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Wednesday, Feb. 4, 2009

Clearing Up Myths About the Stimulus Package

Obama critics advocate the same policies that created this disaster

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Albert Einstein realized that the definition of insanity is doing the same thing over and over and expecting different results.

Clearly, the conservative critics of President Barack Obama’s stimulus plan are no Einsteins.

Republicans continue to argue for ex- President-Bush-type tax cuts—tax cuts for the wealthy. This strategy did very little to stimulate the economy during the Bush era, but that doesn’t stop Republican lawmakers and right-wing pundits from continuing to propose tax cuts and hoping the results will be different this time.

So how effective was Bush’s economic strategy? Currently, Wisconsin’s unemployment rate is 6.2%, and nationally it’s 7.2%. Major employers are shedding jobs here and across the country with no end in sight.

In fact, Bush has the worst job-creation record of any modern president. According to The Wall Street Journal, in eight years, Bush’s trickle-down policies created 3 million jobs, and 22 months of his 96-month-long tenure were spent mired in a recession. In contrast, 10.5 million jobs were created during Jimmy Carter’s four years in office, 16 million jobs were created in eight years under Ronald Reagan and 23 million jobs were created during the eight Clinton years.

But you wouldn’t know that if you listened to the Republican whiners who now fill the airwaves. Here are just a few of the myths regarding the stimulus package that our Republican “leaders” are passing off as fact, and the truth about their illogical arguments.

Myth: “It’s Too Big”

Reality: While the American Recovery and Reinvestment Act isn’t a done deal yet, the House of Representatives approved an $819 billion package and the Senate is likely to tweak it. Conservatives howl that it’s too big. Too big compared to what? The United States is in the worst downturn since the 1930s Depression and economists across the political spectrum agree that we need a massive stimulus package to begin to reverse this decline. In fact, many economists argue that the current proposal is too small. Experience shows that the last time the United States was in such a severe economic downturn, only the massive government spending on World War II stopped the downward spiral.

Myth: “It’s Just More Pork-Barrel Spending Dressed Up as Stimulus”

Reality: What’s the definition of pork? The government’s creation of the Internet? Is that pork? Or the creation of the interstate highway system? If the stimulus plan included money for school vouchers, abstinence-only education, Big Oil, Big Pharma, companies that ship jobs offshore and private mercenaries in Iraq, we doubt the Republicans would be crying about “pork.”

The House-approved package includes $30 billion for highways, $43 billion to extend unemployment benefits, $40 billion for health care, $87 billion to help states with Medicaid, $41 billion for local school districts, and funds to train workers, upgrade the electrical grid, provide energy assistance to low-income households, boost law enforcement and rehab foreclosed properties. A large investment in the nation’s infrastructure is a very effective approach to not only pull us out of this downturn but to re-engineer our economy so we can continue to lead the world in the 21st century.

Myth: “It’s Too Slow”

Reality: Republicans—including Janesville Congressman Paul Ryan—complain that not only is the stimulus package too big, but that it’s being spent too slowly. They cite—and distort—a Congressional Budget Office report that says only $136 billion of the $355 billion slated for infrastructure and discretionary programs would be spent by Oct. 1, 2010. But those funds are only part of a bigger program. An additional $275 billion in tax cuts and $200 billion for jobless programs and health care would be spent much more quickly, if not immediately. So when the Republicans complain about the “slow” phasing in of the stimulus funds, it’s sort of like complaining that your meal was inedible and, by the way, the portion was too small.

Myth: “The Federal Funds Will Weaken Wisconsin’s Economy In the Future”

Reality: This inanity is being pushed by state lawmakers such as Sen. Mike Ellis (R- Neenah) because the stimulus money will only be expended for two years and won’t provide a permanent fix for the state’s budget deficit. But that’s exactly what it is supposed to do. It is not designed to be a permanent fix. It is pump priming. Right now, the economy is spiraling downward. We need to spend a large amount of money now to put people back to work so they once again spend money and pay taxes. Once we reverse this downward spiral and the economy begins to grow, we won’t need the stimulus package.

Myth: “The Government Doesn’t Create Real Jobs. Only Businesses Do.”

Reality: Ask a police officer or firefighter if their work isn’t a real job. Yes, the private sector creates the vast majority of jobs in the United States, but when demand falls and people aren’t buying cars, refrigerators and televisions, the government must step in and spend. Otherwise the downturn will continue for years and years until it bottoms out. That could be a 40% unemployment rate, shrunken salaries, a massive amount of business failures and increased property foreclosures. Those who are too ideological to appreciate that we need massive government spending for fear that it will increase public employment need not fear, because the vast majority of jobs created by this proposed government spending will go to private companies and private contractors. When schools purchase materials to make their facilities energy efficient, they purchase them from private companies.

Myth: “Tax Cuts Are a Better Way to Stimulate the Economy Than Spending”

Reality: No. Study upon study shows that government spending has a much greater impact than tax cuts on economic stimulus and job creation. When the government spends money to upgrade and computerize medical records, for example, jobs are created and these employees then spend their incomes, which creates more jobs in other areas. In contrast, some of the population who receive these tax cuts—such as last year’s tax rebates—will save that money. That portion of the tax cut obviously doesn’t stimulate the economy or create more jobs.

Myth: “The Package Doesn’t Include Tax Breaks”

Reality: The stimulus package sure does include tax breaks, even though many mainstream economists argue that there shouldn’t be tax cuts at all since they are not the most efficient way to stimulate the economy. Taxpayers will receive $275 billion in tax cuts in the House-approved plan: $500 for an individual and $1,000 for a couple. Businesses will see tax cuts as well.

Myth: “OK, It Includes Tax Breaks. But Poor People Are Getting Some and They Don’t Deserve It.”

Reality: Yes, believe it or not, there are people out there arguing this position. While Bush’s cuts largely benefited the top 1% of earners, Obama campaigned on providing tax cuts to 95% of the population and the voters enthusiastically elected him. There’s a sound economic reason why Obama supports a progressive tax system: Low-income folks are more likely to spend their entire tax cut quickly since they are living at the margins and must spend their entire income just to buy the basics. In contrast, top earners either bank their rebate checks or don’t even notice the extra money.

Myth: “MPS Will Get Money, and MPS Doesn’t Deserve It”

Reality: Again, yes, there are people who actually argue this nonsense. While the Journal Sentinel and local conservatives can’t stand the fact that the Milwaukee Public Schools may receive more funding, it could happen—and it’s a good idea. What the JS mislabels “new construction” is really “school modernization,” including such items as increasing energy efficiency and getting rid of asbestos in existing schools, many of them quite old buildings—a small detail that some readers may not have noticed in the JS’s negative Feb. 1 article. This would provide a quick economic stimulus for our area, create jobs and make a necessary investment that would otherwise be paid for with property tax dollars. These federal funds would ease the burden of Milwaukee property taxpayers while also improving the public education facilities in the city—that doesn’t sound like wasteful spending to us.

Louis Fortis is a former economics professor and a former member of the Wisconsin State Assembly.

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