Did it Work? The Stimulus

Wednesday, July 27, 2011

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Roben Farzad, senior writer for Bloomberg Businessweek, continues his weekly series this month looking at Obama administration economic  programs. This week: the stimulus, shovel ready, and our debt.

If you look at the stimulus in terms of how much it turned the unemployment rate around--like in a New Deal type model--there hasn't been much in the way of success, according to Farzad. Of course, the Obama administration would push back and say that the package prevented the crisis from becoming much worse.

But again that's kind of a defensive thing, saying it's not as bad as it could have been, and yet we still have 9.1 percent unemployment and the misery index at a high not seen since 1983, so all of this stuff is not quite comforting.

One of the reasons Republicans in the House say they don't want to increase the debt ceiling is that it follows the huge $787 billion stimulus package, which many opposed. But Farzad reminded listeners that the stimulus price tag is still half the cost of the Bush tax cuts.

Which incidentally were not controversial for Cantor, Ryan, McConnell, some of the tormentors chiefly of the Obama administration.

Farzad said you can cut Obama slack because the country is experiencing the worst economic calamity since the Great Depression, but at the end of the day, the stimulus failed. It's not necessarily because of the spending--Farzad wouldn't refute the concept of Keynesian economics, that the government needs to spend money to get the country out of a serious downturn. On the other hand, he said, there's a whole other take on the failure of the stimulus—that it was too small. For that take, read Paul Krugman.


Roben Farzad


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Comments [16]

MG from Manhattan

Gary from queens can ATTEMPT to rewrite history .. His had is shown with all the clap trap about Roosevelt prolonging the depression. This is the typical libertarian/Ann Rand analysis which is flawed at its most basic level and achieves believability among the weak of intellect and ignorant of history because to those weaker minds and the propagandists that sell them , a lie repeated often enough can be believed by some to be the truth.

Aug. 29 2012 11:28 AM
Peter Talbot from Harrison, NJ

Let's review bullet-wise.
-pump cash into the market to keep credit liquid so that we avoid unilateral stops on US trade by foreign banks and powers (which accounted for worst of 1932 crash).
Total success. Result? 9% unemployment instead of 20% unemployment as in 1932. Unintended result? the banks responsible for the worst of the crash stayed fat.
-give handouts to everyone to buy new flatscreen TVs. Succeeded in delaying inevitable contraction in retail industry slightly, but the malls are emptying out now. Failure.
-bailout AIG, Fannie Mae and Freddie Mac. Succeeded in delaying mark to market on distressed properties and slowed the pace of foreclosures on mortgages (many of which should not have been written in the first place). Result: banks less likely to foreclose quickly and some action to mitigate payments but little reduction in principal owed or net due for those under water. Unintended result: no one in government learned the lesson that AIG, Freddie and Fannie were failed politicized messes that merely bribed the American public without contributing value even to the poorer folks they were designed to serve. No has touched the real issue yet: home ownership is not a good given right and wasn't even one of FDR's "four freedoms".
Total failure.
-bailout of states, municipalities
Total failure. The smaller governments did nothing to reign in spending and have dug a huge hole for themselves with unfunded pension liability that isn't even being counted yet.
-infrastructure job creation
Total failure: mythical nonsense that was not shovel ready but was a sop to local government and public utilities.
-bailout of targeted industries (GM, Chrysler). Jury is out. The Unions were crushed and some buyers came back but it won't last long unless the economy recovers. There won't be a second chance for them.

Net grade: C-. About 3 million people have jobs (for now) that wouldn't have without the stimulus. These jobs are not permanent and may still evaporate unless the other major issues are addressed. Public spending and increased taxes isn't going to get it done, but regulation of the nearly criminal banking industry and mortgage giants is critical.

Aug. 01 2011 11:50 AM
herb from nyc

Obama voted against increasing debt ceiling when in congress. See his reasons. Sounds political not patriotic

Jul. 27 2011 01:11 PM
gary from queens

@jack from hackensack:

part 2

The last U.S. president that tried to spend his way out of a recession---using printed or borrowed money---was Franklin Roosevelt. And all that accomplished was to turn a simple recession into a decades-long depression. The New Deal----Roosevelt's stimulus plan----delayed our recovery. Government becoming a player discouraged private investment. Who would want to start a business in a field in which your competitor is getting government subsidies or tax breaks, or is in partnership with the government, or is bailed out by government? (Obama essentially forced non-unionized auto workers to pay for the pensions of unionized GM workers.) And the new regulations and mandates, which always follows government investment, creates economic uncertainty. The only thing that finally created economic growth and put people back to work was World War II. Thanks to the New Deal's huge influx of government dollars into the economy, the stock market hadn't returned to it's pre-depression highs until well into the 1950s. Roosevelt's Secretary of the Treasury Henry Morgenthau Jr. admitted that the New Deal had failed in it's mission in testimony before the Democrat majority-run House Ways and Means Committee on May 9, 1939:

We tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of the Administration (Franklin Roosevelt from 1931-1939) we have just as much unemployment as when we started… And an enormous debt to boot!

1. Burton Folsom Jr New Deal or Raw Deal? How FDR’s economic legacy has damaged America. New York: Threshold Editions, 2008.
2. Morgenthau Diary, May 9, 1939, Franklin Roosevelt Presidential Library.
3. Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America. New York: Holmes & Meier, 1993.

Jul. 27 2011 12:26 PM
gary from queens

@jack from hackensack:

Obama in December 2010 said the economy is too fragile to kill the Bush tax cuts. But then 6 months later, he says the the fragile economy needs "revenues" (his new term to refer to taxes without uttering the word!).

While the "new" moderate Obama said through one side of his mouth in his January 2011 State of the Union speech, that we must "live within our means", and freeze domestic discretionary spending, he said in the other side of his mouth that government must "invest" in dozens of projects, including the old standby, our crumbling roads and bridges.

Apparently the nearly trillion dollars that Obama spent on crumbling roads and bridges almost two years ago had no effect. Maybe it was because he referred to it as a "job stimulus", as opposed to his new term: "investment"?! And the jobs created and saved by the economic stimulus law----costing upwards of $821 billion----that President Barack Obama signed on Feb. 17, 2009, cost at a minimum, an average of $228,055 each, according to data released on Feb. 23, 2011 by the Congressional Budget Office (CBO). That's almost a quarter of a million dollars to create one minimum wage job!

Jul. 27 2011 12:24 PM

Note that Obama not only talks in Republican talking points, he implements their fondest dreams. Cheap Labor. Cut or Gut SocSec, Medicare, Medicaid.

He's already made severe cuts to important safety net programs, such as heating and cooling aid. Oh, and Medicaid, which he also put into his health insurance reform act (actually, profit protection for big private insurers) as the final safety net.

Which he then shreds? Whassup with that?

Oh, maybe he wants to keep the poor from good health care???

Judge Obama's actions, not his words.

Jul. 27 2011 11:57 AM
nataline from Harlem, NY

I am amazed and appalled at the rancor toward public employees most of whom are your neighbors and who make up much of the middle class, the people who police your neighborhood, fire fighters, sanitation workers etc. unionized workers set the tone for the middle class without the unions we in the private sector would be working 10 hour days, 6 days a week yes, some benefits have gotten out of hand but attack both the employer who gave away the store and the greedy employees - the tax cuts have been in effect for a decade and in that time what jobs were created meanwhile the stimulus saved the car industry and all its ancilliary commerce all over the U.S. as well as reversed the job loss trend however unemployment numbers would look much better if corporate america would get on-board instead of raking in unheard of profits loosen up the job market

Jul. 27 2011 11:51 AM

Part II, quote from Hudson continued:

So Obama believes that reducing the purchasing power of American labor in terms of foreign exchange will make the economy more competitive. He also believes it will help deflate the economy to reduce the budget deficit. The economy needs government spending to revive employment and markets, but he’s acting like President Coolidge in the Depression. Republican Treasury Secretary Andrew Mellon said that the solution had to be to liquidate labor, liquidate housing and liquidate the economy. That tunnel vision is being fed to Mr. Obama’s by his Clinton- and Bush-era advisors, from Larry Summers to Tim Geithner. He is doing what nobody really imagined the kind of change that was possible when he was elected. He has let Michelle Bachman and the Republican Tea Party tax cutters move to the left of his position."

Actually, Obama is doing things to achieve his objectives, such as high long-term un- and DISemployment. Lower effective wages (that began under Carter real wages have not increased for white male wage earners since 1978), increased under Reagan and Bush I, was reversed somewhat under Clinton, and since Bush ii has been going on the downward trajectory again. And he stated he wants to cut SocSec and Medicare, so retirees will also see lower buying power.

He is NOT FAILING AT WHAT HE WANTS TO DO. (Not "shouting," but there are no HTML tags to create emphasis, such as underlining, bolding, italicizing. No blockquote tags either.)

David Cay Johnston pointed out in 2010 that in 2009 the MEDIAN wage was $26,261, down from the previous year by $159 from 2008. Way to go, eh?

Jul. 27 2011 11:51 AM

Part I

Michael Hudson, an economics professor at the U of Missouri-Kansas City,said in an interview that Obama believes US workers must earn 30% less (in real wages or buying poweir) to be competitive globally. And he's working to achieve that.

"In the United States, President Obama has bought into the idea that the only way to get recovery is to cut wages by about 30 percent. He’s doing that in two ways. At the Federal Reserve he empowered Chairman Ben Bernanke to lower interest rates by flooding the economy with money. QE2 injected $600 billion, which banks quickly sent out of the country. This pushed down the dollar against BRICS currencies, Australian dollar and currencies of other raw-materials exporters, which raised their own interest rates to prevent their domestic economies from overheating. These higher rates abroad mean that U.S. banks can borrow at only 0.25% from the Federal Reserve and buy Australian bonds at 5.75%, pocketing the arbitrage difference. In fact, they can get a free lunch simply by borrowing and leaving this money on deposit at the Federal Reserve here in the United States. These “excess reserves” have soared since the Fed began to pay interest on them back in September 2008, when Lehman Bros. collapsed – the watershed date for the post-Bubble financial order.

When the Fed and Wall Street push the dollar down, the main victims are consumers. Import prices rise, while devaluation lowers the price at which their labor exchanges for that of foreign economies. When you devalue a currency, what you’re really devaluing is the price of labor, because all the other costs are globally fixed. Oil and raw materials prices, machinery prices and shipping remain fixed worldwide prices, so all exporting countries have a common cost structure for basic commodities and technology.

Cont'd in Part II.

Jul. 27 2011 11:49 AM


Horsepuckey..The GOP took a budget that was in balance and pushed it into $1T+ deficit. Own it.

The GOP also pushed to 'undersize' the stimulus. They knew if the economy recovered during the Obama Administration the chances of getting their hands back on the controls were sunk. And they like to call themselves 'great Americans'. Sounds more like greedy pr*cks to me.

The Democrats need their own nuclear option. I propose steeply progressively rates, 50%+ over $10M and eliminate ALL deductions. It will smart but will get the legislators talking about something other than money.

Jul. 27 2011 11:16 AM
gary from queens

The media is so much in obama's pocket, they can't tell reality from fantasy.

norah o'donnell reported monday night that Obama's 7th prime time address tonight "is rare." Rare? that's more than Bush delivered in 4 years!

The media reported on the behavior of GW's daughters all the time, despite his request that they not be. Bush never discussed with the media his daughters' business.

Obama says his daughters is off limits to the media, yet he's constantly talking about them!! the most recent example was used to berate the republican Congress (my daughters dont wait the last minute to do their homework, why does Congress? etc) He actually cited his daughters by name!

1. The bulk of Bush's spending for the programs obama had cited occurred under a Democrat Congress.

2. Bush took 8 years to create a trillion dollar debt. obama took 2 years to create TWO trillion dollar debt.

3. In other words, 2 thirds of the current debt was created by obama's stimulus spending, which stimulated his cronies, but not the economy.

Jul. 27 2011 11:05 AM
gary from queens

Most of the stmulus $$$ went to states to pay their pension fund obligations to public employees. Obama's campaign payback, if you will. it also created a capital strike by having government investment push away private investment.

Monday night Obama said in his speech that Bush left office with a trillion dollar national debt. YES BUT

1. The bulk of Bush's spending for the programs obama had cited occurred under a Democrat Congress.

2. Bush took 8 years to create a trillion dollar debt. obama took 2 years to create TWO trillion dollar debt.

3. In other words, 2 thirds of the current debt was created by obama's stimulus spending, which stimulated his cronies, but not the economy.

Jul. 27 2011 11:03 AM

Brian, could you have someone list all the segments from this month with Robin Farzad?

It would make it so much easier for people who are behind to catch up on this series.

Thank you and whoever posts the URLs.

Jul. 27 2011 11:02 AM
Sheldon from Brooklyn

"irresponsible state budget deficit spending" true - but that was the point.

Jul. 27 2011 11:02 AM
Smokey Forester from LES

What will be the job loss and cost to the government (unemployment insurance payments and lost taxes) if the government cuts $4T in costs? The whole thing, as it ripples through the entire economy?

Not to say we don't need to do it, but won't it really hurt jobs big time?

Jul. 27 2011 10:55 AM
Martin Chuzzlewit from Manhattan

Only 6% of the stimulus money went into bridge and road infrastructure spending. A large percentage (estimates vary....over 50%) was squandered in bailing out irresponsible state budget deficit spending. How "progressives" can avert their eyes and remain silent to this administration's economic incompetence is shameful Our President privately knew that this stimulus was a sop to public unions and was really all smoke and mirrors, but misrepresenting things have become so second nature to him that he could say it with a straight face......and the press has become his lapdog.
Defense spending was shovel ready and not a penny went into it for the usual ideological reasons.
Science money was shovel ready....Obama has quietly dismantled NASA and our 50 year-old space program right under our eyes....and not a whimper

Jul. 27 2011 07:36 AM

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