Wednesday, January 28, 2009

"Stimulus" Will Lead To Permanent Government Expansion

Former McCain economic advisor Kevin Hassett has a really strange column arguing that Obama will be "a small government liberal". He bases this on comparing some CBO forecast of spending for fiscal 2009 with one for fiscal 2019. The fiscal 2009 forecast will include outlays for TARP and for the coming "stimulus package". This reasoning is really strange because first of all because CBO forecasts are based on the assumption of no policy changes and because unless the constitution is changed, Obama will have been out of office for at least 2 years by 2019. Not to mention the fact that Obama supported TARP (He voted for it in the Senate) and of course the "stimulus package" which Obama without any involvement from Bush will put forward. Yet he still wants to attribute both to Bush and none to Obama. With advisors like that, it is little wonder that McCain lost. Though perhaps Hassett is still grumpy about the comments McCain about him (and other economic advisors) so that Hassett now wants to avenge that by trying to make Obama look good.

A more rational analysis is provided here by Jim Manzi. Even though the proposed stimulus package is supposed to address the current cyclical slump, only a small part of the increase in spending will actually be implemented in 2009, and with nearly half being implemented after 2010. A much higher proportion of the tax cuts will be immediately implemented, with almost nothing remaining after 2010. And at that time the Bush tax cuts will expire, meaning that significant tax increases will come then.

And as Manzi points out, the risk is high that once the supposedly temporary spending programs are in place, supporters of them will argue that by extending them they're not increasing spending, they're avoiding cuts, something which will increase the likelihood that an even greater proportion of the spending increase will remain after 2010, making it in effect permanent. There are precedents for this, including how the reason the United States has farm subsidies is that the government wanted to provide "temporary" relief for farmers during the Depression of the 1930s. That "temporary" program however is still in place.


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