Stimulus and Republican worldviews and objectives

Fulton Wilcox January 25, 2013

What Republicans want: extracts from the Republican Platform of 2012

• Growth: “The best jobs program is economic growth.”

• More jobs: “We want a roaring job market to match a roaring economy”

• Free market: “…free market policies…are the surest way to boost employment…”

• Private involvement: “A federal-State-private partnership must invest in the nation’s infrastructure…

• No picking winners: “We reject the use of taxation to redistribute income, fund unnecessary or ineffective programs, or foster the crony capitalism…”

• Low or no inflation: “sound monetary policy is critical …Inflation diminishes the purchasing power of the dollar…”

• No wasteful stimulus”; [we oppose]…the waste of billions in “stimulus” funds with no payoff in jobs.

• Inflation: [want emphasis on] sound economic principles and sound money rather than on political pressures for easy money and loose credit

• Balanced budget: “a Balanced Budget Amendment to the Constitution, following the lead of 33 States”

Governor Bobby Jindel – keynote speech at the Republican Party Winter meeting January 28, 2013

• We just lost an election, we need to “stop being the stupid party”

• “We cannot be the party of austerity, we must be the party of growth”

• At least tacitly, he accepted the priority of “full employment” as senior to balancing government accounts

• He objected to inside the beltway administration of big spending programs

• Nevertheless, Jindel offered nothing programmatic to generate consumer sector growth and jobs. – The debit card proposal involves big dollars, but a comparatively low

inside the beltway footprint, as it generates stimulus

– It lets the American consumer pick “winners,” not government administrators

Necessary pragmatism: Congressman Paul Ryan’s September 2008 speech explaining why he voted for TARP

• “We need to get “fear and panic out of the market”

• “If it goes the way it could go, that means credit shuts down. Businesses can't get money to pay their payroll...”

• “Madam Speaker, this bill offends my principles. But I'm gonna vote for this bill -- in order to preserve my principles…[and] to preserve the free market”

• "This is a Herbert Hoover moment. He made some big mistakes after the Great Depression. We lived with the consequences for decades“

• "I believe with all my heart, as bad as it is, it could get a whole lot worse. And that's why I think we have to pass this bill.“

• Video is available at the link below, posted by a Ryan critic

• Republican support can be gained by persuading them that there is still fear in the market that requires “fire fighting” measures

http://dailybail.com/home/busted-watch-tarp-republican-paul-ryan-begging-congress-to-v.html

President Herbert Hoover’s disaster looms large in Republican consciousness, for some as an incentive to act and others as something to be denied

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1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942

January 1933 President Hoover signs bill establishing governmental Reconstruction Finance Corporation to loan money to banks and buy assets; In July 1932 extended to non-bank bailouts

Hoover implements major Public works programs and heavy deficits,

President Hoover prototypes much of the “New Deal,” but with positive effects overwhelmed by a massive reluctance to consume and reluctance to invest

Actual GDP, in “real” 2005 $ billion

Hoover loses election November 1932 U.S., U.K and French war spending “stimulus” begins

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decline in volume of business compared to 1929

decline in unit pricing compared to 1929

Downside risk of not stimulating: Declining sales volumes and buyer confidence damaging price deflation travel in tandem.

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1927 1928 1929 1930 1931 1932 1933 1934 1935

Damaging impact of deflation: yearly appreciation from “hoarded” unspent dollars because of price declines

Flight to “cash” – Depression era unit price declines made it highly profitable to hold cash, which discourages both buying and borrowing

Ideal – inflation of about .75%

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Hoover Years

Herbert Hoover comments early in the Depression

• Temporary speeding up of [public and private infrastructure] to absorb otherwise idle labor bring great subsequent benefits and no liabilities. December 2, 1929

• Much construction work had been postponed …by reason of the shortage of mortgage money…

• Cooperation in legislation would help…[absent appropriations] the government itself will be in the positioning of letting out from employment anything from 10,000 to 20,000 men from employment

• Regulation of the railways…for holding down rates has been turned into a device for holding them up so the railways can live. [address to the Gridiron Club, April 26, 1930]

• …slumps are the inexorable consequences of the destructive forces of booms…rests mainly upon certain forces inherent in the human mind. [Address to the chamber of commerce may 1, 1930]

• We need, particularly, a knowledge of employment at all times • Our immediate problem..[is] to mitigate the effect of the recent crash Address to the

chamber of commerce may 1 1930 • We…regarded great business depressions with their inevitable train of

unemployment…as an inevitable fever which must run its course…the time the nation has realized that…the prudent expedition of construction could be…a balance wheel to maintain security of employment, to maintain consumption of goods [and] contribute to economic stability. [Governors Conference, June 30, 1930]

• “Wages sustain not only workers and their families, but also industry and agriculture, whose products they buy message to the Order of Elks, July 6, 1930”

Hoover depended on State, Local, and private efforts • States had little going-in competencies or financial firepower to support “relief” at

massive scale

• Too often relief had no stimulus power because it was a zero-sum game with donations and local taxes subtracting from demand in a symmetric offset to charitable demand

• Voluntary charily was often expensive to collect and idiosyncratically coerced (e.g. in one case factory management taxed workers 1% of wages for the “Community Chest”) in response to President Hoover’s appeals

• President Hoover’s interest in efficiency was overwhelmed by his stubborn refusal to fund or pay relief or unemployment benefits directly to those in need, even as he channeled Federal loans – often uncollectable - to states to do so

• Hoover was not only more or less the inventor of TARP, but the inventor of farm aid and of national emergency relief and rescue, but could not see the Depression as much of a “natural” disaster as a flood

https://docs.google.com/viewer?a=v&q=cache:BiGMjAdgwxIJ:www.ncsl.org/print/fiscal/statefinancegreatdepression.pdf+private+charities+during+the+great+depression&hl=en&gl=us&pid=bl&srcid=ADGEESgR-owKl4RAdlCl8wSeVR18i5JoOWEw40b-RkUJH4E66JYzw1Oy4U7teosf1iA-MfkZUIPby0wdhTDPqC0JRVlA8QR72_NHNQ_x2SScouChxkuDvBYhK1AhQ__cUQQVCIw2Q0Du&sig=AHIEtbRRGDXBb9EwW3cUZokGB8OxckoOsQ

Full Employment Act of 1946

• Hoover noted early in the Depression that for the first time the American people refused to accept unemployment and poverty as a fatalistic consequence of economic downturns.

• Post-war public refusal of any “natural” return to depression as wartime stimulus evaporated resulted in the Full Employment Act of 1946 . Following are extracts from a white paper

• At National Association of Manufacturers Second War Congress …in December 1943. Alfred P. Sloan of General Motors spoke of …"raising the standard of living of the people, and for providing a high level of employment.“

• Republican Presidential candidate Governor Dewey … "If at any time there are not sufficient jobs in private employment to go around, the Government can and must create job opportunities.“

• President Roosevelt “…called for full employment with government encouragement and aid whenever and wherever necessary.”

• …opponents …objected to … public works to relieve unemployment… a return to what was termed the "leaf- raking" days of the Roosevelt administration.

• As passed the act called for full employment achieved “in a manner calculated to foster and promote free competitive enterprise and …promote maximum employment, production, and purchasing power."

• Although today’s debit card technology did not then exist, these provisions fit it very well http://archive.org/stream/employmentactof111univ/employmentactof111univ_djvu.txt

About 70% of our “free, competitive enterprise” is found in the consumer economy, so a high proportion of stimulus should be focused on that economic segment

Relevance of the Consumer-centric Stimulus Card Plan for Republicans (and many Democrats)

• Emphasize reinforcement of the private economy – Stimulus card plan offers a “First responder” firefighting tool to inject metered demand

into an underperforming consumer market to build confidence – Consumers make the buying choices so that normal “marketing messages” flow – Shut the program down promptly as the fire is put out

• There is an urgency to do something rather than let matters fester – Chronic under-consumption and under-employment fosters objectionable schemes – Economic capacity not used is capacity lost, while disuse fosters capacity downsizing – Losing several years of a generation to high youth unemployment/low opportunity

creates future long term problems and negative expectations – Schumpeterian enterprise destruction is tolerated only to the extent that it delivers net

positive trend performance. If on a net basis the economy “is broke, fix it.”

• Role of precision and pragmatism – The economy is rarely in general retreat, so use technology to focus stimulus on what

genuinely needs stimulation – Minimize indirection – e.g. if the consumer economy is under-performing, do not rely on

demand injections into infrastructure or public education, etc. – When some bubble bursts, give the fire-fighters tools to put out the fire; leave reform to

the mainstream trend