Cato Institute NYT Ad Attacks Obama's Stimulus Bill: Fair Play or Foul?

A BUZZFLASH NEWS ANALYSIS
by Meg White

The Cato Institute, a libertarian think tank based in Washington, DC, took out a full-page ad in several national newspapers today telling Obama he's wrong on the economic stimulus package.

The ad said, "We the undersigned do not believe that more government spending is a way to improve economic performance." The "undersigned" amounted to around 200 people, mostly U.S. professors, with some Nobel laureates thrown in for good measure. You can view a PDF of the ad here.

The ad struck me as provocative. Maybe it was the "with all due respect Mr. President, that is not true" in bold letters underneath a quote from President Barack Obama about the need for a government stimulus package. Can "with all due respect" even be used without ironic or sarcastic intent these days?

I was curious where the undersigned came from, so I called and spoke with a few of them. The first professor I talked to was George Langelett at South Dakota State University.

"Sometimes we sign off on these things," Langelett said, adding that he hadn't seen the final ad. I read him the text of the ad and he filled me in on his unsurprisingly more nuanced point of view. To him, it's more about the fundamentals of our economy.

"The system is broken," he said. "We need to solve the underlying issues."

Langelett said the way troubled assets are priced and the fact that many aren't listed on the balance sheets of the banks that hold them are two huge problems. Until we make the system more transparent, he said, we're "throwing money down a rat hole."

As for the stimulus package itself, he said it may give the country some temporary relief and some time to figure out how to fix that broken system.

"In some ways it's a Band-Aid," Langelett said. "We're trying to give states and companies a lifeline and more time."

Others who signed the ad didn't necessary agree with the Cato Institute's basic idea that the stimulus should not include government spending.

Kishore Kulkarni at the University of Denver said he didn't think government-directed stimulus was all bad. He just thought the stimulus package passed in the House didn't have enough tax cuts. It's estimated that the House bill is approximately 30 percent tax cuts, while he'd like to see something closer to a 50/50 split.

In fact, the more I talked to these economists, the more nuanced the story became.

Gary Quinlivan, with the Alex G. McKenna School of Business, Economics and Government at St. Vincent College in Pennsylvania, said that all economists agree that the government should spend something on education and infrastructure; it's just "a matter of degree." Quinlivan's main concern with the current stimulus bill is the high probability of pork-barrel spending. "I don't think it will be targeted enough ... a lot of that is going to go to special interests," Quinlivan said.

Not that his community will be left in the dust. "I guarantee our area will do well, because we've got John Murtha," he said wryly, referring to his Congressman's reputation for bringing home the bacon.

J.J. Arias at Georgia College & State University is another professor who signed onto the ad. He said government spending is "more acceptable" to him if it is "timely, targeted and temporary," as Obama's economic advisor Larry Summers promised Congress.

For some perspective, I thought I'd call someone who wasn't on Cato's list. Turns out, the Hill is where all sides come together. After all, it's easy to see there's a lack of economic geniuses in Congress.

"You can't really trust the political hacks in Congress to spend the money correctly," said Richard Kolsky, a marketing professor and former White House economist.

Kolsky also agrees with Arias' requirement that spending be "timely, targeted and temporary." He said there should be a "half-life" to determine when to phase out the spending.

The agreement ends somewhere around here for Kolsky. Though Kolsky agrees with this one conservative argument against the stimulus package, he still believes government investment can help us get out of our recession and that private spending cannot.

Kolsky said private companies do not benefit enough from building up the "public good" to justify the outlays. He said that, in theory, a private industry or bank, when given a tax cut should reinvest that money. But in dire economic times such as these, he thinks smart business people will just sit on the cash.

"That's where the private sector [theory] collapses," he said.

For Kolsky, it's more about the final result of investment. Government spending, if done correctly, can mean not only new jobs but also training and even the creation of new industries such as green technology. And with the nation's infrastructure grade falling to a D-minus earlier this month, it's not like there isn't work to be done.

It turns out that more than the "with all due respect" line was linguistically backhanded in the Cato ad. Kolsky characterized the scathingly negative reference to Keynesian economics as "a little bit humorous."

Keynes was an economist during the Great Depression who advocated for government spending on public works projects to get the nation out of its economic turmoil. Kolsky pointed out, however, that tax cuts, which are advocated by Cato, are also Keynesian by definition.

Keynes famously suggested that paying people to do nothing but dig ditches and fill them in again would boost the economy because they could at least put wages back into the system. Kolsky called former President George W. Bush "the ultimate dumb Keynesian" for how he spent government money on both tax cuts and foreign conflicts.

"Think of Iraq as digging holes. In fact, it's digging holes and leaving them there," Kolsky said.

One common theme for the Cato economists I spoke to was the complaint that a cost-benefit analysis had not been run for the government spending. In other words, how do we know that we're not building bridges to nowhere? But no one argued against repairing broken bridges.

Ultimately, there are many ideas of how to get the country out of this economic crisis, and Cato's ad may have been painting with a broad brush.

"In a one-page ad, you have to simplify the issue," Arias said of the Cato ad.

There's enough fighting in Congress that the American people might be best served by economists who can work together. Kolsky thought that Obama might do well by appointing a board of leading economic experts to oversee how the stimulus money is spent, and to ensure pork has no part in the decision-making process.

"We really need everybody to work together on this."

A BUZZFLASH NEWS ANALYSIS