Right Wing Nut House

“Those who cannot remember the past, are condemned to repeat it,”
(Essayist, philosopher, novelist, and non-historian George Santayana)

One of the things I find fascinating about the debate over the stimulus bill is that proponents claim that they have learned the lessons of history both from FDR’s New Deal and the more recent Japanese “Lost Decade” in that while massive government spending didn’t work to bring those economies out of a serious tailspin, this stimulus bill will do the trick.

The reason? The sheer size of the monstrosity will act like a defibrillator and shock the economy back to life. Proponents advance the idea that neither FDR or the Japanese were bold enough in their spending on infrastructure to do any good. What is needed is truly gargantuan government outlays over a long period of time.

Paul Krugman has been advancing this theory as have those who are responsible for pushing the plan forward. Treasury Secretary Geithner:

In a nutshell, Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists and one very important American official: Treasury Secretary Timothy F. Geithner, who was a young financial attaché in Japan during the collapse and subsequent doldrums. One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root.

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

“It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

There is $80 billion in funding for education over the next two years in the current stimulus bill But when you consider the current budget of the entire Department of Education is $59.2 billion, one begins to see the truly massive size of this “stimulus.”

This $80 billion will go to:

Education for the Disadvantaged
Impact Aid
School Improvement Programs
Innovation and Improvement
Special Education
Rehabilitation Services and Disability Research
Student Financial Assistance
Student Aid Administration
Higher Education
Institute of Education Sciences
School Modernization, Renovation, and Repair
Higher Education Modernization, Renovation, and Repair

Building new schools and rehabbing old ones is probably legitimate spending on infrastructure that will pay off immediately and long term. Student aid? With the credit crunch, another legitimate outlay.

Special education is underfunded nationwide but why include it in a “stimulus bill?” Because otherwise the amount being asked - $13 billion - would never make it out of committee much less survive as a separate entity. Hence, they tack it on to the stimulus and threaten “catastrophe” for the economy unless we pass it.

What about spending for higher education? If one dime goes to Harvard we should scream bloody murder. There’s a school with a multi-billion dollar endowment. If they want improvements in their campus or if they want to invite some performance artist who will smear feces all over himself and spout rancid poetry, fine. Let them do it on their own dime.

Ditto for most of the bigger schools out there who have rich and generous alumni. Something is wrong if these institutions get any money from the taxpayer when they are sitting on massive amounts of money in the form of endowments and building funds.

And as far as this stimulus funding “School improvement programs,” do we really want the guy who ran the Annenberg Schools Project in Chicago - a massive waste of $100 million in private funds that didn’t improve Chicago schools one iota - telling America how to improve their schools? And let’s not even bring up his Education Secretary, a former Superintendent of those same Chicago Schools. His stellar credentials include running a school system where barely half the kids graduated from high school and where reading comprehension skills were so bad that it was estimated 30% of high school graduates were functionally illiterate.

The point being, what kind of “lesson” did these jamokes learn from the Japanese and New Deal efforts to jumpstart the economy using government funds? Maybe we should ask the Japanese:

Most Japanese economists have tended to take a bleaker view of their nation’s track record, saying that Japan spent more than enough money, but wasted too much of it on roads to nowhere and other unneeded projects.

Dr. Ihori of the University of Tokyo did a survey of public works in the 1990s, concluding that the spending created almost no additional economic growth. Instead of spreading beneficial ripple effects across the economy, he found that the spending actually led to declines in business investment by driving out private investors. He also said job creation was too narrowly focused in the construction industry in rural areas to give much benefit to the overall economy.

He agreed with other critics that the 1990s stimulus failed because too much of it went to roads and bridges, overbuilding this already heavily developed nation. Critics also said decisions on how to spend the money were made behind closed doors by bureaucrats, politicians and the construction industry, and often reflected political considerations more than economic. Dr. Ihori said the United States appeared to be striking a better balance by investing in new energy and information-technology infrastructure as well as replacing aging infrastructure.

Japan’s experience also seems to argue for spending heavily to promote social development. A 1998 report by the Japan Institute for Local Government, a nonprofit policy research group, found that every 1 trillion yen, or about $11.2 billion, spent on social services like care for the elderly and monthly pension payments added 1.64 trillion yen in growth. Financing for schools and education delivered an even bigger boost of 1.74 trillion yen, the report found.

I can see spending money on some of these education projects, but $80 billion over two years? Sounds to me like an invitation to massive waste. But then, this payoff to the teachers unions (who love to tinker with new ways to make our children ignorant) isn’t necessarily meant to jumpstart the economy but will pay off in the long term. And as Rahm Emanuel has said, “Why waste a crisis?” Use fear mongering to scare people into supporting a bill that spends hundreds of billions in tax monies on programs that otherwise would either not get passed or not receive half the amount earmarked for them in this stimulus bill.

Another huge outlay in this bill is money to the states. This would be funneled through a variety of departments so it is hard to put a number on the total amount but it is well over $300 billion. A lot of this will be targeted monies to education and health care programs. Some of it will be of the “no strings attached” variety which has politicians like Mayor Daley of Chicago licking his chops. Along with money for extended unemployment benefits which is needed in this economy (Note to my rightie friends: There are no jobs out there at the moment - MacDonald’s isn’t even hiring), a case can be made to include a large portion of these funds in a stimulus bill to deal with the crisis.

Here’s the problem: If Mr. Keynes is in charge of our fiscal policy - and he clearly is - what does this mean for the future?

Beyond that, proponents of Keynesian-style stimulus spending in the United States say that Japan’s approach failed to accomplish more not because of waste but because it was never tried wholeheartedly. They argue that instead of making one big push to pump up the economy with economic shock therapy, Japan spread its spending out over several years, diluting the effects.

After years of heavy spending in the first half of the 1990s, economists say, Japan’s leaders grew concerned about growing budget deficits and cut back too soon, snuffing out the recovery in its infancy, much as Roosevelt did to the American economy in 1936. Growth that, by 1996, had reached 3 percent was suffocated by premature spending cuts and tax increases, they say. While spending remained high in the late 1990s, Japan never gave the economy another full-fledged push, these economists say.

They also say that the size of Japan’s apparently successful stimulus in the early 1990s suggests that the United States will need to spend far more than the current $820 billion to get results. Between 1991 and 1995, Japan spent some $2.1 trillion on public works, in an economy roughly half as large as that of the United States, according to the Cabinet Office. “Stimulus worked in Japan when it was tried,” said David Weinstein, a professor of Japanese economics at Columbia University. “Japan’s lesson is that, if anything, the current U.S. stimulus will not be enough.”

In other words, prepare yourself for Stimulus II and probably III, IV, and V. This is the US of A and by God, we don’t do anything half-assed.

It apparently doesn’t matter that this kind of spending didn’t work in the 1930’s or in Japan in the 1990’s. But we are going to plunge ahead anyway and in what can only be termed a radical departure from sanity, we are going to ignore Mr. Santayana - who after all wasn’t even an historian - and double or triple down holding 16 while the dealer has a Jack up. Even if we win, we lose because it ain’t our money we’re betting with. And if we lose, the bottom falls out and the US probably defaults.

Santayana should have stuck to poetry and philosophy.