I don’t understand the “Stimulus is Winding Down” argument

Kevin Hasset said, “It is no coincidence that the private sector is taking off while the government stimulus is winding down.” But the reason stimulus is so bad for the economy, according to anti-Keynesians, isn’t the spending per se, it’s the taxing and the borrowing. And as far as I know, taxes haven’t been lowered in response to the winding down and we still have to pay back all of the money we borrowed.

So, if you, dear reader, believe that the recent growth in the economy is due to the winding down of stimulus spending, what aspect of that winding down is spurring the growth? I’m not being rhetorical, I’m really asking.

The Truth is Too Biased for Politifact.

Update: Politifact changed their rating of the President’s statments on jobs from “half” to “mostly” true.

EDITOR’S NOTE: Our original Half True rating was based on an interpretation that Obama was crediting his policies for the jobs increase. But we’ve concluded that he was not making that linkage as strongly as we initially believed and have decided to change the ruling to Mostly True.

That said, the rest of my post is still mostly true.
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Jared Bernstein expresses his disappointment with Politifact’s lame reasoning for giving President Obama a “half-true” rating on his statements that “In the last 22 months, businesses have created more than three million jobs.”, and “Last year, they created the most jobs since 2005.”

Mr. Bernstein says:

This is not half true or two-thirds true. It is just true.

So why, I ask you, why do they go where they go? Because of this:

In his remarks, Obama described the damage to the economy, including losing millions of jobs “before our policies were in full effect.” Then he described [sic!] the subsequent job increases, essentially taking credit for the job growth. But labor economists tell us that no mayor or governor or president deserves all the claim or all the credit for changes in employment.

Really? That’s it? That makes the fact not a fact? I’ve seen some very useful work by these folks, but between this and this, Politifact just can’t be trusted. Full stop.

Politifact seems to use “half-true” most of the times a politician makes claims about jobs, based on that advise from their “labor economists”. That’s a pretty weak policy, but at least it’s fair. Politifact would be even more fair if they simply used “half true” for everything.

When Romney said “More Americans have lost their jobs under Barack Obama than any president in modern history.”, they rated it as mostly false. It should have been pants on fire. Romney compared Obama’s unfinished term against previous presidents’ final tallies. If you use a fair measurement, by their own words:

So by this measurement, Obama doesn’t have a net loss of jobs at all — in fact, the only president who does is George W. Bush.

Additionally, Romney counts jobs losses that Obama can’t be responsible for, in the beginning of his term before his policies took effect. I don’t think “mostly false” covers it.

But Politifact has policy of aiming for the middle whenever a politician makes a claim about jobs.

So what good are they?

There will be a Recovery

I say in my ‘about’ page that I don’t just parrot other people’s writings, but this is exactly something that I’ve been thinking lately:

(Ezra Klien via Keven Drum )

Because a recovery is likely within five years, whichever party wins the White House in 2012 is likely to get the credit, and so too will its policy agenda. You can see how this will work. If Romney wins the presidency and the economy begins to rebound, Republicans will argue, and America’s experience will seem to show, that they were right all along: The stimulus was useless and the regulatory uncertainty the Obama administration created with its health-care plan and its talk of cap-and-trade and all the rest kept businesses from investing.

I believe that the economy will recover. I believe that we would have recovered eventually no matter what fiscal policies we pursued, but the President’s policies have kept us from crashing much harder than we already have. It would be a shame if credit for the recovery goes to people who tell us that the thing to do during an economic crisis is slash taxes for the wealthy and cut services for the poor.

Vote “Democrat” to Support Small Business and Create Jobs

Republicans want us to think that greater profits for the rich will lead to more jobs and a better standard of living for anyone willing to work. Like most good lies, the hype about low taxes and deregulation is based in some truth.

A small business owner, like the owner of my local feed store, might hire more help if he had more money available. The feed store owner has a couple of people working for him but often works the register or loads and unloads stock in his warehouse. The store doesn’t need any new employees, but if the owner hired someone new he could avoid the grunt work and get home a little earlier. It wouldn’t be a good business decision, but it might be a good personal decision.

Now consider Walmart. If the lines were shorter the customers would be in better moods and the work would be more pleasant for the cashiers. I’m usually in a pretty bad mood by the time I get to the register. But in a large corporation, the people at the top don’t feel the pain of the workers on the floor. Walmart isn’t going to hire more cashiers until the cost of doing so would be outweighed by the increase in customer purchases. It doesn’t matter how angry the customers are as long as they continue to stand in line, and it doesn’t matter how much money Walmart has in the vault. Walmart already enough money to hire more people.

In fact, more money in the vaults of big business is just as likely to result in fewer jobs. At my local McDonald’s, the owner recently purchased new cash registers. They are easier to operate, require less training, and make it easier for the manager to fire workers if he sees fit. A big business owner that suddenly finds extra money available is more likely to invest in automation or overseas facilities than extra labor. A while ago, McDonald’s corporation was testing the idea of long-distance drive-through operators. The person talking to you through that little speaker might be far far away. This would allow fewer people to handle more orders, or allow your order to be taken by lower paid workers in third-world countries. But this kind of change requires investment in research and capital. This is what McDonald’s spends all that extra profit on. Not on American jobs.

There is something that would encourage big and small business to create more jobs: More customer spending. Walmart will hire more workers when the the shelves empty out too fast or the checkout lines get so long that people choose to leave without buying anything. The feed store owner will also hire more help when he has more customers than he can handle.

So, the formula for creating jobs is: Tax breaks for small businesses more customers with more money to spend. That is the Obama jobs plan. Republicans are against this plan because it means higher taxes for billionaires and higher taxes for the kinds of corporations that use capital spending to replace workers with technology or replace Americans with low-paid workers in third-world countries.

Republicans have done a good job convincing Americans that Obama’s fiscal policy has failed us. Indeed, we’re still suffering from the economic malaise that began during the last years of the Bush administration. But Obama’s policies stopped the hemorrhaging of U.S. jobs and held the U.S. economy steady as turmoil overtook the rest of the world. Imagine a doctor gives you medicine which makes you sicker, then you go to a different doctor who gives you different medicine. You immediately stop getting sicker but don’t recover at the rate you were hoping for. Do you go back to the original medicine? Republicans suggest that the appropriate response to disappointment with rate of our nation’s recovery is to return to the kind of deregulation and tax-cuts for the wealthy that caused the economic down-turn.

One of the biggest Republican complaints is that the high corporate tax rate in the US is holding down the economy. But the the OECD has been tracking corporate tax rates around the world, and the data reveals that those countries that have held strongest during the world wide economic downturn, including the U.S.A. and Germany, have higher corporate tax rates than most countries that are in serious trouble, including Iceland, Ireland and Greece. Along with the dismal performance of our economy after the Bush tax cuts (as reported by Slate and several other sources), there is plenty of evidence to suggest that tax cuts for the rich and deregulation for large corporations are not what our economy needs to recover.

Republicans are correct in saying that we can’t keep blaming Bush for the current state of the economy. But that doesn’t mean we should forget that deregulation caused the economic downturn and tax cuts for the wealthy did not help. Job-saving programs and constraints on recklessness have saved jobs and kept the U.S. economy strong despite challenges throughout the world. If there is an argument to be had about president Obama’s policies, it is an argument about whether he gave away too much to his political opponents or achieved the best possible compromises considering his level of support. Either way, the answer is the same. The president needs more support to pass job-creating legislation that is currently being blocked by Republicans.

Don’t be fooled by lies about tax cuts for the rich and deregulation. Support legislation that cuts taxes for small business and creates jobs for Americans. Vote for the those who support honest and sensible economic policy in 2011. Vote for the President and his supporters in 2012.