More on The Economic Stimulus Plan That Isn't

Things are starting to shake out with the $150 billion economic package cobbled together by the President and members of Congress late last week. As is usually the case with compromised policy the devil is in the details. My previous post envisioned a potential flow of funds that would result from the economic plan. After reading some critiques of the plan on the web my analysis may need some revising. It looks like the plan may be less conducive to create immediate spending and more on pushing through tax cuts to upper wage earners.

According to Professor Krugman's latest column and his continuous blog updates the plan doesn't get enough in the hands of those who will spend it quickly. He faults the acquiescence of Pelosi and Company in allowing those benefits to be cast aside in the final compromise with President Bush. The resulting plan directs nearly 60% of the benefits to the upper two quintiles of income earners according to the Tax Policy Center. These upper wage earners are more apt to save the rebate dollars and not spend them immediately. With the low end stuff out of the plan the tax-cutter-in-chief can continue boasting about the cure all power of tax cuts that make up the rest of the package. No welfare queens getting rich off of this stimulus plan .

It's too bad the aid to State and local governments was weeded out in the negotiations. With Governor Strickland warning of looming budget deficits and local governments already feeling fiscal strain, an economic boost would be nice. This provision and some of the others may become a point of contention when the economic plan is debated in the U.S Senate. According to a story on Politico numerous Senators of both parties are already jockeying to get things put in the final version. How this will effect the outcome is hard to day. Could we see another GOP filibuster if attempts are made to include aid to local governments and increases in unemployment benefits?

Plan Announced to Stimulate China's Economy

The economy goes sour because of what Chairman Greenspan referred to as “froth in thehousing market”and things get surreal. Suddenly an administration that has embraced Friedmanite market principles has gotten all Keynesian on us. Today's compromise (someone caved) between the the Prez and Democratic leaders in Congress calls for pumping $150 billion of stimulus (that's hot) into the economy. The hope is that this action in the form of tax rebates for average Joes and tax incentives for business will prevent the economy from taking a recessionary nose dive this year.

The good news is that all operations in Iraq will be suspended for one year to pay for the economic bailout. Okay that's actually not the case. Per the Washington Post story the plan would require increased borrowing and will increase the deficit by that $150 billion amount proposed.

Here is the proposed flow of funds from the plan:

1. Government borrows $150 billion from creditors like China.
2. Government spends money on rebates and tax incentives.
3. Businesses use tax incentives to buy equipment to manufacture goods in their Chinese factories.
4. Citizens go to Walmart and spend money on crap made in Chinese factories.
5. Feds pay creditors like China increasing interest on borrowings as value of dollar declines
6. Policy makers in D.C declare important election year victory.

The Prez has already mentioned that often repeated theme of Bushonomics, the miracle of unending tax cuts in his speech today

Importantly, this package recognizes that lowering taxes is a powerful and efficient way to help consumers and businesses. I've always believed that allowing people to keep more of their own money and to use it as they see fit is the best way to help our economy grow.

I'm still waiting for Ron Paul's response to this stuff. For more coverage on the plan check out Paul Krugman's Blog.

Voinovich the Phony Deficit Hawk

Since it is fashionable to call out phony people these days I direct your attention to the senior senator from Ohio. As PD openers notes Voinovich was the lone deficit hawk in the senate to vote against a paltry $3 billion border security provision added to the overall funding measure. He stated his reasoning in the Congressional Record,

"If we decide we absolutely need to spend $3 billion on something - and I support adequately funding border security - then we need to either raise more revenue or cut other spending to pay for it."

Again, George was adhering to his fiscal conservative beliefs when he voted against the bipartisan crafted expansion to the SCHIP program earlier this week. He sited the unreliable revenue source and increase the cause for voting nay. He wouldn't dream of allowing unbridled expansion of federal spending on his watch, this according to the 9/28 Gongwer news report,

"I came to Washington to reduce the national debt, not to pass the buck and add to it for future generations to deal with,"

When it comes to the nearly$190 billion request to continue the war in Iraq and Afghanistan where will George stand? What about the fiscal mess the war is projected to leave behind for "future generations" to deal with? I'm sure he will stand up as the lone deficit hawk that he is and suggest the funding at least be pared back. He may even demand the Bush tax cuts be rescinded to pay for the wars. He may not utter a peep and vote for the whole request and then find some other token proposal to take a stand against. Sorry kids your health insurance money is being spent in Iraq.