Back To Basics

Hale "Bonddad" Stewart explains why we need a stimulus, and in turn explains what "stimulus" means. It's been successfully framed by the right as a tax cut and nothing else, but that's completely bogus, so it's important to break down what's happened to the economy and why extraordinary measures must be taken. There are a lot of graphs showing the historically low data points on the economy, and then:

Let's look at this from another angle. The equation for GDP (Gross Domestic Product) is Consumer spending (C) + Investment (I) + Net Exports (E) + Government Spending (G) = GDP.

We've already covered personal consumption. It's dropping hard and fast (see the chart above). As for total private domestic investment, consider the following percentage changes from the preceding quarter starting in the 4th quarter of 2007: (-)11.9%, (-)5.8%, (-)11.5%, 0.4%, (-)12.3%. Because the US is a net importer the exports part of the equation is moot. That means the only thing holding up the US economy is government spending. And considering the mammoth drops in investment and consumer spending in the latest report (-12.3% and -3.5%, respectively) neither of these numbers appears ready to turnaround anytime soon.

There are some Republicans who are arguing that tax cuts are the answer. But there are several problems with that. The first is tax cuts were advertised as an engine of job creation in 2003 and we got one of the lowest rates of job creation on record [...]

In addition, recent history demonstrates that tax cuts will go to savings and paying down debt rather than consumption. In addition, there is little reason for business to invest in production right now.

That leaves pure spending [...] There's an old maxim in business: you've got to spend money to make money. That's where we are now as a country. We've exhausted the possibilities of the buy everything you can on the planet school of economic thought. We're in debt up to out eyeballs -- we are in fact choking on all of the debt we have wrapped up in consumption. We need to change models. That means we need to invest in new technologies and improve our basic infrastructure to attract and support this new business. It's really that simple.

Let me add one other tangible way to prove that government spending is all that's left: the buildup of unused goods in warehouses and stock rooms.

Consumers didn't consume, businesses didn't invest, overseas buyers of American goods didn't buy and unsold products piled up in warehouses in the final months of last year. Those factors combined to drive the economy to its weakest quarter in nearly three decades and signaled that the worst is still to come.

New government data showing that the economy contracted at a 3.8 percent annual rate in the fourth quarter was not as grim as economists had forecast. But the data on gross domestic product, released yesterday by the Commerce Department, were a portrait of an economy in a deep and broadening recession. Business inventories swelled as consumer appetites waned, suggesting that companies will cut their excess stockpiles and curtail new orders this year, pulling down growth in the months ahead.

There's no consumption, no investment, and no trade. Lump-sum payments to consumers will pay down debt and do nothing for the economy. Government spending is the only answer. This is not being done to fulfill a Democratic wish list, it's being done because we have no choice.

We need better surrogates on the stimulus, like Barney Frank, who made some crucial points yesterday on ABC.

DeMint: Let's not say it's a stimulus when it's a government spending plan. All of the things, the needs in our society, education, these are things we debate every year.

Frank: Spending can be stimulus. I don't understand.

DeMint: It's the largest spending bill in history and we're trying to call it a stimulus.

Frank: The largest spending bill in history is going to turn out to be the one in Iraq. If we're going to talk about spending, I have a problem when we leave out that extraordinary expensive, damaging war in Iraq, which has caused much more harm than good in my judgment. I don't understand from my conservative friends, building a road, building a school, helping to get health care, that's wasteful spending. But that war in Iraq, that's going to cost us over a trillion dollars, yeah, I wish we hadn't done that we would have been in a lot better shape fiscally.

Yes. Defense spending is not magical, and federal spending is stimulus. In fact that's ALL it is.

One way to start being a positive surrogate is to call your representative. According to reports, calls are running overwhelmingly against the stimulus on Capitol Hill. Lawmakers use that as an indicator of the relative popularity of legislation. Rush's minions are out-organizing us on this point. The number for the Capitol switchboard is (202) 224-3121. If you think the American economy is worth saving, call all of your representatives in Washington. The details are up to you, but you might want to tell them that they need to pass something that spends because nobody else will.