One Port in a Storm

Where do we run in a crisis?

Home, of course. Under fire, people fall back on beliefs they have long held, and that's exactly what they're doing in this economic crisis.

The same people who cried out for lower taxes three, five, and ten years ago say that's exactly what what we need now. And the same people who have long demanded more government entitlement programs say that's just what we need today.

They may or may not be good ideas in themselves, but that doesn't make them the right medicine for the current problem. There's a strong tendency to use a crisis in support of an agenda. As Mark Twain noted, 'To a man with a hammer, everything looks a nail.'

We're far more likely to get out of this mess if we focus on the actual, live problem in front of us, the collapse of consumer confidence and the resulting jobs lost.

We may never agree on who caused the crisis - subprime lenders? eager homeowners? profligate consumers?  greedy bankers?- but we'll know it's behind us once consumers buy without fear, allowing businesses to add the jobs that provide all goods and services.

That should be our aim, breaking the cycle of fearful retreat. From there we can move forward, toward whatever agenda we please.

Next Monday's post will be on Making Sense of Really Big Numbers.

The Smartest Spending of All

So why not boost spending with $2000 gift card for each American?

Here are the most common objections and questions I've received about my article in this weekend's Washington Post:

  - Didn't spending get us into this mess? We need jobs, not cash!

We do need jobs, and the gift card helps us get there, during the months that job programs get underway. This week and next, there's only one thing that keeps businesses from folding, and that's consumer demand.

To help in the short-term, the Senate has proposed nothing but tax cuts, and that's disingenuous. While some other problems may be averted with appropriate breaks, like expanding exemptions from the Alternative Minimum Tax, we shouldn't confuse those with immediate stimulus.

When your house is on fire, there are things to do before choosing a new sprinkler system. The 600,000 jobs lost last month represent only one sixth of the the total losses since the start of the recession. We need relief soon, while all other plans take root.

The $2,000 gift card isn't a full solution, but it's a strong tool we can put in the hands of every American right now, this week.

   - What if I just save the money?

Fine. If people save every penny of it, the program carries no cost: $2,000 goes to you, then back to the government years later. Even the interest goes to you and back. The Treasuries used to finance our debt are sold overwhelmingly to Americans. Despite the huge foreign reserves of Japan and China, we borrow mainly from ourselves.

But while rebate checks were saved at too high a rate to help boost the economy, the American Gift Card can do better, as it never sits in a bank. In our house, grapes get eaten a lot faster when they're out on a plate than when they sit in the bottom drawer of the 'fridge.

   - Won't the money just go to China?

Amazing at it seems, given that half the things on my desk were made in China, well over 80% of dollars are spent on domestic goods and services. Even without restrictions on the card, it really will help Americans.

   - Why not $2 million, so we're all rich?

$2000 is a good figure: $200 is too little and $20,000 is excessive. It's also the right amount to replace the $275 billion in proposed corporate and other tax cuts, some of which have merit but none of which have a stimulus effect with the promised speed.

$2000 per taxpayer provides a solid short-term stimulus while other programs begin, even though the mere issuing of a card doesn't create wealth. It is indeed money we're borrowing from ourselves, and for these next few months, that's a good thing. While there may be benefits to a higher rate of saving in America over the long term, the sudden drop in spending is causing substantial pain.

We can start cheering about reduced consumption after people stop losing their jobs.

- Can't we keep the government from telling us what to do or giving handouts?

Unlike other spending projects, the Gift Card program doesn't rely on the government to decide which business or industry should receive the money. You do.

There's no handout. Stores still have to attract your business if they want a boost in their bottom line. The difference between this an industry bailout is that you get to decide where the money goes.

And that's the smartest spending of all.

Boost the Economy, Today

Thanks for the many positive notes about my article in today's Washington Post, suggesting a short-term stimulus through a $2000 federal Gift Card.

It's a short-term boost, not a fix for all the long-term problems with the economy, nor to replace useful infrastructure spending or appropriate financial regulation.

Tax cuts can help avoid some problems, particularly if we wisely expand exemptions from the misguided Alternative Minimum Tax,  but we shouldn't confuse tax breaks with immediate stimulus.

The store on the corner struggles when there is a fall in consumer demand. That's true whether taxes are high or low, whether subprime lenders are spinning their evil ways, or whether or not the financial markets need more regulation.

And so do the store employees. The 600,000 jobs lost last month are most remarkable in that they represent only one sixth of the the total losses since the start of the recession. We need relief now, while all other plans take root.

The $2,000 gift card isn't a full solution and isn't meant to be. It's a tool we can put in the hands of every American, right now, this month.


On Monday, I'll post answers to the most common questions about the idea, plus a response to some objections. Or you can read hundreds of differing opinions on the idea at several blogs including that of MadDogMedia, Reddit, Scott Loftesness, and The Washington Post comment board.

The Truth, Plus Distortion

There's no reason for news media to treat Americans like dunces.

This week's shameful partisan spat over the stimulus plan is shocking enough. “Not one person felt his or her district needed to have any of this assistance?” Representative Rosa DeLauro, Democrat of Connecticut, asked of Republicans. “That can’t be.”

Even papers that generally keep a high standard have played loose with the facts in their summaries of the stimulus bill.

It's misleading to overlook the huge scope of proposed tax cuts, which even if they were reduced by half would still be the largest portion of the package. See the previous blog for details). The only programs mentioned there are $50 million for the NEA, $335 million for family planning, $70 million for a supercomputer for a weather facility, and $75 million for smoking treatment.

Let's put that in proper perspective. Added together, all of those programs total less than one percent of the proposed package. In fact, they aren't even one-tenth of one percent of the proposed package. That's right: 99.95% of it passes without criticism.

There's simply no need to distort a bill to emphasize old grievances like funding for the National Endowment for the Arts. That money isn't even one-thousandth of one-percent of the proposal, so it deserves no greater proportion of our attention.

We Americans can handle the truth. Give us the facts in proper perspective and we'll make our own judgments. If a party, or a paper, can't win our approval without tricks, they don't deserve it.

Components of the $825 billion stimulus package

Item                                                 Amt ($billion)

Tax Cuts                                        275

  $500/person, plus expansion of business loss writeoffs

Aid to States 119

   $87bn Medicaid, $25bn public safety, $7bn law enforcement

Education                                 117

   $41bn low-income support, $39bn secondary, $22bn college

Unemployment Aid                  106

  $43bn  jobless benefits extension, $39bn health coverage

Infrastructure                                                                  90

  $30bn highways, $31bn building repair, $19bn water, $10bn transit

Energy Investments                     54

$32bn grid upgrade, $22bn housing weatherizing

Investments in Science and Technology 16

  $10bn research facilities, $6bn rural broadband Internet expansion

Other 48

You can see more detailed figures in the actual proposal (.pdf document hosted by the Wall Street Journal).

Note how conservative this is - 'conservative' in the political sense. Tax cuts are not only the largest portion of the package, they're twice the size of the next largest item. More than twice the size.

And look at where the other big expenditures are: public safety, law enforcement, infrastructure. Even some of the liberal-sounding titles actually house conservative projects. 'Energy investments' isn't going toward solar-powered smiley buttons. It's primarily for upgrading the nation's electrical grid.

Good for President Obama for reaching across the aisle. Let's see how it works.

Where do Taxes Go?

Here's where your tax money goes:

Item ('07 unless noted)         Amt ($billion)

Social Security Payments       586

Defense (minus Iraq, Afghan.) 548

Medicare      395

Unemployment          294

Interest on nat'l debt '08        244

Medicaid '08        202

Iraq and Afghan wars                186

Stimulus rebates '08 168

Foreign tax loophole discovered Sept '08              100

Education                      89

Transportation                                77

Veterans benefits        73

Justice Dept                                   44

Food Stamps         39

Foreign Affairs                             32

NASA                                  17

Earmarks '08                                                                  16

National Parks                       2

What does this tell us?

Three things. First, the media attention given to issues doesn't accurately reflect their real size in the budget. There are headlines over every wasteful 'bridge to nowhere' pork project, and while they're awful, they're also a small part of the budget.  In fact, a tax loophole the IRS just announced is more than eight times the size of all 'pork' projects combined. We aren't going to balance the budget just by trimming pork.

Second, our National Parks are being shamefully squeezed. We could quadruple its budget and it would still be one of the smallest  national programs. Ditto for NASA. If you think the money we spend on NASA would be better spent on schools, you're looking at the wrong source. NASA is small (half the size it was in 1965, by inflation adjusted dollars), and it's the big items we need to debate.

Third, if we want to balance the budget, it's going to be through defense cuts or tax hikes.

Yes, Social Security, Medicare, and Medicaid are big parts of the budget, but they also have their own tax sources. Social Security is currently in surplus, and while that will change, that's a topic for another time. For now, the items funded by your general income taxes are dominated by defense spending.

Take every other program in this chart - education, transportation, food stamps, and yes, NASA - and add them together. That's less than we spend on defense and the wars in Iraq and Afghanistan. Throw in unemployment expenses. It's still less.

I believe in a strong national defense, but I also believe in fiscal responsibility, and if we don't want higher taxes, we're going to need to rein in spending where it counts. Trimming the National Parks program won't balance the budget, but a careful look at defense just might.

The Bailouts Compared to the Cost of War

Figures in the hundreds of billions of dollars become mind-boggling and difficult to envision. How big are they really?

Here's a useful chart:

Item  Size ($ trillion)     % GDP

U.S. GDP  14.2   100

National debt   5.4   38

Annual gov’t spending   3   21

Revenue   2.5   18

Historical avg revenue   -   17 to 20

Bailout so far   1.6   11

Wars in Iraq and Afghanistan   0.8/yr   3 / yr.

What does this tell us?

First, America has a big economy. We produce nearly $15 trillion worth of goods and services each year. The national debt is big, too - more than the annual federal budget - but it doesn't need to be repaid all at once.

In one sense, the bailout is huge. It's more than half of what the government spends in a year. On the other hand, if people were really worried about debt, they'd be asking every day if we're getting our money's worth from the wars in Afghanistan and Iraq.

There are other ways to shrink the deficit. We could raise taxes slightly, since we're at the low end of the historical average, but that alone won't do it. Nor will cutting spending from the traditional budget, unless the cuts were huge - far deeper than is likely to be politically possible. A ten percent cut wouldn't do it, nor would twenty percent, if we include interest due on the bonds issued.

But there is a way. The gap between spending and revenue is about 3% of GDP, which is also the size of our spending on the wars in Iraq and Afghanistan. Without those, we're in far better shape, with many more financial tools to help our own economy.

We've spent nearly twice on those wars so far than on the entire financial bailout. Another way to think of that is to imagine how much economic stimulus we would have if we spent that money here at home, instead of wasting hundreds of billions on graft and poorly supervised projects abroad.

How you feel about the war is a political issue, of course. But if you care about national finances, it should be an economic one, too.