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Views > January 25, 2008 > Web Only

The Stimulus Swindle

By David Sirota

“Stimulus” — you’ve probably heard this nebulous, scientific-sounding word this week. Every politician suddenly wants economic “stimulus,” and wants you to think this “stimulus” is unequivocally good.

But here’s the question: Why are we talking about “stimulus” only now? After all, most people have been hurting for quite a while. Paychecks have been stagnating, foreclosures have become commonplace, health care premiums continue their double-digit increases — and up until recently, conservatives greeted such hardships with saccharine fantasy.

Following government reports showing a surge in income inequality, Treasury Secretary Hank Paulson last year gushed that the economy is “as strong as I have seen it in any time.” In the summer, as the housing crisis exploded, President Bush said the economy was “thriving.” This month, as the Labor Department reported another drop in wages, Republican Rep. Michele Bachmann (Minn.) said not to worry, her state is doing just great because “we have more people that are working longer hours, we have people that are working two jobs.” And with word that there are now 195,000 homeless veterans nationwide, Bill O’Reilly insisted on Fox News that really, “there’s not many [homeless veterans] out there.”

Message: Nothing to see here. The economy is fabulous. Move along.

Lately, though, the rhetoric has switched. Paulson now says there is an “urgent need” for action, and President Bush is demanding a “stimulus” package from Congress.

And that gets us back to the critical question: Why the sudden shift? Because the group demanding help has changed.

Before, it was just commoners complaining — regular homeowners, wage earners, troops coming home from Iraq, you know, the 99 percent of us who can’t afford the thousand-dollar-a-plate political fundraisers.

But now Wall Street is panicking. In the last month, the financial industry’s profit margins dropped thanks to mortgage defaults brought on by irresponsible lending. And when the corporate executives who underwrite campaigns start whining, politicians develop “stimulus” schemes using the blight of layoffs, foreclosures and wage cuts to justify tax cuts for those doing the laying off, foreclosing and wage cutting.

Specifically, most GOP presidential candidates are demanding corporate tax cuts as the “stimulus” to improve American competitiveness, ignoring a recent Treasury Department report noting that the United States already has among the lowest effective corporate tax rates in the developed world. Republicans like John McCain, fresh off a Merrill Lynch fundraiser, say we need not expand unemployment benefits and food stamps to help workers and give the economy a reliable Keynesian boost. No, they say we must hand over more cash to the same financial industry that just gave its executives $39 billion worth of year-end bonuses.

Leading figures of both parties seem eager to help limit the debate over “stimulus” and make the final package a corporate goodie bag. According to the Washington Post, Democratic Sen. Max Baucus (Mont.) asked economists affiliated with The Hamilton Project — a Citigroup-backed think tank — to testify to Congress at its initial hearings on a stimulus package. Labor economists, by contrast, were not invited.

You might think Citigroup’s central role in creating the current financial crisis would disqualify it from influencing legislation addressing that crisis. But remember, Citigroup gives lavishly to Democratic politicians and pays Democratic financier Bob Rubin roughly $10 million a year as a top executive.

Not surprisingly, congressional Democrats appear poised to support a package stripped of increases in safety-net programs and comprised primarily of business tax cuts. This, even though experts agree the former would have an immediate economic impact and the latter will take at least six months to hit. As usual, We the People are told to wait patiently as moneyed interests claim their latest gift from Washington.

President Bush is undoubtedly pleased. He said he wanted “stimulus” built primarily on tax cuts and no new public investment — more proof of his desire to win the Most Out of Touch President title from Herbert Hoover (at least Hoover proposed new infrastructure with the tax cuts he claimed would prevent the Great Depression).

Let’s be clear: There’s nothing inherently bad about Washington interacting with Big Business, and nothing conceptually wrong with “stimulus” as a concept. But as this recession intensifies, there’s a big problem with politicians catering exclusively to Big Business and an even bigger problem with converting “stimulus” into yet another code word for “swindle.”

David Sirota is a senior editor at In These Times and a bestselling author whose newest book, "The Uprising," was released in May 2008. He is a fellow at the Campaign for America's Future and a board member of the Progressive States Network -- both nonpartisan organizations. His blog is at www.credoaction.com/sirota.

More information about David Sirota

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  • Reader Comments

    When I was a kid playing Monopoly on a rainy day, it was common for the winner to keep the game going by giving a few bucks to the other players.

    The big boys today have an added incentive — to shift the blame for letting another bubble to burst during an election year.  Note the rise in bipartisanship here.

    This has been building for years. First the tech bubble and now the real estate bubble. Why nail those who caused these problems (also bipartisan) when it can’t simply be inflated away? And… the big players get to keep their loot.

    Rating agencies were either complicit or negligent, lenders were “generous” in evaluating the ability of borrowers to pay, Congress was busy overseeing elsewhere, the Fed Chairmen, were complicit and the Treasury Secretary joined in the coverup.

    The creative solution? Pass out money to the peasants and pretend it is “just one of those things” and will be managed. Dole out a few bucks and urge them to go spend.

    The long term effect is just beginning. Bits and pieces of the U.S. are being sloughed off to big foreign buyers. We are watching a bipartisan sale of America’s future.

    Posted by whattheheck on Jan 25, 2008 at 8:11 AM

    Insulting is the idea that we are to consume with the stimulus rather than do the right thing and pay off debt. That buying things is better for the economy than fiscal conservatism. I guess I must be dumb as I would assume that the companies that so many Americans owe money to, somehow wouldn’t benefit by having the bills paid down. Wouldn’t the big credit card companies of New York (CitiGroup for instance) welcome some cash after all the billions in write-downs?

    The Bush economic plans (remember after 9/11 we were told to go shopping?) is nothing but imitate the government. The government spends money on credit, so should we. You absolutely never hear anyone in the government explain to Americans that debt costs them more money and that the fiscal and prudent thing to do is to stay out of debt. Yes, sometimes debt is justified when dealing with large purchases long term (homes, cars) but raising debt for simple things such as food, gas, minor consumer items is a sign of lack of spending control. This is truly an imitation of the policies of our national government. Do as we say AND as we do.

    Posted by Jon B on Jan 27, 2008 at 5:16 PM

    “As usual, We the People are told to wait patiently as moneyed interests claim their latest gift from Washington.”

    Since when is a tax cut a ‘gift’?  If you believe that tax cuts are a ‘gift’, then you are making the assumption that the government is the rightful owner of every dime you earn and that we should be grateful when they let us keep the meager scraps that are left over after Uncle Sam takes his stake.

    Keep in mind the idea that ‘big business’ pays taxes is a fraudulent one promoted by the greedy politicians.  Businesses collect taxes, they do not pay them. 

    Where do businesses collect the money they use to pay their taxes?  One of three places:

    1.  By increasing prices on goods and services (consumers pay the tax). 

    2.  By reducing capital investment in the business (fewer new jobs, elimination of jobs, reduce or eliminate raises, fewer purchases of capital equipment, etc.) Who suffers?  Employees and suppliers.

    3.  By reducing dividends paid to shareholders.  Keep in mind that half of American households own stock.  So, its not just the ‘rich’ CEO’s whose dividends are cut - it could also be the widow down the street that relies upon stock dividends for her income.

    If anyone is to blame for the economic problems of today, it is the Federal Reserve and its artificial manipulation of the interest rates; the federal government (Bush admin, etc.) and their profligate spending; and the federal government’s ability to monetize debt (create money out of thin air), which in turn reduces the purchasing power of every dollar that is legitimately earned by working Americans.

    The total debt of the federal government (when including future debt obligations from entitlement programs) is estimated at $50 - 75 TRILLION!  This is debt that will be passed on to your children and grandchildren. 

    Everyone looks to the government for a free handout.  Well, guess what?  There is no such thing as a free lunch. 

    The politicians created this mess, and they have no intention of getting us out of it.

    Posted by JT_Lancer on Jan 27, 2008 at 7:21 PM

    JT, I can agree with much of what you say, but…

    3.  By reducing dividends paid to shareholders.  Keep in mind that half of American households own stock.  So, its not just the ‘rich’ CEO’s whose dividends are cut - it could also be the widow down the street that relies upon stock dividends for her income.

    “Half of American households own stock,” which may be true I’m uncertain, but that isn’t the whole story of that statistic. The total distribution of stock is in the hands of the rich. Something like 85% of stock is held by the upper 15% in wealth.

    Joe down at Widgets Corp with his $2,000 of stock from his 401K plan after a few years doesn’t compare with the true holders of vast fortunes of stock. Joe in fact probably couldn’t tell you which companies he has stock from, compared to say active wealthy traders such as Mark Cuban who have the ability to short the market when it loses value. Joe can’t short his 401K plan. Cuban can make money going down, not Joe.

    (I used Mark Cuban as an example because back in the 2002 downturn he was on CNBC with a crap-eating grin admitting he was shorting. I’d bet my laptop he’s doing it now and making a bundle.)

    Which points to a difference in stock ownership. Those who passively know little about their retirement stocks and those who have active control in both ups and downs of the market. If the world were to ever go through another depression it will be the 401K holders that will get shafted. They will have little control over their losses, much less their jobs I suspect. Most of the rich will get out of the market prior to big losses, can make money going down and even with losses will still have something left.

    I’ve always felt 401Ks were a scam to really allow the rich stock owners and institutional traders to make more money. For instance, if you had started your 401K in 2001 when the Dow was about 11,500 and compare to today you’d have barely made anything. In fact, during that same timespan boring old government bonds actually gave a better rate of return.

    The markets started skying in the 1990s coinciding with the increased use of 401Ks as retirements. The eras before and after the 1990s for the Dow has really been marked by slow growth (with a few exceptions).  The Dow of the 1990s was simply inflation. More people HAD to enter the market, thus more companies HAD to go public to meet supply and demand for 401K plans stocks.  IPOs were all the rage during that era and they got great capitalization because of the demand for stocks in general.

    I would be curious to know the rate of increase or decrease of 401K plans today. With the shifting of jobs out of country, I wonder if it’s barely moving and seeing the lack of IPOs in the last few years they could be related.

    Posted by Jon B on Jan 28, 2008 at 1:44 AM

    To add something about stock ownership by regular Americans. Are 401K plans really a benefit if at the same time people are paying interest on debt? Particularly credit card debt which is at an all-time high for both the amount of credit card debt per household and the amount of households carrying credit card debt.

    Trying to make 5% margin in the market is better than paying say 10% every month on the credit cards? We’ve become a society gambling on the future because we can’t control our present spending. But this is what we are told to do. We are advised to invest in a 401K plan (despite big penalties if we should ever need that money prior to retirement) and relentlessly advertised to consume via credit.

    Posted by Jon B on Jan 28, 2008 at 2:00 AM

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