http://news.yahoo.com/s/ap/20090224/ap_on_go_pr_wh/obama_economy;_ylt=AmEZtF5.xF22tssrS.UpOJqyFz4D
This article concerns Barack Obama, and how he recently stated that he really wants to decrease the national budget deficit. However, first he wants to increase the debt by $787 Billion dollars. I find it ironic that he would come out and start talking about how he wants to decrease the national debt simply because now is not the time. If he really believes that the huge bailout plan will work, he should be simply supporting its necessity and worrying about the national debt later. His stance should be more along the lines of, "this bailout is absolutely necessary, because without an economy we will never be able to repay the debt." Instead, he went with a weaker stance saying that although the government is spending a lot now, there will be huge deficit cuts made by the end of the year.
Obama does make a good point though when he states that the national debt will end up leading to another economic crisis in the future if we do not do something to reduce it now. This would mean that all the money spent on the economy would be a complete waste, simply because future generations are going to sink back down to an even worse economy when they try to come up with some of the money necessary to pay off the national debt.
Ironically, just as Obama was making these statements, the democrats in the House of Representatives were proposing a $410 billion spending bill, to keep the government running through the rest of the year. This was also done at the wrong time. Both Obama’s statements about the debt, and introducing a huge spending bill should not be made less than a week after $787 billion dollars were spent. Maybe they could have waited at least a week before talking about spending more money. I can guarantee that a very large portion of the $410 billion is filled by earmarks. Something needs to be done about earmarks because the government cannot afford to spend another $400 million building a bridge to nowhere.
In the same press conference, Obama made remarks to how important social security and health care are. Representative Waxman stated that he thought these issues were far more important than the national debt, and more money should be used to combat these problems. If Obama does this, the national debt will continue to increase. Instead, spending limits need to be put in place, and the debt needs to be watched cautiously, as it will definitely one day become a major problem for this country unless the government realizes that it does not have an unlimited supply of money to spend.
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The main principle of Keynesian economics is that when the country is in recession the government should spend and when the economy is growing they should not. The current stimulus plans being implemented are exactly what Keynes would suggest the government do. What it does is provide a boost to the economy which will be paid for during future economic growth creating a balance for stable growth. Although the worry is that this increased debt will make the economy more vulnerable in the future, the idea is that the economy will have improved by then and will be able to sustain the expense. The classical response for the government when in a recession is to increase spending and even a democratic controlled government that wishes to reduce the deficit will makes sure they act accordingly. No matter when different government spending bills occur within the year many of these bills are normal government funding that has been accounted for and is necessary to run the country. Reducing the deficit is a priority in the Obama administration but it is certainly safe to say that their number one priority is resuscitating the American economy.
Another argument that Obama could make for increasing spending now to be paid off later is that it is not a zero sum game. While we will have to pay back the principle and its interest, the money spent will create more wealth than borrowed.
With that said, I do not believe that spending is the irresponsible and the wrong thing to do.
While Obama plans to make up some gains with troop withdrawals in Iraq, he is still putting more in Afghanistan. He plans to tax the rich, which sounds noble. When looked at more closely, it turns out that taxing more costs more. Consider that when Russia lowered its taxes (in 2001) to a “proportional 13%,” its tax revenues increased by 46%! (source http://www.leidykla.eu/fileadmin/Vadyba/11/Algirdas_Krivka.pdf) While this is certainly not the same situation, it illustrates a great point: tax cuts are the path to sustainable economic growth. People will do less to avoid paying taxes (see article on Swiss bank that helped Americans avoid large sums of taxes http://www.nytimes.com/2009/02/25/business/worldbusiness/25ubs.html?scp=2&sq=UBs&st=cse). People will also spend more, which can be taxed.
The passing of the second bill, if indeed filled with earmarks, will be a test to the bipartisanship claims made. If Obama signs a bill filled with pork, then it will signify a dismissal of those claims. What concerns me is that 144 billion USD will go directly to the state governments, with no specific use in mind. This could allow them to address their worst issues, or simply waste it on special interest groups. Consider two sins against the public: “$150 million for parking improvements at a Little League facility in Cidra, Puerto Rico, and $6 million for a "snowmaking and maintenance facility" at Spirit Mountain ski area in Duluth, Minnesota.” (source http://www.usnews.com/articles/business/economy/2009/02/19/finding-the-pork-in-the-obama-stimulus-bill.html?PageNr=2).
The large question here is how President Barack Obama is planning on saving the economy once the taxing and the spending have reached their limit of availability and success – can we really dig ourselves out of this economy purely with government spending and the taxing/redistribution of wealth from the wealthy to the middle and lower class? It seems like a stimulus plan composed of massive spending increases and government debt would, in reality, yield in a much lower economic output than if the bill did not exist at all. The name “stimulus” is merely a name because when looking at the bill itself, it does little to stimulate economic growth at all.
The creation of jobs is also a major issue in this bill, and as a component of stimulation of the economy, it is absolutely vital that the job market is successful in the long term; this bill will create jobs for the next couple of years looking out into the horizon, but after that, such change will barely be noticeable in the economy, and in terms of the expansion and formation of jobs, little will be transformed and improved upon.
During this present scrutiny of his plan, Obama is utilizing the tool of rhetoric to convince the nation, as well as Congress, to support this bill; Obama has cautioned the country of an economic “catastrophe” if no action is taken on the stimulus. This is an issue that cannot be disregarded, however, Obama’s attempt to persuade the public and the people whom he needs to support this bill, is not quite as persuading as he originally planned. The people of the nation, as well as Congress, are not completely agreeing with his arguments for the stimulus bill, but are especially disagreeing with the amount of money Obama is willing to delve into the plan.
The Keynesian model may argue that government intervention leads to an overall better economy, yet there are many critics to this theory. It is considered to be anti-capitalist. It does assume that the money the government intervenes in a positive way, and encourages mostly changes to monetary policy and some changes in fiscal policy. It does not encourage an increase in the national debt. This article is basically saying that if the government continues to irresponsibly spend money without limit, it will eventually catch up to us. China must continue to try to help our economy for their own benefits, and to keep their own economy afloat, because both countries are somewhat interdependent on each other. Yet someday they will expect to receive their money back with interest, and this may lead the United States into another financial crisis, if the government does not cut back on spending.
The argument that Obama is making is that it is not "a zero sum game," and that he HOPES that it will help the economy more than the interest being paid back. This is the big IF. No one knows whether the new bailout plan will have any effect whatsoever, as the first bailout of the banks was a complete failure. Rjsabasteanski makes a good point when he says that many will try to avoid the tax increases, and tax evasion will increase dramatically. In addition, pork needs to be absolutely abolished, because the U.S. spends a ridiculous amount of money on needless things every year. An easy way to help reduce the deficit is to cut out these unnecessary items. Katie S. makes a good point when she says that this probably should not even be called a "stimulus" as they often do little to stimulate the economy.
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