The Arrogant David Brooks Tells Readers That Stimulus Will Risk National Insolvency: by Dean Baker

[Better Believe It]

The Arrogant David Brooks Tells Readers That Stimulus Will Risk National Insolvency
By Dean Baker
July 6, 2010

David Brooks has decided to jump into the debate over stimulus with both feet. In a column in which he warns against arrogance he tells readers that additional stimulus would: "risk national insolvency on the basis of a model."

Mr. Brooks doesn't tell readers how he has determined that further stimulus carries this risk. He doesn't explain how raising the country's debt to GDP ratio by 4-8 percentage points over the next few few years would jeopardize the creditworthiness of the U.S. government. This is certainly a rather strong assertion, given that even with this additional indebtedness, the debt to GDP ratio in the United States would still be far lower than it had been at prior points in its history.

Financial markets also don't seem to share Mr. Brooks view that national insolvency is a serious concern. The people who are putting their money on the line are willing to buy 10-year Treasury bonds at just 3.0 percent interest rates. That would seem to suggest that insolvency in not a real concern, but Mr. Brooks insists that President Obama should hesitate on stimulus because he thinks that insolvency is a problem anyhow, and the people who disagree with him are arrogant.

There also is a basic question of logic that Mr. Brooks neglects. If the country really did start to face insolvency (i.e. no one would buy its debt), why would the Fed not simply step in and buy up government debt itself, as it has been doing to some extent over the last year and a half? This could cause inflation, which could be a serious problem, but then the issue would be inflation, not insolvency.

Of course, as practical matter, it is more than a little far-fetched to believe that we will have to worry about inflation any time soon. All the measures of inflation are in the 1-2 percent range and headed downward. With the unemployment rate still near double-digit levels and huge excess capacity in nearly every sector of the economy, it would take some real magic to spark inflation. (Since Brooks is anxious to argue that central banks and international financial institutions, who all missed the housing bubble btw, agree that insolvency is a real concern, it is probably worth mentioning that Olivier Blanchard, the chief economist of the IMF, believes that the economy would benefit from a somewhat higher rate of inflation.)
It was also easy to see that the stimulus approved by Congress was inadequate. Demand siders rely on something called "arithmetic" to reach this assessment. After pulling out the $80 billion fix to the alternative minimum tax, which had nothing to do with stimulus, and the $100 billion or so designated for later years, the stimulus provided for roughly $600 billion in spending and tax cuts over the years 2009 and 2010. This comes to $300 billion a year. Roughly half of the federal stimulus was offset by cutbacks and tax increases at the state and local level, leaving a net stimulus from the government sector of roughly $150 billion a year.

Demand siders did not believe that $150 billion in annual stimulus from the government could offset the contractionary impact of a reduction in annual spending by the private scctor of $1.2 trillion ($1.2 trillion > $150 billion). That is how demand siders explained the failure of the stimulus to have much impact in reducing the unemployment rate. Perhaps this explanation is too complicated for Mr. Brooks (he repeatedly complains about the high IQs of the demand siders), but it actually seems fairly straightforward. If he wants to be honest, he could at least say that he doesn't understand the demand siders' explanation, rather than asserting that demand siders do not have an explanation.

Read the full article at:

http://www.cepr.net/index.php/blogs/beat-the-press/the-arrogant-david-brooks-tells-readers-that-stimulus-will-risk-national-insolvency

[Tansy_Gold]

1. Stimulus means nothing if there are no jobs

The last stimulus didn't produce anything even remotely close to "enough" jobs to turn the economy around. It's not a matter of injecting cash into the flow; it's a matter of restarting the manufacturing of goods in a way that employs people making the things that other people buy.

Unless and until the jobs exodus issue is confronted and resolved, no amount of "stimulus" is going to help the economy.


Tansy Gold. NTY

[Better Believe It]

2. So stimulating the economy doesn't create any jobs?

How do you propose to create millions of jobs that the "private sector" can't/won't create now?

Would you be in favor of New Deal type "stimulus" spending along the lines of the WPA and CCC job creation programs and if not, why not?

[Tansy_Gold]

5. No, I'm not in favor of a WPA or CCC type "stimulus" program

because there is nowhere for the money to go but out of the economy.

The reason our economy is faltering is because the foundation of it has been allowed to evaporate: manufacturing.

No matter how much money the government injects into infrastructure projects, eventually that money is going to be spent on goods made in other economies: China, India, Vietnam, Mexico. Unfortunately, when those dollars leave the US economy, they don't come back to keep the economy going.

When the various Roosevelt-era programs were put into place, the shift from an agricultural-based economy to a manufacturing-based economy was still in process. As people were given WPA and CCC jobs, they used that government money to buy US-grown food, US-made goods, pay US taxes.

Our economy currently is about 40% invested in financial services that produce nothing. They do not "create wealth," though they do create "profits." We do not make most of the stuff we need to live. We don't make most of our own clothing, our own shoes, our own radios and tvs and DVDs. Much of our food is imported.

In a subsistence economy, we might be able to get buy growing our own food, bartering for clothes or shoes, and so on. But we are not a subsistence society. We need cash to pay for utilities, for services, for commodities we cannot produce ourselves individually, and for the taxes that fund the "stimulus."

Unless the economy revives to the point of re-generating a cash flow to the government in the form of taxes, there will eventually be an end to the stimulus. The debt has a limit -- even if that limit ends up being the limits of hyper-inflation as worthless paper money is printed by the ton.

Given the current state of the manufacturing base, a WPA or CCC styled program would only be a temporary band-aid that would, within years at best, months at worst, merely funnel the stimulus funds into the hands a very few very wealthy individuals, probably in other countries, and almost certainly safe from any reach of the US government's tax collectors.

Remember that a health economy keeps the money in circulation. It has to keep coming back, going out, doing work, producing "stuff," and coming back to go out again.

If it leaves the circle, it's gone and its power to create additional stimulus is gone.

Much as with the census jobs -- they were needed and they help some people, but the census itself did not stimulate anything. No goods were produced to be sold. What goods were purchased with the census wages were, unfortunately, mostly from other economies. All of those dollars were put into the system and then taken out. Once they're gone, they are no longer providing "stimulus."

If we had a healthy manufacturing base, we wouldn't need WPA or CCC type jobs. And withouth a manufacturing base, no WPA or CCC jobs can sustain the economy.



Tansy Gold, NTY

[KonaKane]

8. Excuse me, but several thousand new NONgovernment jobs in Hawaii

here have been directly attributed to Stimulus money. So if you want to bad mouth the stimulus I would suggest you not come to Hawaii to do it. There are alot of families confidently feeding and clothing their kids now because of it.

[Tansy_Gold]

11. I'm not "badmouthing" the stimulus

I'm saying that it's not going to work if there isn't a fundamentally healthy economy for it to work in.

The "stimulus" saved a lot of teacher and law enforcement jobs last year. But it didn't save the economy enough to generate the revenue stream to keep those teacher and law enforcement jobs THIS year.

And yes, there may have been SOME real jobs created as a result of the stimulus. If there is stimulus money spent on creating manufacturing jobs, then that's great.

But the question was am I in favor of a WPA / CCC type of government program and I said no, I'm not, and I gave the reasons why not. I DON'T BELIEVE SUCH A PROGRAM WOULD RESUSCITATE THE ECONOMY. And isn't the reason for having such a program?

Roosevelt's programs only worked to a certain extent. What actually saved the American economy after the Great Depression was the explosion (pun intended) of the wartime manufacturing economy which quickly converted to a consumer-goods manufacturing economy.

Ernie Smith got a job in the Whirlpool plant making washing machines. He got paid every week and with his paycheck he paid the rent, the water bill, the electric bill, bought groceries, and shoes for the kids. All of that money stayed in circulation in the American economy. But because he was making washing machines, he was creating new wealth, new objects of value.

Whirlpool sold the washers and used the money they received to buy raw materials to produce more washers. Ernie kept working. He used his income to buy all the necessities but now he could afford to buy a washer, too. And an RCA radio. And a new Chevy. All his earnings stayed in circulation. RCA hired Charlie to make radios. GM hired Lou to build cars. And each week Ernie and Charlie and Lou spent their paychecks on more and more consumer goods produced in the American economy.

When RCA and Whirlpool and GM move their manufacturing plants into another country, those jobs disappear from the US economy. 7.9 million of them have, and it's not likely that under the present policies they ever will come back. So what are Ernie and Charlie and Lou supposed to do? If they get stimulus money, where is it going to go? They'll pay their water bill and their electric bill, and those funds will stay circulating in the economy. But as soon as one of them buys a Mexican-made Whirlpool washer, that money goes out of the cycle. Wages will be paid to Mexican workers who will spend it in Mexico and pay taxes in Mexico. Profits may come back in the form of dividends to stock holders, but if you still believe in "trickle down," you might as well quit reading my screed right now, because I consider "trickle down" economics about as stupid and corrupt as, oh, dick cheeeeeney.

Right now, 2010, the US has lost a very large part of its manufacturing base. And it has lost it because the capitalist/corporatist rulers have encountered no resistance to their plans to move production into low-wage economies and suck the life out of the American economy.

Now, if all economies were linked in one, free, equal global economy, where all workers were working under the same laws, protected by the same regulations, and so on, then we'd be fine. BUT THAT'S NOT THE CASE.

If you want to accuse me of bad-mouthing the stimulus or dissing the people in Hawaii, then you'd damn well better be prepared to cite chapter and verse of where I did that. And you'd better be prepared to explain where how and why anything I've said is incorrect or inaccurate.

As I said before, if we had a healthy manufacturing economy, we wouldn't need a WPA/CCC. And without a healthy manufacturing economy, those programs are at best just postponing the inevitable collapse.



Tansy Gold

[bbgrunt]

12. it seems like you are saying that

we either

1. Have to first redo our trade agreements and/or start to resort to trade barriers

or

2. Give up because the forces we are facing are just too great. ("inevitable collapse")

Do you think that if we faced the "inevitable collapse" that anything would improve eventually?--

And by eventually I mean in some time period before the long run when we are all dead?

[Tansy_Gold]

15. We have three options, basically.

1. Change trade agreements, tariffs, tax policy regarding offshoring in order to restore a manufacturing base to the economy.

2. Sit back, do nothing, and wait for the collapse.

3. Continue pumping "stimulus" money into a dying economy without changing the policies that led to the need for the stimulus.


If we do #3, which includes leaving all the policies of outsourcing, low taxes on capital gains, letting the banksters rule, how long do you think the stimulus projects are going to hold off the collapse? Do you think the stimulus can turn around the economy? How will it do that?

If we do #2, how is that any different from #3?

Will #1 make a difference? If so, in what way? If so, how would we effect those changes?


First identify what the problem is. Then determine what caused it. Then determine if your "solution" will get at the cause or only treat the symptoms.



Tansy Gold, NTY

[bbgrunt]

17. thanks for the reply. I agree that most of the

conversation simply by-passes the root cause of the problem: trade agreements, tariffs, and tax policy regarding off-shoring (not to mention the in-sourcing with open borders and allowing the dreaded "illegal immigrants" bear the burden of hate for a low wage policy)

I am distressed that this issue has not been addressed more directly in the corporate media, but not surprised. I am, however, surprised that we don't see the admin. or many dems making the case.

[Tansy_Gold]

19. Follow the money. Follow the money. Follow the money

This is an issue that WILL NOT be covered by the corporate media. They will not allow it to be discussed or even mentioned or even thought about. It would HURT them.

As I've said before, to solve a problem requires

1. Identify the problem
2. Identify the causes of the problem
3. Determine whether the proposed solution addresses the causes or only the symptoms.

IF YOU DON'T OFFER A SOLUTION THAT ADDRESSES THE CAUSES, THOSE CAUSES WILL CONTINUE TO -- DUH -- CAUSE PROBLEMS.


The village of Washington DC is full of idiots.




Tansy Gold, NTY

[blondeatlast]

13. Let's see; the WPA came about when and why? Can someone refresh my menory here? nt

[KonaKane]

14. I hate to break this to you, but relying on manufacturing alone is a loser.

This is not the 1940s anymore.

Starting in the 60s, the basis of our economy started shifting from manufacturing to technology. And that's where it is still going today. The only hope our nation has of creating new jobs is in technology. We have shown the ability to lead in the market, and can keep doing it if we apply ourselves and new fields of technological development. If we tried to turn the clock back and chase the manufacturing ghost, we would be engaging in a masochistic enterprise of self defeat.

You sound impassioned and educated, so I implore you to get with the times.

[Tansy_Gold]

16. I implore you learn a little basic economics

Read a little Kevin Phillips, starting with "The Cousins' Wars" so you get a good grasp of the ideological foundations of American cultural and political institutions.

Then move on to "Wealth and Democracy" and "American Theocracy."

Reliance on "technology" as a foundation for an economy doesn't work if it serves as a conduit to offshore wealth into other economies.

I never said the economy needed to be ALL manufacturing.

Read something other than your basic capitalist economic propaganda. Open your eyes, open your mind.

Yes, I'm educated. I'm also very smart, and if I was never encouraged to admit that during most of my formative years, I'm not going to be shy or reticent about it now. To top it off, I'm old enough to have seen and done a few things first hand.


Tansy Gold, who is NOT stupid and NTY

[ozymandius]

20. That equation needs to be balanced.

The 1960s boom in technology went hand-in-hand with manufacturing. There is really no way to compete effectively with other manufacturing powerhouses like China without a formidable manufacturing apparatus. Andy Grove, who started the chip maker, Intel, laments the decline of manufacturing of America-born technologies. He penned an op-ed for Businessweek in which he surveyed the technological advances in green energy projects - plus the boost the federal government has promised for these projects.

At issue: Chinese manufacturers for photovoltaic technology dominate the American market. How are we going to compete with the juggernaut of rapidly expanding foreign technological know-how combined with unparalleled industrial production that actually delivers products to stores? American technology would die in the cradle under the circumstances.

From the column:

In 1968 two well-known technologists and their investor friends anted up $3 million to start Intel (INTC), making memory chips for the computer industry. From the beginning we had to figure out how to make our chips in volume. We had to build factories, hire, train, and retain employees, establish relationships with suppliers, and sort out a million other things before Intel could become a billion-dollar company. Three years later the company went public and grew to be one of the biggest technology companies in the world. By 1980, 10 years after our IPO, about 13,000 people worked for Intel in the U.S.

As time passed, wages and health-care costs rose in the U.S. China opened up. American companies discovered that they could have their manufacturing and even their engineering done more cheaply overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

Today, manufacturing employment in the U.S. computer industry is about 166,000, lower than it was before the first PC, the MITS Altair 2800, was assembled in 1975 (figure-B). Meanwhile, a very effective computer manufacturing industry has emerged in Asia, employing about 1.5 million workers—factory employees, engineers, and managers. The largest of these companies is Hon Hai Precision Industry, also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenues last year were $62 billion, larger than Apple (AAPL), Microsoft (MSFT), Dell (DELL), or Intel. Foxconn employs over 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard (HPQ), Intel, and Sony (SNE) (figure-C).

http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm

As Mr. Grove suggests - the push toward globalization of our manufacturing base made owners and shareholders happy. The opposite side of that equation shows how globalization decimated the workforce that provided the market for these goods.

Alexander Hamilton's 1791 'Report on Manufactures' remains true today: any nation that leaves its manufacturing base vulnerable to overseas imports will lose its sense of sovereignty. It will, in all aspects of economic performance, lose its ability to compete with foreign competitors.

[girl gone mad]

25. Grove is correct.

Technological innovation follows manufacturing, not the other way around.

[Roland99]

23. +1

You may be NTY but you're GC. :)

[ShamelessHussy]

9. JOBS.

no matter how much material is brought in from abroad, if the GOV creates jobs at home (like the WPA and other GOV programs did in the 1930) via spending, that would be a good thing.

[Better Believe It]

24. And where do you think WPA type public works jobs will be exported to?

Not a single one of those types of jobs can be exported!

And why do you believe that most, if not all, materials used in such government funded public works programs would be imported?

They won't be.

So the bottom line is you're opposed to demanding action by the government to provide jobs for all.

From your comments you seem to favor building a xenophobic movement against those "foreign" capitalists and workers who are taking away "American" jobs.

Sorry. I can't and won't travel down that self-defeating and super nationalistic road.

And I think, at least I hope, that not many will participate in such a movement .... a movement that could be unleashed at some point during this crisis by the far right.

[Tansy_Gold]

26. Actually, I'm neither xenophobic nor hypernationalist.

Quite the opposite in fact.

But if you are talking about reviving the American economy, as opposed to the global economy, then these are considerations that have to be taken.

As far as buying materials for infrastructure jobs, please remember that much of the "buy American" rhetoric was removed from the stimulus bill at the request of our trading "partners" like Canada, who threatened to take the US to court over it.

Raw materials, however, are only one part of the equation. What the wages are spent on also has to be taken into account. If most of our consumer goods are imported, that money flies right out of "the economy."

Remember too that the reference to The Consumer's pre-emininent position in the American economy should not be taken as some kind of exception, but rather it should be looked upon as the rule in a healthy economy. Consumer goods and services SHOULD be the backbone of an economy, not financial services that are merely numbers on paper that serve to transfer earned wealth to the idle, and not military expeditions.

I make no apology for my socialist stance, so don't expect me to defend "free market capitalism" or investors' profits. Nor should you expect me to support asinine and counterproductive legislative nightmares like Arizona's SB 1070. But don't expect me to support the rights of Russian, Chinese, Vietnamese, or any other nationality's oligarchs to enslave the workers whose production provides Americans with cheap consumer goods and American "investors" with obscene profits.



Tansy Gold

[depakid]

3. I love it when an actual intellectual and scholar calls out posers like Brooks

[Vinnie From Indy]

4. The thing about Brooks is

that he is just smart enough to know that his gravy train only runs if he spouts the general consensus idiocy cooked up by the likes of Rush Limbaugh and Frank Luntz. He has absolutely NO idea about what he is writing, but he does know that he is representing a certain team and he gets paid boatloads of money to spew his nonsense on their behalf.

[Selatius]

6. By the time World War 2 ended, the US borrowed upward of 140% of GDP.

This was done as a consequence of fighting the Great Depression and a fucking world war in both Europe and the Pacific. We won, and we would've paid it all off until Reagan exploded the national debt with his cut and spend policies.

[OHdem10]

7. I will take my chances with stimulus. The Republicans had us hanging

by our fingernails after eight years of their rule.

I would rather limp along at slow growth of Obama
than be in a Depression. In a Depression the unemployed
would be much farther up the food chain(high incomes would
have been hit much much harder.)

Put the Republicans in power, Mr Brooks, and they will ruin us.
Mr. Brooks, you might feel some pain.

[Demeter]

28. The High Incomes WERE Hit REALLY Hard

That's what Paulson's and then Geithner's bailouts were all about--restoring the wealth to the wealthy. 13 TRILLION dollars vaporized in weeks around the globe. And if the Too Big to Fails had been allowed to go belly up, we would still have a budget. It might even be balanced by now. Probably would have ended the wars, too.

[nilram]

10. good stuff! k&r!

[jtuck004]

18. Funny how everyone has a little piece of "correct".

We need a stimulus, much bigger than b4 (they gave Wall Street 14.4 Trill, perhaps we could get a third that size?)

We need manufacturing, and silicon is the way to the future - China has 40 plants either in production or under construction, because they want to own the alternative (solar) energy market and computers. In Foxconn's Longhua plant they have 10 workers making the Apple stuff we buy for every 1 (that's one) worker in the U.S.

And although a WPA-type effort would do us a lot of good, articles like this one show that when they get their paycheck the money will be going to China, who already has http://seekingalpha.com/instablog/282191-dr-o/17899-china-2-trillion-dollars-looking-for-commodities-to-buy">a couple trillion U.S. dollars in reserve and is looking for more. Wonder what they are going to do with that...

So we also need to educate workers on how to own assets, build plants and take inventions to make them factory compatible, raise trillions to rebuild manufacturing and technology, figure out how to replace oil, discover how we are going to feed all our people since we no longer have enough arable land to grow sufficient food without petroleum-based fertilizers...

We could try a trade war, but it will be a body blow to our way of life, and I don't know if America has the stomach to fight like they did in the mid 40's - and it will be a bloody fight. Easier if we did it gradually, but few seem to see the urgency. Most likely everything will slowly downgrade to a few wealthy people, some highly technical folks, and 2-3 times as many unemployed as we have now, for at least a few years.

We should probably get busy.

[Demeter]

27. Circuit Grade Silcon Is Not Universally Available

and refining silicon for solar cells is energy intensive. We are losing that race because of the insanely profit-driven, reality-ignoring, scientifically ignorant policy makers in power today.

[jtuck004]

29. +1

[SOS]

21. Where was Brooks' "concern" between 2001 and 2009

as Little Bush added $4.36 trillion to the national debt?
These right-wing debt hawk articles are politics, not economics.

[Octafish]

22. Under orders from Rev Moon to STFU.

http://www.americanpolitics.com/20060508Scoobie.html