Sunday, February 1, 2009

The Truth Behind the Economic Stimulus Bill

By Phil Fraietta

We are just a little over a week into the Obama Presidency and already the President has begun to show his true socialist colors. On Wednesday, by a vote of 244-188, the United States House of Representatives passed President Obama’s proposed $819 billion stimulus bill.

Before analyzing exactly how the bill is supposed to stimulate the economy, be sure to note that a total of zero Republicans voted in favor of it—there’s that bipartisan spirit President Obama promised to bring to Washington.

Now as far as the bill itself goes, upon further analysis it is easy to see why zero Republicans voted for it, and even easier to see why it is far from a stimulus.

The Democrats have argued for the bill on the principles of Keynesian economics. Keynesian economics, named after its founder John Maynard Keynes, is centered on the idea that the government can stimulate the economy by increasing spending. The validity of this claim is something that economists have debated for over 80 years, but nevertheless, the idea that increases in government spending can stimulate the economy is one that most economists agree upon. That is, when the money is spent on infrastructure. And, when you think about it, this line of thought makes sense. If the government spends money to build a new highway, that money will be given to a construction company who will then employ workers to build the highway, thereby creating jobs.

So then in good Keynesian spirit we would expect that majority of this $819 billion to be spent for infrastructural purposes, right? Wrong. The stimulus bill actually only allots $322 billion to infrastructure.

So then where is the other $497 billion going? Being that this is a stimulus bill, and there are only two universally accepted ways in which the government can stimulate the economy, we would assume the other $497 billion is going to option number two—a tax cut.

The bill certainly does contain a tax cut, just like President Obama promised. But the size of the tax cut isn’t nearly $497 billion; in fact the tax cut only amounts to $145 billion for individuals (many of whom already pay nothing in taxes) and $22 billion for businesses. Given the fact that GDP statistics for 2008 are expected to show the lowest GDP for the United States sine 1982, a tax cut this size isn’t nearly enough.

Now that we have accounted for the tax cuts, we are still only at $489 billion, leaving us $330 billion short of the $819 billion the bill allots. So then where does this $330 billion go? Some of the money goes to safety net programs such as Food Stamps and Unemployment Benefits, (genius idea to pay people to be out of work at a time where unemployment continues to rise), some to pork spending (like every other bill run through Congress) and roughly $127 billion to healthcare.

I’m sure your initial reaction was much like mine when I saw just how much money was being spent on health-care—shocked! It is a widely held view that healthcare expenditure by the government takes up far too large of a portion of United States GDP. Yet, this stimulus bill makes sure to allot $127 billion towards it. So then how is this $127 billion broken down? $87 billion to Medicaid, $39 billion to COBRA, and $1 billion to creating a new bureaucracy called the Federal Coordinating Council for Comparative Effectiveness Research.

It has become clear what the real purpose of this stimulus bill is—to begin the transition to government run healthcare.

If the President were truly interested in rescuing the economy from recession, he would’ve had all $819 billion allotted towards infrastructure spending and tax cuts. He would’ve eliminated the capital gains tax for at least one year, cut the corporate tax rate in half, and made the tax cuts for individuals large enough that they will be noticed.

Unfortunately, this was not the case. I am afraid that President Obama has gone back on his word. With this bill he is fleeing from the politics of hope and reverting to the politics of fear. The President is using the current recession as a means of justifying quick action. But those of us who do not view President Obama as a Messiah who can do no wrong, can see the truth behind this bill. President Obama is beginning his quest to socialize the United States healthcare system.

1 comment:

DSKohn said...

I think this is the best piece you have written. Keynes was right on some of his economic ideas but he also pushed for too much regulation of the economy. This bill is not even Keynes, it is a blatant act of legalized corruption.

It is difficult to say how the entire stimulus should be structured because what really brought America out of the depression was the revitalization of our industrial base for wartime production. There might be some room for the government to at least make sure the vehicles it uses for various personnel are through American manufacturers.