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Is it time for more economic stimulus?

Should the evidence that our already-weak economic recovery is getting weaker, coupled with news from Europe that five countries have officially slipped back into recession, raise the specter of another stimulus package here?

If our recovery doesn’t regain momentum very soon, a serious look at another round of stimulus spending should be in order. It won’t be easy, of course. It will trigger an outcry about deficits and debt, the latter already surpassing $15 trillion and rising. We’ll hear terms like “unsustainable” and debt “heaped on our grandchildren.” And, the entire political harangue will likely take our focus off what should be most important and practical – “it’s the economy, stupid,” as Bill Clinton’s adviser James Carville famously said.

Growth should trump debt, claims Steve Conover, who has a doctorate in political economy, writing for the American Enterprise Institute. “In order to make clear the dialogue about the debt, it is first necessary to understand who owns it,” he explains. Here’s how it breaks down, according to reports from the Federal Reserve:

The largest holder of our government debt is (drum roll) – the government (31.2 percent). It owes the Social Security trust fund that’s been investing in U.S. T-bonds. We, the American public, come in second with 26.3 percent. The Federal Reserve is next at 11.1 percent. The remaining 31.5 percent is held by foreign central banks and individuals: China at 7.5 percent, Japan 6.9 percent, United Kingdom 2.8 percent, OPEC 1.5 percent and all other countries 12.7 percent. So, just how do we wrap our arms around this?

Contrary to political rhetoric, seeing the $15 trillion debt as something our grandchildren will have to pay off is the wrong focus. The fact is investors mostly opt each time their bonds mature to rollover into another T-bond. But, a very key metric used by investors is the level of “interest bite” i.e. that portion of the federal tax receipts needed to pay the interest on the debt. That is viewed as the measure of likelihood of repayment. And currently there’s good news there that seems to escape daily reporting.

While our national debt level might be rising, the interest rate on new debt is close to zero. That low interest rate results in a near-zero “interest bite” on any level of debt. Accordingly, the “interest bite” has been between 9 and 11 percent of tax receipts during the last few years, substantially lower than the 19 percent we topped out at during the Clinton presidency.

Not to be overlooked, however, Conover accurately warns that we must be aware that when the debt level rises, as it is today, any increase in the interest rate will quickly cause the “interest bite” to go up, too … unless it’s offset by additional tax receipts generated by a growing economy. There it is again – the need to focus on stimulating the economy!

The continuing low interest rates appear to offer an opportunity to stimulate the private sector economy back to real growth with carefully crafted spending programs and primarily with incentives for the private business sector. After all, fiscal intervention by government is only to halt economic decline in the short run. Genuine long-term growth depends entirely on the private sector’s economic success.

I’m no fan of growing debt or budget deficits. There are many ways Washington could reduce out-of-control spending and we should demand it. Nevertheless, with the economy seeming to be faltering again, and everything from borrowing rates to tax receipts solely dependent on the size, health and growth rate of our economy, it could be time to focus more on stimulating growth than worrying about the debt level. How do you see it?

Comments

9 comments on “Is it time for more economic stimulus?

  1. JAC

    l think you’re focusing on the economic situation as a “spending” problem when clearly, your essay delineates a “revenue” problem. We could eliminate the entire spending budget tomorrow and still have the $15 trillion debt. For that, we need revenue. It’s true that half of Americans don’t pay federal income taxes, but they do pay state income taxes, payroll taxes, and a host of other taxes. Many of those 47 percent don’t pay income taxes because they don’t have income on which to pay taxes — they are students or seniors without taxable income, or they don’t make enough money to qualify for the bottom tax bracket.

    Republicans have opposed tax increases of various kinds to help pay down the deficit, largely because so many are beholden to a radical no-taxes pledge authored by Americans for Tax Reform President Grover Norquist. For instance Mourdock (R from IN), who has signed the pledge, seems no different than many Republicans in Congress — he’s willing to ignore the pledge, as long as the only tax increases that pass are on the poorest Americans. But ultimately, it will be tax increases that get us out of our debt and deficit problem because the only way to pay down debt is with revenue. Its always been stated that the original stimulus wasn’t big enough, so YES, it may be time for another. However, JOBS, JOBS, JOBS must be created (we don’t need to keep naming post offices and battling a women’s right to reproductive freedom, which all the current Congress has done) if not by businesses who are enjoying the lowest tax rate ever but aren’t hiring due to low demand thanks to no disposable income in the middle or lower economic classes, then by the government investing in infrastructure so that we start creating the 150,000 or so jobs a month we need that will create the demand to get businesses fired up again. Expecting money to trickle down from the 1% is like waiting for rain in the desert.

  2. Arch

    NO, we shouldn’t have any more stimulus. The money we already spent on stimulus barely helped. Our debt level is at crisis levels. We are at a point where stimulus willl not make enough of a difference and will be more than offset by the negative effect it will have on consumer confidence. The average American has no idea what $16 trillion in debt really means. Most don’t know whether $16billion is too much or if $16 trillion is much worse. 1/3 of our spending is not paid for and goes directly to our debt. Even if our gov’t taxed everyone at a 75% rate for the next few years, it will barely make a dent in the problem. And with each passing day, there are more and more MOOCHERS that not only depend on the productive class to give them money, but demand that the gov’t take more of it. And the crazy thing is that we have an administration that supports this class warfare and does everything in their power to feed that monster. Just look at what it’s caused in Europe. Yet the President, along with the help of the lemmings in the press, are brainwashing the masses and they are signing on. So now, most of America is more concerned with how ROMNEY spends his money than how Obama spends theirs. It’s unbelievable.
    Whenever you have a problem this big, there is a price to pay. We can’t just buy our way our of it. We can’t just put a band aid on it. And most of all, we can’t keep kicking the can down the road. Why do you think the real estate market hasn’t recovered? It’s because the gov’t intervened. The gov’t needs to let people lose their homes that can’t afford it, let banks and businesses fail when it’s of their own doing, etc etc. The stronger business will buy the failed businesses. The smarter and more disciplined homeowners will buy those homes that get foreclosed and the people that lost their homes will rent (which is probably what they should have done to begin with. And the market would recover much faster. Instead, what we are doing is keeping it on life support for years which is just kicking the can down the road. This is EXACTLY what our Gov’t is doing now with spending. They will not bite the bullet and cut spending, yet we wonder why the economy is not recovering and why our debt continues to spiral out of control.
    We have created a lazy, dependent, and enititlement driven society. The fact that our population is getting older (therefore fewer working and paying taxes) compounds the problem. The left will continue to feed the monster in the name of FAIRNESS and compassion, but all they are doing is making people dependent on gov’t and fueling their hatred of the evil rich (yes, the same ones that pay for their entitlements). And in the mean time, that monster elephant sitting on our chest is getting fatter and fatter, slowly taking away our ability to inhale and breathe.
    So NO, I don’t want to give this country any more oxygen because even though it might help for that moment, it does nothing but make the elephant fatter. So as soon as you stop giving the oxygen, breathing will only be that much harder. I say we focus on putting the elephant on a diet and work on getting it off our chest. Despite what you may hear, that doesn’t mean we have to neglect the poor or our seniors, but it does mean we will have to make some tough painful choices. Unfortunately, the few that have proposed some painful but necessary cuts have been DEMONIZED by the press (Paul Ryan, Scott Walker, Ron Paul, etc). The real question is, ARE WE TOO LATE? I don’t think we are, but something will have to be done soon.

  3. Norwood

    NO IT IS A SPENDING PROBLEM!

    If Harry Reid would vote on the over 30 bills that Congress has handed the Senate to pass, throwing borrowed money out the windows of Airforce One and Balance and pass a budget as they are legally required to do…. The people of the United States will be better off. Liberals Freebies is all they want, GET OFF YOUR A$$ and get to WORK. IT IS A SPENDING PROBLEM FOR SURE!

    THEY HAVE PLENTY OF MONEY, JUST IT RIGHT!

  4. C Moore

    I have a few questions.
    How many americans are working at a job vs the total population?
    I think this would be more revieling than the supposed unemployment % number issed weekly.

    What industies, products, etc. do you suggest to stimulate to create jobs?
    We (Government) in the last 30 years have stimulated:
    Aero space
    High tech
    Military technologies (Electronic warfare, Hardware & software)
    Housing for all
    2 out of the US auto companies ( in both cases the orignal stock holders & suppliers got wiped out as part of those deals).
    Green energy (LED’s, Solarpanels, Electric cars, new battery technologies for the E-cars, etc.)
    The gov’t wants to stop investing in carbon fuel sources as we grant money for the Brazilians to do that.
    The space program (shuttle) is done with no carry on or similar sized (money wise) efforts put forth, thought the Russians, & Chinese are investing in those areas.
    We gave up control of the Panama canal which the Panamaians now lease to the Chinese who are widening it.

    What’s next to stimulate?
    This guy PHD sounds like he is Greek.
    We should all be borrowing money & spending it because it is cheap…

  5. Arch

    JAC, are you kidding? Not only do I disagree with you based on my opinions, but you are factually incorrect on many points. I’m not even sure where to start.
    YOU SAY that we would still have the debt even if we stopped spending tomorrow. That is bogus. If we stopped spending (not realistic but you said it), then our tax receipts would pay down that debt. It’s the spending that got us to this point, not the the Bush tax cuts or reduced taxation. That is a TINY portion of the defecit.
    The 47% is all students and seniors huh? You forgot about the many millions of moochers that despite being capable people, CHOOSE to mooch off gov’t either from being lazy, having a bunch of kids, being drug addicts, drunks, welfare, etc. Sure, there are many that depend on gov’t because they have to . And we are all about helping those people. It’s the others that we can’t afford and because of them, we have less to share with the truly needy and a larger debt.
    YOU SAY that it will be tax increases that get us out of debt. That is the most ignant comment of all. You truly have no idea. Even democrats admit that increasing taxes will not put a dent in the problem so they say they want to increase taxes out of FAIRNESS. Obama himself has admitted this just recently along with DNC members Chris Coons, Tim Kaine, and others. They admit that it’s “picking up pennies while tripping over dollars”.
    Republicans aren’t targeting the poor. That is blatantantly false. What is true though is that just 20 or 30 years ago, only 25% or so didn’t pay federal income tax. Now it’s basically at 50%. Many feel that those on the lower income scale should pay something to the feds. What that 50% number doesn’t tell you is how many of those 50% get way more money back than what they put in. There are TENS OF MILLIONS of people that earn $25k per year for example, pay $2,500 in federal income tax, yet get $5k refunds from the IRS. And yet millions of those so called POOR lower income people who benefit from this have a roof of their heads, tv with cable, air conditioning, food stamps, gov’t rent subsidies, ebt programs, and use their income tax checks on frivalous things like upgrading their car stereos, drugs, alchohol, expensive clothing, jewelry, new smart phones, etc. WE need to redefine POOR in this country and make those receiving entitlements more accountable. We also need to start teaching our kids that we no longer can afford to keep paying for all this kids they are having and start phasing out the programs over time, allowing our young people to acclimate to the idea.
    YOU SAY, “the only way to pay down debt is with revenue”. So, it’s that easy right? Why don’t you look up how much we will have to raise taxes in order to pay for it. You don’t think they would have done this already if it was feasable? Are you naive enough to think that raising taxes that much will KILL the economy. That is another well known fact acknowledged even by several in the Obama adminstration. Google it!
    OK, the original stimulus wasn’t enough. We still have some money left on our national credit card before hitting the credit limit. CHARGE AWAY! Max out that baby!
    YOU SAY businesses who have the lowest tax rate ever. Really? The US corporate tax rate is the 2nd highest in the world! Sure, they have tons of loopholes, many of which need to be eliminated, but they are still taxed really high and they also have a tremendous amount of other costs due to overregulation, fees, penalties, etc. Why do you think so many of our fortune 500 countries are moving overseas? It’s to escape the high tax rate and overregulation. That is fact.
    YOU SAY the gov’t needs to invest in infrastrcture so that we can start creating 150k job a month in order to get busineses fired up again. WRONG! holy cow. The gov’t needs businesses to get fired up first, and that increases the revenue, which trickles down to the gov’t. It’s not the other way around. TYPICAL…..you think gov’t creates jobs and gets businesses fired up again. Not only is that possibly the most ludicrous thing you’ve said (and that’s saying alot), all you have to do is look at the last 3.5 years of explosive gov’t growth and spending to realize that simply isn’t true. Ahh, and it’s at the very end that you show your true colors. THE 1 %. You poor thing. It must really stink to be part of the 99%, you and the rest of the occutards.
    LADIES AND GENTLEMEN, THIS IS EXACTLY WHO I WAS REFERRING TO WHEN I MENTIONED “BRAINWASHED” IN MY ORIGINAL POST. THIS IS WHAT OUR COUNTRY AND THIS INDUSTRY IS UP AGAINST.

  6. EPR

    Obviously JAC is well educated and most of what he writes is accurate. However U.S. Corporate tax rates are the highest in the world putting many of our companies at a global disadvantage. The reason that the first stimulus did not help was that it WAS spent on infrastructure. JAC would have us spend even more money on infrastructure but it is more about concrete and asphalt and less about wages. Very poor use of our borrowed money! Yes JOBS are what we need to get the revenue to pay down our debt but HOW. Duh, it seems to me that the way to do this is to get people spending again. The people to start it are the people already WITH money and the very people that JAC and OBAMA continue to demonize and vilify – RICH PEOPLE. Remember, an Obama millionaire is anyone making $250K or more and the very people who were taken out of the economy since he began his run for president. The unintended result was a longer and deeper recession and it will persist if he does not change directions.

    If you reduced the country to a family in the same financial straits, would you recommend that they go out and borrow some more money or would you suggest that they spend less and work their way out. It does rain in the desert but it is unrealistic to think it can turn the whole thing into an Oasis. Sometimes you just have to create your own rain.

  7. CKW

    Since January 2009 Federal stimulus (spending and tax cuts) has totaled over $3.4 trillion. This has worked so well that by all means, lets do more of it! And for good measure, lets raise taxes on the rich (anyone making over $250,000) too!
    That will really help the boating industry take off!!!!

  8. Doug Reimel

    If 50% of the Bureaucratic Red Tape were eliminated along with the hefty government payroll that goes with it, then the economic engine would accelerate on its own and be more efficient. After all would you put your hard earned money, saying of course you had 1 million dollars to spend to create one JOB that pays $40,000 per year and will never generate the revenue to pay the debt. GOVERNMENT IS TO BIG

  9. CaptainA

    NO MORE STIMULUS. We have a spending and revenue problem.

    We need to cut spending on social security, medicare, medicaid, and raise some taxes. It is the only solution.

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