Republicans and Democrats have both tried to stimulate the economy out of a recession, but they have both failed. What can we learn from history about how to generate economic stimulus?
Five Lessons from Stimulus Failures
- Demand Side not Supply Side- The George W. Bush tax cuts gave the rich huge tax breaks with idea that it would generate economic growth and stimulate the economy. We now have $2 trillion in bank vaults and no economic recovery. Why didn’t it work? ”Job creators” put it in a bank and sometimes not even into american banks. Why do republicans continue to champion economic policies they know don’t work? Republicans and the rich people who support them want the tax breaks and are just looking for a justification. Mitt Romney wants to continue George W. Bush’s policies, but republicans like Michael Steel refuse to compare the economic policies. Why? They know they are the same and history proves they don’t work. The United States economy is 70% consumer spending and putting money in the pockets of consumers in the middle class and working poor is the right strategy.
- Sustainable – The source of the cash can’t be short term, because it won’t last long enough to have a meaningful effect. Obama tried to stimulate the economy with the cash for clunkers program. The idea was a tax break would convince consumers to buy cars sooner. It worked, until the money ran out. The program didn’t have enough money or affect any sectors of the economy other than the car industry. Even if the money didn’t run out, eventually everyone that wanted a new car would have one. There was a practical limit to this program from the beginning. Bill Clinton made the same mistake with his COPS program. The program was made to put more police officers on the street, the money was poorly spent and again ran out. Why did democrats try these ideas? Just as the republican party is controlled by the rich, unions have a great deal of influence in the democratic party and both of these programs directly benefited unions.
- Goal Oriented – Economic stimulus needs to have a bigger purpose than spending money like a drunken sailor. I think this is a very important part of a pragmatic stimulus plan for two reasons. First, if you are going to spend a massive amount of money, you should at least get the benefit of solving a big problem. Second, it gives the program a real goal that people can relate to beyond spending money. A good example is President Eisenhower spent $425 billion in 2006 dollars to create the national highway system that has helped make the United States a Super Power.
- Spent in America – The goal should be to spend the money in America. One of my biggest problems with the cash for clunkers program was that you could buy a foreign car. The cash for clunkers program probably did more for the Japanese economy than the american one and we paid for it as tax payers. When the Japanese tried to emulate our program they purposely excluded american cars, until Americans complained. Americans are also paying for the Pakistani, Afghanistan, Iraqi, and oil company stimulus plans with two wars. The only way to improve the economy is to spend the money in america.
- Accountable – The people who spend the money need to be held accountable and audited. Boston has a project called the Big Dig. It cost Boston $6 billion in 2006 dollars, the tunnel is falling apart and it has caused constant construction in Boston. The mismanagement in this project is criminal and someone should have gone to jail. Someone needs to be watching how the money is spent and make sure goals are met. If the US government treated money the way business owners and citizens do, we wouldn’t have half the problems we have today.
My Economic Stimulus Ideas
I can think of several large problems economic stimulus could solve. Any of these projects would have several requirements. First, only US companies could be involved in the contracts and must use only US employees and US made parts. Second, the budget should be posted on the internet to prevent fraud. Third, There would need to be a massive expenditure possibly up to a trillion dollars in the short term. This project would require some cuts in military, tax increases on the wealthiest americans, and some reduction in services. The budget eventually needs to be balanced and the debt paid off in the long term. Here are a few ideas for a big project.
- Energy Independence – The United States needs to develop energy independence the way Brazil has. We need to create energy independence for several reasons. First, our electrical grid is open to attack by China and Russia. This is a national defense issue. We have the greatest military in the world, but if foreign hackers can shut down our country, it doesn’t do us any good. Second, the United States will remain hopelessly involved in the middle east until we solve this problem. Once we have our own energy independence we can make better policy decisions for the United States. I think this could also be a national security issue. Third, We need to start acting responsibly about our energy. You don’t need to be an extreme liberal or even care about global warming. This is a national security and policy issue that has to be addressed and should have been addressed forty years ago. Chris Matthews talks about this on his show and I think he has a very good point.
- Space Colonization – NASA landed on the moon and it has been hard to quantify the benefits ever since. The moon landing was a great goal. We should aim bigger. Space can solve a large number of resource and population problems for the United States. Space could be a place of tourism, expansion and has military application. If we are going to continue to spend money on NASA, we should be focused in the longer term on colonizing the moon and Mars.
- Ocean Colonization – Humans spend so much time going to the stars and very little on our oceans that cover 71% our planet. What if we set an objective to build a modern Atlantis on the ocean floor? How would we provide, energy and services? What would the benefits of an ocean city be? Could military and private submarines land and refuel? What resources would be reachable? It may sound far fetched, but it is probably easier than colonizing Mars.
The United States used to think big and accomplish tremendous goals. It seems like every idea politicians come up with today is very small and partisan by comparison. The incredible advances of the past forty years make new advances more possible than at any other point in human history. Yet, we are stuck in thinking small and regurgitating failed ideas. Our economy will never grow and will continue to stagnate, until we make a large investment AND a commitment to pay off the debt once the economy has recovered. Until we do that, it really doesn’t matter what else we do.