the deficit, bed bugs in New York City hotels, shark attacks off the coast of Florida, death, pestilence, and the Kardashians. Then she closes by using a classic Tea Party device: inserting an historical non sequitur. In the closing seconds, between calls for lower taxes and reducing the national debt, she sandwiches in a reference to the famous flag-raising at Iwo Jima as the symbol of “America coming together to beat back a totalitarian aggressor.” Because, you know, that’s a lot like balancing a budget.

That’s why the Tea Party is so freaking awesome. Without offering any specifics, Tea Partiers get to call for government reform and spending reductions as long as they mention some notable figure or event from American history. The Tea Party is like your uncle who constantly mispronounces words and uses them incorrectly in sentences…but with conviction.

The official Republican response, calmly delivered by Wisconsin’s Rep. Paul Ryan, was cautious but critical. Ryan is being touted as a budget-focused policy wonk; presumably someone who can walk the line between hard-line Tea Partiers and old-school Boehner Republicans. But while he too avoided much of the acidic rhetoric and hyperbole that has colored the debate between Democrats and Republicans, he offered nothing in the way of specific reform. The grand idea of the Republican Party is to reduce the size of government, narrow the deficit and get the economy back on its feet through tax breaks.

But the tax breaks were already given. The expensive aspects of health-care reform are still three years away and the largest provisions of the bill—extending benefits to children and the elderly and preventing insurance companies from denying coverage for pre-existing conditions—are actually extremely popular with the public. Moreover, the president spoke like a CEO during the address, and pushed Congress to reform tax loopholes and limit subsidies to oil companies so we can lower the corporate tax rate in America. He spoke about “winning the future” and the need to “out-innovate, out-educate and out-build the rest of the world,” and lauded companies such as Google and Facebook.

Everyone was short on details, but coming legislation will tell Americans everything we need to know about the intentions of our elected officials. First, let’s play a little game. The following points came from either the State of the Union address by the president or the rebuttals from Rep. Michele Bachmann and Rep. Paul Ryan. Circle whom you think the idea is attributed to:

1) “Take responsibility for our deficit and reform our government.”

a. Obama b. Bachmann c. Ryan

2) “Lower the tax rate for the first time in 25 years without adding to the deficit.”

a. Obama b. Bachmann c. Ryan

3) “Freeze annual domestic spending over the next five years.”

a. Obama b. Bachmann c. Ryan

4) “Medical malpractice reform to rein in frivolous lawsuits.”

a. Obama b. Bachmann c. Ryan

5) “We must defeat determined enemies, wherever they are.”

a. Obama b. Bachmann c. Ryan

6) “I call on all our college campuses to open their doors to our military recruiters and ROTC.”

a. Obama b. Bachmann c. Ryan

If you answered Bachmann or Ryan for any of the above, you guessed wrong. These were the declarations of our president, a Democrat—the scourge of the nation, if you’re to believe the nonsense coming from the Tea Party. That’s the funny part about the debate in our country at the moment. We are aligned in so many ways and divided on only a few. That’s not to say that within those few points, there aren’t a couple of doozies. There are. But on many of the issues, our common ground is bigger than these jackals who prey on our fears want us to believe.

It’s impossible for any thinking person to agree with everything a sitting president believes and espouses. As such, it should also be impossible to disagree with every word that escapes his lips as well. I thought his State of the Union performance was light on detail but struck most of the right notes. He was informed, conciliatory and passionate. But what sets him apart from the field is class. And I like it.