BUSINESS COLUMN | Rajeshwar: Obama stimulus package lacks sound principles

President Obama’s stimulus package is divisive. He just doesn’t see it.

When a reporter asked President Obama why the Obama-backed legislation had only gotten three Republican votes in the Senate and House combined, Obama responded: “There have been a lot of bad habits built up here in Washington, and it’s going to take time to break down some of those bad habits … I can’t afford to see Congress play the usual political games.” President Obama’s implicit assumption, then, is that opposition to his stimulus package is no more than political gamesmanship. After all, the president has billed himself as a consensus-builder. He’s reiterated time after time that he’s worked hard to build these consensuses. Any disagreement, in his world view, must be disingenuous and partisan. But the consensus-builder-in-chief has begun to see agreement and consensus where none exist.

For instance, Obama believes that there is a broad consensus among economists that the government can spend its way out of this recession. Before being sworn in, he proclaimed, “There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.” But less than three weeks later, a scant eight days after he was sworn into office, the libertarian Cato Institute took out a full-page ad in The New York Times — not to mention the Yale Daily News — assailing the newly inaugurated president’s presumption on all matters stimulus. Over 200 professional economists, including three past Nobel Prize winners, signed on to condemn President Obama’s remarks and state “we, the undersigned, do not believe that more government spending is a way to improve economic performance.”

But Obama earnestly believes in this nonexistent consensus. But there are other ways to stimulate the economy. Less than a year ago, Christina Romer, his newly appointed chair of the Council of Economic Advisors, co-authored a paper which suggested that tax cuts could stimulate the economy more effectively than government spending.

Obama, along with traditional Keynesian economic models, assumes all spending is stimulus. That’s not an exaggeration — these are his own words. At a Democratic gathering a week ago, Obama commented, “You get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is?”

The spending-as-stimulus line that Obama and supporters of the stimulus bill have taken is far from economically sound. John Maynard Keynes himself specified the types of government spending that would smooth out business cycles. Specifically, Keynes argued, the government needs to stimulate private investment and create jobs; the government spending would then be justifiable by virtue of its “multiplier effect” — a modest amount of spending could lead to a great deal of renewed production. Even if traditional Keynesian economics works — and it’s far from clear that it does — the so-called stimulus package is laden with the wrong type of spending.

Wrong-headed spending is precisely what the government excels at. If I give my roommate $5 to clean the bathroom, and he gives me $5 to clean the common room, the GDP has risen by $10, but there has been no “stimulus.” But House Democrats have pushed precisely this type of non-stimulating spending into the stimulus package. Obama let them do it. There’s $198 million to Filipino veterans of World War II, $50 million to the National Endowment of the Arts, $335 million in STD prevention, $400 million for research on global warming and $75 million to help people quit smoking. The Wall Street Journal denounced the bill, stating “about 12 cents of every $1 is for something that can plausibly be considered a growth stimulus.” Indeed, the bill reads more like the DNC’s platform than an emergency stimulus. The bill doubles the education budget, doubles the amount of money going to the National Park Service, and introduces new federal control of private health care. The Journal called it a “40-Year Wish List” for the Democratic Party.

The worst part of this whole messy affair is that Obama — elected in large part due to empathetic qualities — has suddenly gone tone-deaf. He apparently believes there is a broad public consensus behind his stimulus. He is clearly interested in responding swiftly and decisively to the economic turmoil he has inherited. Last week, however, a Rasmussen poll showed that only 37 percent of the public now supports the Obama-backed stimulus. President Obama should recognize honest policy disagreement and hard economic facts for what they are. If he does not, he will squander his reputation as a unifier and foist a monstrous mistake upon millions of unwilling Americans.

Julian Rajeshwar is a junior economics and computer science major in Jonathan Edwards College.

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