The party of the Not Rich – economic policy

I spent an hour this morning looking up into the sky. It is still blue. Yet my political sense tells me that the world has surely turned inside out. "The party of the Not Rich", aka "the party of the Regular People" (tm John Edwards) has released their stimulus plan and it is nothing if not a blind insistence that the dogma of fiscal responsibility or Rubinism has crushed any possibility that the Democrats might actually provide a creative and viable plan to enhance economic growth.

Now to confuse matters further, (and I looked at this thing for about an hour) the numbers really don’t add up. What they’ve done is misrepresented the cost of their program. The numbers and allocations above are directly from their document and it implies that the total cost over 7 years will be $100 billion, while the expenditures in year one (2003) will be $136 billion. Now if this were prepared by the Republicans and it assumed a dynamic scoring effect from tax cuts, then I might accept it. But to the best of my knowledge Democrats only use static scoring.

Now it could be that they just did a poor job of allocating costs. But the only way I can interpret this document is that the cost in year one (2003) will be $136 billion and in years two through 7 (2004-10) it will be either an additional $100 billion spread out over 7 years OR an additional $100 billion per year. If anybody can solve this riddle, please let me know.

Rather than critique each line, I’ll just comment on the overall presentation and ideas. First, as noted above, the Democrats lay great stress on the idea that their program is fiscally responsible. That’s fine as it stands. If they wish to remain in the thrall of Rubinism then it’s their choice. But recalling my post from yesterday the question becomes: Is the amount of money returned to the consumers sufficient to spark more spending? The rebates proposed are a near copy of what happened in 2002, $600 per two income family, $300 per individual wage earner with an addition to those who would not normally qualify for a tax rebate because they pay no income taxes.

We already know that last year’s rebate did not lead us into bright sun filled uplands. On what basis do the Democrats assume that more of the same will result in substantial change? We are trying to influence behavior with a policy that failed once. Is there virtue is disregarding evidence and trying again just because the Democrats feel obligated to worship at the altar of Rubinism?

I’ll admit, I was stunned. I expected much more goodies from the Democrats. They are the Santa Claus party. I thought they might go with some sort of reverse income tax plan. Where lower paid workers get a larger rebate that decreases on a scale up to higher earnings. The poor family with an annual income of $14,000 receives $1500, the "rich" family with a $50,000 annual income receives $300. I don’t necessarily agree with that, but it has the benefit of being consistent with how the Democrats supposedly view the world.

A major criticism of the Bush Plan stated in their document is that the Democrat plan can be implemented NOW. Bush’s ideas are derided for an emphasis on lower tax rates that take place over several years, while the Democrats plan goes into effect immediately. An interesting argument if it were based on reality. All things being equal it is unlikely that any plan will pass before April or May of this year. Once the plan becomes law then the rickety structure of the IRS is supposed to swing into action churning out hundreds of thousands of checks based on tax returns submitted by April 15, 2003. That would be an interesting sight to see.

The Democrats claim that their plan will create anywhere from 800,000 to 1.7 million jobs. Just using the top line numbers the cost per job created is roughly $80,000 per. And that’s using the figure of 1.7 million. Those are some damned fine high paying jobs. Too bad the employees will never see anywhere close to the $80,000. Maybe it would be more efficient if they just had a national lottery of unemployed and awarded $50,000 to a lucky 2.7 million.

Assuming that this stimulus will create jobs, then I think it’s reasonable to ask when those jobs will be created. Since not one dollar of stimulus will reach the spenders until the middle of the year and the average company takes at least 3 months to make a decision to add employees, then under the Democrats plan the supposed immediate impact will not be seen until late in the year. So much for timeliness. Further, given the excess capacity in production for technology goods (which appears to be the intent of directing so much money at Homeland Security), will this additional demand create one single job?

My next comment relates to the free money the Democrats want to give the states. In principle I have no problem with directing federal funds to the states for Homeland Security. If we determine that every state has a need for say, an advanced digital communications network for emergency management then it is reasonable to expect the feds to pay part of or even all of the tab. It just makes sense if the need is immediate to get systems implemented quickly and to ensure they are of a certain standard. I suspect that this is not the case. That instead of national standards and requirements it will be nothing more than a slush fund to be allocated by the state governors for their own needs.

Through no fault of the federal government, many states are in dire financial trouble. California leads the league with an anticipated deficit of $30 billion. This is not caused by farmers in Iowa or auto workers in Michigan, who are likely facing the consequences of their own state’s lack of fiscal discipline. But for some reason the Democrats feel it is necessary to send money from Sioux City, Iowa to other states to pay for their Medicare programs. Medicare has always been a joint responsibility of the states and the national government. Under their proposal the federal government will subsidize the states to a greater degree. In effect releasing the state governors from the strictures they created for themselves. Generally, not a good idea.

In summary, the Democratic proposal lacks vision, clarity, direction. It is not bold. How can anyone get excited about a stimulus plan that is so stunted?

It is so cheap that if I were Bush I would be tempted to say, "Okay, we’ll give you this if you give me mine." Adopt their plan almost wholesale and add the tax cuts from the Bush plan.