A Stimulus By Any Other Name Would Fail As Badly

After Stimulus’ Failure, Credit Downgrade and $4 Trillion in New Debt, Democrats Want A Re-Do

• Reports out Wednesday offered yet more evidence that the Obama administration’s latest try at a jobs plan will recycle the same failed “stimulus” spending policies of the last two years. Democrats are dead-set, however, on not calling it “stimulus.”
• Apparently Democrats have learned nothing from the failure of their last stimulus to create jobs and the unprecedented credit downgrade of the United States sparked by the Democrats’ spending addiction. President Obama recently earned the dishonorable distinction of presiding over the most rapid increase in U.S. debt ever—and yet Democrats still want to spend even more.
• The Democrats’ insistence on spending money we don’t have is especially baffling given a growing consensus that high debt will “sap growth from the economy.”

BACKGROUND 

Reports out Wednesday offered yet more evidence that the Obama administration’s latest try at a jobs plan will recycle the same failed “stimulus” spending policies of the last two years. Democrats are dead-set, however, on not calling it “stimulus”:

“OBAMA TO SEEK STIMULUS FUNDS—BUT ‘YOU WON’T HEAR THE S WORD’”:“With President Obama set to unveil his plan for job creation at a Joint Session of Congress next week, a former White House economic adviser said today that economic ‘stimulus’ will be part of the package – but won’t be labeled as such.

“ ‘You won’t hear the word ‘stimulus’ — the ‘s word’ — because that just is politically unappealing right now,’ Jared Bernstein, who left his post as Vice President Joe Biden’s top economist in June, told us on ABC’s ‘Top Line’ today. ‘But you will hear targeted measures, which I think is actually a more apt description of what I think the president will talk about.’” (Rick Klein, “Obama to Seek Stimulus Funds—But ‘You Won’t Hear the S Word’,” ABC News’ The Note Blog, 8/31/2011)

BIDEN: WE NEED MORE STIMULUS, FIRST ONE DIDN’T SPEND ENOUGH MONEY.“Vice President Joe Biden said on Friday the U.S. economy needed more stimulus to get it moving, putting in a plug for government intervention shortly before the White House unveils new proposals to boost job growth. … ‘I think the economy does need more stimulus,’ Biden said, adding that it was difficult to get the 2009 package of some $830 billion in spending and tax cuts through Congress even when Democrats had majorities in the House of Representatives and the Senate. ‘Everybody says we should’ve (had)…a bigger stimulus package. Yeah, we should’ve. I was pushing (for) it,’ he said.” (Jeff Mason, “Biden Says U.S. Needs More Stimulus, Businesses Mad at S&P,” Reuters, 8/26/2011)

DEMOCRAT WHIP STENY HOYER GOES TO BAT FOR STIMULUS THAT “DID WORK,” CREATED 2 MILLION JOBS; SAYS ECONOMY “STARTED TO REGRESS” BECAUSE STIMULUS MONEY “RAN OUT”: REP. STENY HOYER (D-MD): “Well, I tell you what. We created 2 million jobs after we passed that stimulus bill. So it had a stimulative effect. And what happened when the bill ran out just a few months ago? The economy started to regress. The fact of the matter is I don’t care whether we call a stimulus or recovery act it is what it is. …I think it [the stimulus] did work.”(Interview with Rep. Steny Hoyer, Las Vegas Sun, 8/29/2011)

Apparently Democrats have learned nothing from the failure of their last stimulus to create jobs and the unprecedented credit downgrade of the United States sparked by the Democrats’ spending addiction. President Obama recently earned the dishonorable distinction of presiding over the most rapid increase in U.S. debt ever—and yet Democrats still want to spend even more:

STIMULUS FAILED, A CREDIT DOWNGRADE AND ECONOMY IN TURMOIL:

OBAMA IN JUNE: “SHOVEL-READY WAS NOT AS … UH .. SHOVEL READY AS WE EXPECTED.” HA HA? “Obama smiled and interjected, ‘Shovel-ready was not as … uh .. shovel-ready as we expected.’ The Council, led by GE’s Jeffrey Immelt, erupted in laughter.” (“Obama Jokes at Jobs Council: “Shovel-Ready Was Not as Shovel-Ready as We Expected,” Fox News, 6/13/2011)

LIBERAL ECONOMIST JEFFREY SACHS: “THERE’S NEVER BEEN A PLAN,” STIMULUS FAILED AND ECONOMY FACES “A VERY SERIOUS SITUATION”: “We’re almost three years into this administration, and there’s never been a plan. And that’s what everybody feels. And the president didn’t lead. He waited. The quintessential image, sadly, of an administration that I supported and hoped for much better, is the president waiting by the phone to hear what Congress calls to tell him. It doesn’t work in this country that way. It’s not a matter that it’s August. It’s a matter that it’s August 2011. So we’ve been drifting for a very long time. And we’ve been drifting down. And we had a short-term plan that failed. A short-term stimulus that was supposed to get the economy back on track, but it failed. And now we have nothing behind it. And we have no agreements, and we have no leadership. And, frankly, I do think it’s pretty odd the president’s on vacation right now. Normally I wouldn’t care about such things, but the world markets are in deep crisis. It’s no joke. This isn’t just an up-and-down little blip. This is a very serious situation.” (“Economist Jeffrey Sachs Hits Obama: ‘There’s Never Been A Plan,’” Real Clear Politics, 8/19/2011)

AP SURVEY: ECONOMISTS FORECAST “NO REAL RECOVERY” IN SIGHT. “Another recession isn’t likely over the next 12 months. Neither is any meaningful improvement in the economy. That’s the picture that emerges from an Associated Press survey of leading economists who have grown more pessimistic in recent weeks. They say high unemployment and weak consumer spending will hold back the U.S. economy into 2012. … The likelihood of a recession within the next 12 months is 26 percent.” (“No Recession Ahead, But No Real Recovery Either,” Associated Press, 8/23/2011)

S&P ISSUES UNPRECEDENTED DOWNGRADE OF U.S. CREDIT RATING AFTER DEMOCRATS REFUSE MAJOR SPENDING CUTS. “Credit rating agency Standard & Poor’s on Friday lowered the nation’s AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion — a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.” (“U.S. Loses AAA Credit Rating from S&P,”Associated Press, 8/6/2011)

AND DEMOCRATS HAVE ALREADY BROKEN THE BANK:

“NATIONAL DEBT HAS NOW INCREASED $4 TRILLION ON PRESIDENT OBAMA’S WATCH.” “The latest posting by the Treasury Department shows the national debt has now increased $4 trillion on President Obama’s watch. The debt was $10.626 trillion on the day Mr. Obama took office. The latest calculation from Treasury shows the debt has now hit $14.639 trillion.” (Mark Knoller, “National Debt Has Increased $4 Trillion Under Obama,” CBS News, 8/22/2011)

OBAMA DEBT BURDEN “THE MOST RAPID INCREASE IN THE DEBT UNDER ANY U.S. PRESIDENT.” (Mark Knoller, “National Debt Has Increased $4 Trillion Under Obama,” CBS News, 8/22/2011)

FLASHBACK TO JULY 2008: OBAMA SAYS “IT’S UNPATRIOTIC” THAT BUSH “ADDED $4 TRILLION BY HIS LONESOME”: “The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.” (“Flashback: Obama: Adding $4 Trillion to Debt is Unpatriotic,” Real Clear Politics, 8/24/2011)

The Democrats’ insistence on spending money we don’t have is especially baffling given a growing consensus that high debt will “sap growth from the economy”:

NEW STUDY UNVEILED AT FED CONFERENCE LAST SAID HIGH PUBLIC DEBT WILL “SAP GROWTH FROM THE ECONOMY”: “While much of the coverage of last week’s central banker boondoggle in Jackson Hole, Wyo., has focused on Federal Reserve Chairman Ben Bernanke appearing to scold Republicans for resisting raising the debt ceiling, one of the more important papers revealed that the hardcore Republican argument is essentially right: Public debt is so high that it is restricting growth. … Its authors—a trio of economists from the Bank for International Settlements—demonstrate that when government debt reaches beyond a certain threshold it begins to sap growth from the economy.

“Government debt beyond a threshold ranging from 80 to 100 percent of gross domestic product (GDP) begins to thwart growth. Exactly where that threshold lies depends on a number of factors, including whether or not there is a banking crisis. A 10 percentage point increase in the ratio of public debt to GDP is associated with a 0.17 percent to 0.18 percent reduction in subsequent average annual growth.” (John Carney, “From Jackson Hole: A Defense of Debt Ceilins,” CNBC, 8/29/2011)

BAD NEWS: AMERICA IS ALREADY PAST THE DEBT DANGER ZONE OF 100% OF GDP; TRANSLATION: AMERICA OWES MORE THAN THE SIZE OF THE ECONOMY.“US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday. …

“The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.” (“U.S. Borrowing Tops 100% of GDP: Treasury,” Agence France Press, 8/3/20111) 

ANOTHER MAJOR ECONOMIC STUDY LINKED DEBT OVER 90% OF GDP TO SLOWER ECONOMIC GROWTH: “The sharp run-up in public sector debt will likely prove one of the most enduring legacies of the 2007-2009 financial crises in the United States and elsewhere… Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes… Seldom do countries simply ‘grow’ their way out of deep debt.” (Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in a Time of Debt,” American Economic Review Papers and Proceedings, 12/31/2009)

AND GOLDMAN SACHS RESEARCH: “A DEFICIT-FINANCED BOOST TO GROWTH WILL EVENTUALLY LEAD TO A DRAG.” “The eventual effect of sustained fiscal imbalance is slower growth and greater risk of a fiscal crisis.  Our estimates suggest that a 10-point increase in the debt/GDP ratio lowers growth four years later by 0.2 percentage point, and increases the probability of a debt crisis by 2.5% in the aftermath of a financial crisis like the recent one.  (See No Rush for the Exit,” Global Economics Paper, No. 200, June 30, 2010 and “When One Crisis Leads to Another,”US Economics Analyst, 11/04, Jan. 28, 2011.)  To avoid this, lawmakers must begin to identify deficit reduction strategies.

“Ultimately, what goes up must come down. In the case of the federal budget, this means that a deficit-financed boost to growth will eventually lead to a drag. While policymakers can try to smooth the transition by phasing in cuts and incorporating multi-year fiscal commitments, achieving a sustainable fiscal policy will inevitably be a painful but necessary process.” (Jan Hatzius and Alec Phillips, “Fiscal Restraint: A Question of When, Not If,” Goldman Sachs Global ECS U.S. Research, 3/2/2011)