David Kirkpatrick

January 26, 2010

Obama’s domestic spending freeze announcement …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 2:25 pm

… is getting a ton of play around the blogosphere today. There’s plenty of cries of capitulation from the right, there’s opining the move is a knee-jerk reaction to Brown winning in Massachusetts, and the Obama-leery left is fairly predictably apoplectic.

You can find a pretty good roundup of opinion on the announcement here at the Daily Dish.

Of all the various takes out there, this from Bruce Bartlett seems to strike closest to my thoughts:

More recently, economist Paul Krugman warned that the Fed’s talk of an early “exit strategy” from easy money sounds suspiciously like that which led it to tighten prematurely in 1936. He believes that the good economic news of recent months does not yet constitute proof that a sustainable recovery is underway and that the danger of a relapse this year is strong as stimulus spending wanes.

Nevertheless, the pressure to at least begin the process of normalization is overwhelming. The Fed has talked openly about new procedures to soak up the bank reserves it has created even as those reserves remain largely idle and unlent. And even Democrats and organizations affiliated with them are urging Obama to get the budget on a sustainable path as soon as possible. John Podesta and Michael Ettlinger of the liberal Center for American Progress recently argued that the primary budget (spending less interest on the debt) should be balanced as soon as 2014, with full balance by 2020.

I’m not terribly worried that Congress will reduce the deficit too quickly; too much of the budget is on automatic pilot or effectively off-limits. Entitlement programs like Medicare will continue to grow for years to come and there is no way that defense spending can be reined in as long as we continue to fight two wars in Iraq and Afghanistan, not to mention the likelihood of new domestic security spending in the wake of an aborted terrorist attack on Christmas day. And it’s far more likely that Congress will appropriate new stimulus measures than cut back on those already enacted.

October 23, 2009

Bruce Bartlett comes out in favor of VAT

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:13 pm

Bartlett is an interesting read these days. One of the major supply-siders back in the day, his economic positions seem to have shifted a  bit. He says, and I tend to agree with him, he’s only reacting to the conditions on the ground and his fundamental economic beliefs are no different than when Reagan held the White House. Of course a value added tax was one tax vehicle in the supply-side economic toolbox.

In a move that probably makes the heads of his old pals in the GOP explode, Bartlett writes in Forbes an extended defense of, and recommendation for, a national value added tax.

From the middle link:

few years ago, I concluded that the magnitude of our looming fiscal problem was so enormous that higher taxes were inevitable–and that was long before the recent crisis made matters vastly worse. Moreover, I concluded that the magnitude of this tax increase is so great that it would seriously cripple the economy if accomplished through higher rates on an already dysfunctional income tax system. Reluctantly, I concluded that a value-added tax (VAT) is the best way to raise the revenue that would, in any case, be raised.

When I first made this suggestion in a Los Angeles Timesarticle in 2004, I was building on a large body of tax analysis showing that the VAT is the best known way of raising revenue. When I say “best” I mean that it raises large revenues from low rates and has minimal disincentive effects. In economists’ speak, it has a very small dead weight or welfare cost–the economic output lost by the tax over and above the revenue collected.

Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe’s average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.

June 26, 2009

News on the stimulus

This is one of those bonus two posts in one.

Up first is an update on the stimulus job guidelines, something the states have been waiting for from the Fed. Sounds like the method for counting jobs created by the stimulus program is a bit fast and loose.

From the link:

From the minute President Obama declared that the $787 billion federal economic stimulus package would save or create 3.5 million jobs, state officials have been confused about how to count those jobs.

Now, four months later, the White House has offered states guidance. The advice includes a description of the programs subject to the job-reporting requirements.

“All we’re asking them (states) to do is a simple headcount,” Rob Nabors, deputy director of the White House Office of Management and Budget, told the Wall Street Journal.

In other words, he said, recipients of federal stimulus dollars should use their best guess as to whether a job would have been saved or created if the stimulus plan had not been approved.

Some critics say such leeway could lead to contractors and state officials inflating the job numbers, or undercounting.  They also worry that employers, in reporting to states the number of jobs generated or saved, will not be diligent about including subcontractors.

“It also seems that OMB is not imposing strict rules on how employers measure the number of jobs retained as a result of stimulus funding and is willing to let them lump together jobs created and jobs retained,” said  Good Jobs First, a national jobs policy resource center in Washington, D.C.

Next up is a little analysis on why the stimulus isn’t doing all that much stimulating from Bruce Bartlett.

From the link:

For a program to be stimulative, it must bring forth economic activity that otherwise would not have taken place. The classic example is public works. When a new road or bridge is built, construction companies have to purchase concrete, steel and other materials that create business for other companies. They also employ workers that otherwise would not be working, paying them wages that they will spend, producing jobs and incomes for other workers.

If this works the way it is supposed to, stimulus spending has a multiplier effect throughout the economy. A Council of Economic Advisers study estimated that government purchases of goods and services raise the gross domestic product by $1.57 for every $1 spent. By contrast, tax credits and income transfers are much less stimulative, raising GDP by considerably less than $1 for every $1 rise in the deficit.

Since 60% of the stimulus package had a multiplier effect of less than one, only 40% of the package went to programs like public works that have a high multiplier. Moreover, the programs with a low multiplier were the fastest ones to implement; those with a high multiplier take much more time to come online. According to Elmendorf, by the end of fiscal year 2009, which ends on Sept. 30, about a third of the least stimulative spending will have been spent vs. only 11% of the highly stimulative spending.