Holtz-Eakin Responds to Summers
Posted on October 14, 2009Holtz-Eakin Responds to Larry Summers
Former Congressional Budget Office Director Doug Holtz-Eakin wrote a persuasive memo to Congressional Republicans putting into perspective the White House strategy on the economy and jobs. House Republicans wrote a letter last week to the President asking him to work with them on a job creation strategy.
Larry Summer’s response to the GOP was basically, thanks but no thanks. We got it covered.
But as Holtz-Eakin points out, they don’t have anything covered.
Here are some of the main points of Doug’s memo:
The issue is the future: Jobs keep disappearing, unemployment is expected to keep rising, and the Obama Administration’s only apparent plan is to double down on a failed strategy for economic stimulus.
• Mr. Summers devotes about one-half of his response to a slanted review of economic history under Presidents Clinton and Bush. Maybe he should be back at Harvard.
• What Mr. Summers leaves out is probably more important than what he touts.
o His letter contains no mention of the Federal Reserve Board’s aggressive monetary policy. Given standard lags in the response of the economy, the cuts that began in mid-2007 are likely the greatest source of stimulus.
o The market rally and easing of credit did not begin with the passage of the stimulus bill. Instead the market rally more closely coincides with the March announcement on mark-to-market accounting.
• The stimulus bill was poorly designed
o That’s probably one of the reasons why we’ve lost 3 million private-sector jobs since it became law. A minority (under $300 billion) of the near trillion-dollar bill cut taxes, and very little cut marginal tax rates. The result was no real improvement in economic incentives.
o One-third of the bill was devoted to state-local governments – with little stimulative effect. State and local governments would be better served with real stimulus and a stronger economy.
o The remainder is an expensive down payment on the Obama agenda – not stimulus.
• Misplaced focus. As Leader Boehner and other Republican leaders noted in their letter to President Obama last week, the vast majority of job loss continues to be in small businesses (those with under 500 employees) and recently in the smallest of those (under 50 employees). Despite this, the Administration “stimulus” bill gave small businesses short shrift – including only a few provisions and those only at the insistence of Republicans.
• The Administration fails to recognize that their policy agenda is the problem. Why would a small business hire new employees when faced with higher taxes (raising the top two rates), a tsunami of federal debt, higher energy prices and intrusive regulations (Waxman-Markey climate bill, EPA regulation of carbon), reduced trade opportunities (protectionist policies), unionized workplaces (card-check legislation), and potentially costly mandates (health care reform).
• The Obama Administration’s claims of fiscal responsibility are both hypocritical…
o Summers’ attributes the rising federal debt to the past failure to “pay for” the 2001/2003 tax acts and the Medicare prescription drug act.
o The Administration has no plans to pay for extending their preferred aspects of those same 2001/2003 acts and no plans to pay for increases in Medicare reimbursements.
• …And laughable:
o Despite repeated attempts to blame all fiscal woes on the previous Administration, the facts show that under Republicans the deficit never exceeded 3.6 percent of GDP and at the close of fiscal year 2008 the debt-to-GDP ratio was 40 percent.
o The CBO indicates that under the Administration’s plans, the deficit will never fall below 4 percent of GDP and the debt-to-GDP ratio will be 82 percent and spiraling upward.
o Ten years from now, long after the recession, financial crisis, and Bush Administration are distant memories, the Obama Administration’s agenda will lead to a $1 trillion dollar deficit, $800 billion of which will be needed just to pay interest on their previous profligacy.
• The Obama Administration is planning a tidal wave of debt, and is still willing to embrace fiscally-dangerous health care “reforms.”
o The Senate Finance bill creates an expensive new entitlement that grows at 8 percent as far as the eye can see – faster than the economy or taxes. (The House bill is worse – including massive tax hikes, job-killing mandates and premium increases with a more than $1 trillion price tag.)
o The Finance bill “balances” only by ignoring the cost of a Medicare doctor’s payment fix, pushing expensive Medicaid costs off to the states, and relying on unprecedented, sustained provider cuts in Medicare.