Are the stimulus package and the Democratic government selling us short to a weak, failed, minorty party?

demvictory08When a large majority of American voters cast their ballots this past November, they overwhelming spoke out against both Republican foreign and domestic economic policy.  The argument can be made that the economic crisis pushed President Obama to overwhelming victory because of the Bush failures and McCain’s lack of knowledge and insight related to the current economic meltdown.  While Bush was hiding out in the White House and while McCain was telling us that the American economy was still going strong, Obama and democrats were preparing to actually solve the problem.  The American voters saw how Republican, conservative economic policy had helped drive our economy into this hole, and we overwhelming voted for a change in such philosophy and policy.  So why, now, is the bill that is supposed to help solve this problem being allowed to be watered down in order to appease Republican politicians?  Why are the President and Congressional Democrats more interested in amassing votes and doing what is “politically expedient” than in doing what will work to fix our economy?

Bush issued massive tax cuts, mostly to the wealthy of America, and it did nothing but hurt our economy in the end by leaving nothing in government coffers amidst massive war spending and corporate deregulation.  Now in spite of the fact that tax cuts, which are relatively ineffective at stimulating an economy and encouraging spending, make up a full 1/3 of the stimulus bill as it currently stands, Republicans are still not satisfied (most likely because those tax cuts are for normal Americans who are not rich).  So now we are seeing all over the news Republicans up in arms and threatening to vote against the package because they say it spends too much money and does not include enough tax cuts!

Did Republicans miss the fact that they lost the election?  Not just the presidential election mind you, but also elections in the House and the Senate.  YOU LOST!  THEY LOST!  The American people spoke in favor the Democratic solution and yet we are being subjected to a watering down of that solution because our supposedly liberal politicians insist on being bipartisan and appeasing what is now nothing more than a small, pesky, outdated minority party.  What is bipartisan is not what we need right now.  What we need is what will work and massive tax cuts have been proven over and over again to provide very little economic stimulus in such dire times as these.  At best such tax cuts do nothing more than slightly increase spending during times when the economy is already strong and the consumers confidence is already high.  At the very least, the Democratic government needs to put together a package that is mostly comprised of infrastructure spending, aid to the unemployed, and alternative energy investment in order to truly stimulate the economy from the bottom up, create millions of jobs, and create a transformed, new green economy that currently does not exist, but needs to exist. 

I think perhaps Democrats have no courage.  I don’t know how else to put it.  During the Bush Administration, weakdemsparticularly when he had Republican majorities in the House and Senate to back him up, the debate over compromise between the two parties was consistently framed in terms of Democrats, as the minority party and the party not in the White House, being willing to give in to Republican philosophy and policy demands.  Somehow, in spite of the fact that the tables have technically turned and Democrats now hold large majorities throughout the government, the nature of this debate has not shifted.  Democrats are still acting like they are a minority party who must bow to the will of the Republicans in order get anything accomplished.  This is not the case.  Democrats do not need Republican votes and playing politics by watering down this legislation to virtual ineffectiveness in order to be bipartisan and share any potential blame is playing games with our country’s future.  Compromise is not synonymous with Democrats giving in, it does not mean Democrats creating a stimulus bill that looks like it was written by Republicans.  It is time for Republicans to compromise, to give in.  That is what the American people demanded when we fired the Republican Party and swept Democrats to huge victories and majorities in the last two elections.  Democrats need to shut out the whining and complaining of the failed Republican Party, vote to pass the package without them, and move towards fixing what has been broken, mostly by Republican administrations, over the last few decades.

And so what does stimulate the economy the most?  Infrastructure spending has already been mentioned.  The graph below shows that the three types of spending that provide the most stimulus and create the most additional spending are increases in food stamps, the extention of unemployment benefits, and infrastructure spending.  Let’s look at these briefly, how they stimulate the economy, and how these three areas have been watered down in the current package in order to make room for massive tax cuts that will do little to stimulate our dying economic system.

dollarofstimulusputsbackwhenspentonsourcemoodys-economycom-congressional-testimony3

We can see from the graph above that for every $1 spent on food stamps and additional $1.73 in spending is generated, an additional $1.64 in spending is generated for every $1 in extended unemployment benefits, and for every $1 spent on infrastructure an additional $1.59 in spending is generated.  On the other hand for every dollar in tax cuts you have anywhere from only $.30 to around $1 in additional spending generated. 

If this is the case, why does the current stimulus bill look the way it does?  Right now infrastructure spending souplineaccounts for only $90 billion out of $825 billion, only 10% of the bill.  Only $43 billion is slotted for extending unemployment benefits and only $20 billion is set aside for increased spending on food stamps.  All in all, the three most effective economic stimulators account for only a measly 18.5% of the current stimulus package while tax cuts account for a full third, 33.33% of the package! (1)  Are we supposed to expect this package to truly stimulate our economy and create jobs? 

Briefly, we must also ask if the size of the stimulus package in general is really enough to jolt our economy back to life.  This question is all the more important in the face of Republican pressure to further slash the bill’s spending provisions in favor of more tax cuts.  Our annual Gross Domestic Product (GDP) for 2007 was roughtly $14 trillion. (2)  That is $14,000 trillion.  To give you an idea of how much money that really is, if you make $50,000 per year it will take you 16.5 million years to earn $14 tillion.  With a stimulus package of $825 billion (only 66% of which is actually spending) the stimulus package amounts to only 5.8% of our total annual GDP.  Can we really expect that such small change, relatively speaking, is actually going to stimulate the economy?  Perhaps it will, but in light of the massive amounts of money generated on average by our economy each year, I think the question is an important one that should be addressed with all seriousness by those in our government who are working to solve this problem rather than simply using it as an excuse to provide the wealthy with more tax relief.

If we are trying to “get the most bang for our buck” it seems clear that tax cuts are not the direction in which our government needs to be looking.  This does not necessarily mean that there should not be any tax cuts included in the package, but this information does force us to question whether the current package already leans too far in the direction of tax cuts and sells America short when it comes to truly effective means of spending and economic stimulation.  If this is the case, then we must ask whether or not our government is doing the right thing by heeding the cries of a party that has done nothing but fail us both politically and economically for most of the last decade and beyond.

Today, Republican politicians are urging each other to vote against the stimulus package if it is not watered down further, if Obama and Congressional Democrats do not weaken the package even more by ejecting spending and adding even more tax cuts that will benefit the wealthy more than those who truly need the help.  I call on Democrats to take Republicans at their word.  Let them vote against the package.  Who cares!  Their votes are NOT needed to pass the bill.  I would go even further and encourage our Democratic leadership to change the package to include fewer tax cuts and more infrastructure spending, more spending to help those who have lost their jobs, more spending to create a green, clean economy for the future.  Let Republicans take a backseat, let them push themselves further into fringes of American political philosophy and policy where they belong.  Then, finally, the rest of us can get busy doing the important work that needs to be done to fix this nation’s economy.

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