History Shows Big Spending Can Prolong Recession

Sen. Kay Bailey Hutchison on the new "New Deal"

Capitol Comment
Jan. 30, 2009
by: Senator Kay Bailey Hutchison

In one of history’s more candid reflections, Henry Morgenthau, Jr., Treasury Secretary under President Franklin D. Roosevelt, confessed, “We have tried spending money. We are spending more than we have ever spent before and it does not work.” Just six years after crafting the New Deal, Morgenthau declared that their efforts to create jobs and restore America’s depression-ravaged economy by expanding the federal government to unprecedented levels had been a failure. By Morgenthau’s own assessment, the New Deal saddled our country with “as much unemployment as when we started…and an enormous debt.”

More than 75 years have passed since FDR signed the New Deal into law, and many noted economists are studying the Great Depression and trying to learn from the experience. In 2004, a team of UCLA economists concluded that the policies of the New Deal, which suppressed competition and kept unemployment in the range of nine to 16 percent, actually prolonged the Great Depression by seven years.


Amity Shlaes, an economic scholar and Great Depression historian, has argued that the sheer “arbitrariness” of the New Deal actually exacerbated the crisis. The National Recovery Administration, the operative arm of the New Deal’s competition code, failed to establish clear, actionable policies for businesses to follow. Instead, some corporations got sweetheart deals, while others were unduly penalized. As a result, businesses stopped investing in equipment, hiring came to a halt, and the markets froze. Many economists conclude that the New Deal fostered uncertainty, which was salt in the wound of the American economy.

As in 1933, today our nation is confronted with an economic crisis that grows worse each day. The burst of the housing bubble and the subsequent credit crisis has badly impaired our financial markets. Many individuals and small businesses are struggling to get loans, and the home foreclosure rate is rising. Large corporations, once deemed “too big to fail,” are now teetering on the edge of insolvency. In December, the nationwide unemployment rate reached a 15-year high of 7.2 percent.

Some in Congress are rallying around a “solution” that sounds alarmingly familiar: spend more than we have ever spent before. Literally. And the nearly $900 billion stimulus measure that the House passed and the Senate will consider has many deficiencies.

First, the federal government doesn’t have the money. Today, Washington is running an all-time record annual deficit of $455 billion, and that deficit is projected to reach an astounding $1.2 trillion this year. In addition, the gross federal debt is $10 trillion, or almost $33,000 per U.S. citizen. We are approaching a tipping point whereby creditors will be unwilling to buy government debt.

Second, even if we could afford it, this bill isn’t actually stimulative. With any stimulus package, our goal should be to swiftly pump money into the economy, create jobs, and free up credit. The non-partisan Congressional Budget Office (CBO), which analyzes the financial dimensions of legislation, estimates that only 64 percent of the funding in the Senate bill would actually be spent within the next two years. Market trends indicate that even without government interference the economy should begin rebounding on its own within the next two years; at which point, “stimulus” spending would only add to our debt burden rather than help the economy.

Ultimately, this “solution” will result only in the accumulation of greater debt that will fall on the shoulders of our children and grandchildren, while not providing the stimulus we need today. Moreover, it will leave us vulnerable to future economic challenges. A better proposal would emphasize tax relief so that individuals and businesses can have more capital to inject into the economy, thereby encouraging private sector job creation. It would also guard against massive government expansion. In short, we should promote permanent private sector jobs, not a permanent increase in spending and debt.

I am eager to work in a bipartisan fashion toward a speedy and sustainable recovery. But we have to ensure that any stimulus package is balanced, reasonable in size, and targeted specifically to job creation, keeping people in their homes, and overall economic growth. The plan before us lacks these objectives. What we have learned from those before us is that excessive spending may prolong a recession. Moving forward, we must carefully consider the spending decisions before us.

Kay Bailey Hutchison is the senior U.S. Senator from Texas and is the Ranking Member of the Senate Committee on Commerce, Science, and Transportation.

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Keeping Americans Connected in the Digital Age

Texas' Senior U.S. Senator shares her thoughts and priorities on the broadband opportunities offered by the digital television conversion.

Capitol Comment Jan. 23, 2008
By:Sen. Kay Bailey Hutchison

Recently, I outlined my goals for keeping Texas and the United States connected through our national highway system and commercial and passenger air transportation. As the Senior Republican on the Senate Committee on Commerce, Science & Transportation, I am also focused on another kind of connectivity: telecommunications. Over the past several decades, America has seen a rapid advancement in communication technologies. While most citizens enjoy its benefits, we have not kept pace with other nations and the advantages of connectivity have not reached all our citizens. We must find ways to leverage new innovations to expand their reach and improve the lives of all Americans.

Perhaps the most pressing priority facing us this year is the Digital Television (DTV) Transition, during which broadcasters nationwide will switch from an analog format to digital broadcasting. Congress mandated the transition to digital broadcasting in 2006 to free up broadcast spectrum for important public safety activities that will increase the nation’s ability to respond to terrorist attacks and national disasters.

For more than a year, the federal government and the broadcasting industry have worked to inform the public about the transition and to help consumers prepare. The transition date had previously been scheduled for February 17. However, in January, a senior official in the Obama administration called for postponement of the transition, citing dwindling funds for the federal Coupon Program, which helps consumers buy converter boxes at a discounted rate.

Initially, I had serious concerns about shifting the digital television transition without a sound plan to inform consumers and resolve the converter box coupon shortage. But Commerce Committee Chairman Jay Rockefeller has worked with me to address many of my reservations with the initial proposals to move the date. Once legislation is enacted to reschedule the transition, the changes I worked to secure will help consumers whose coupons have expired to apply for new coupons. Other modifications to early delay proposals will allow prepared TV stations to move forward without the added costs of operating multiple broadcast facilities. Moreover, I have received assurances that there will be no further postponement, and that we will bring the transition to a conclusion this year. Significant challenges remain, however, and I will continue working with my colleagues in Congress to ensure a smooth changeover to digital television for all Americans.

Another telecommunications issue that begs the Senate’s thoughtful consideration is access to the high-speed communication service known as broadband. Most in Congress agree that the widespread availability of high-speed Internet will create jobs. Moreover, in heavily rural states, like Texas, broadband deployment will expand educational opportunities through distance learning and improve the delivery of medical services and information through telehealth programs.

Where lawmakers tend to disagree, however, is on how to deploy broadband. Some in Congress would like high-speed Internet access in the U.S. to match that of urban centers like Hong Kong and are ready to spend hundreds of billions of dollars to that end. There are two problems with that approach. First, the U.S. is geographically and demographically diverse – what makes sense for New York City might not work in the Texas Panhandle. Second, it isn’t cost-efficient. Even if the federal government builds a nationwide fiber-optic network, there is no guarantee that all consumers would subscribe to it. Instead, I am hopeful we will adopt incentives for investment by individuals and companies through changes in tax treatment, enhanced bonding authorities for broadband construction and targeted grant programs. This will allow the marketplace to determine what technology is appropriate for a community and how best to deploy it. In the meantime, broadband mapping efforts, which collect data on internet use, will help us better target our efforts.

Finally, just as Congress must support efforts to upgrade and expand telecommunications technology where we need it, we must limit it where it can do harm. In January, Rep. Kevin Brady and I introduced a bill to prevent prison inmates from using smuggled cellular phones, which are often used to orchestrate criminal enterprises and harass or threaten public officials from behind bars. In Texas, death row inmate Richard Tabler used a smuggled cell phone to intimidate a state senator. Current law prevents any kind of interference with wireless services. Our legislation provides a reasonable process for approval and use of jamming technology without compromising public access to 911 and emergency services or infringing on legitimate users’ rights.

This year in the Senate Commerce Committee, I will work to advance sound, practicable policies that will keep Americans connected and allow our nation to keep up in the fast-moving digital age.

Kay Bailey Hutchison is the senior Senator from Texas and is the Ranking Member on the Senate Committee on Commerce, Science and Transportation.

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How Government Interference Hurts Consumers

Bill Peacock argues against government over-control.

By:Bill Peacock

A column in Monday’s Wall Street Journal on the bailout crisis said, “It's now clear that the data that banks used were distorted by years of government initiatives to promote homeownership.”

For those of us who believe in the superiority of free markets over government regulation, it was quite clear before the fact that government intervention would distort the markets. And that’s the problem today. Government intervention to force the “process of discovering the full losses” will only further distort the markets and make a bigger mess. Just like government intervention caused this mess in the first place.

Another example: In Texas a few years back, the government tried to help consumers by forcing insurance companies to use a common form for offering homeowners’ insurance. The common form was designed to be easy to understand, force companies to offer certain coverages, etc. All good and fine until a court decided that the form didn’t really mean what its clear language said. So companies had to offer mold coverage. Suddenly, Texas had a mold crisis, with everyone discovering life-threatening mold in their homes. Claims rose so fast that premiums skyrocketed.

A few years later, companies were finally allowed to use their own forms, and the mold crisis was over. But not before Texas consumers had been socked for a $900 million increase in homeowners’ insurance premiums to pay for mold remediation efforts that dried up once mold was no longer covered by insurance policies. Seems as if mold wasn’t a health problem after all, but folks just got all stirred up by the news coverage and easy access to insurance dollars. The whole exercise simply transferred wealth from one set of consumers to pay for the remodeling of their homes.

Government intervention just doesn’t work, no matter how well intentioned or intelligent the interveners are. Unfortunately, too many folks won’t acknowledge this until after the mess has been made and consumers have to pay the cleanup costs – no matter how many messes the government makes.

- Bill Peacock

Mr. peacock writes regularly for the Texas Public Policy Foundation

Reprinted by permission

The original Article can be found at http://www.texaspolicy.com/legislativeupdates_single.php?report_id=2401.

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Media Bias Evident Over Inauguration Costs

Making the rounds on the blogosphere is an arguement over differences in the tone of coverage on Bush / Obama inauguration costs.

OK, I'll admit it. I am one of those conspiracy theorists who sees a blatant bias in the press coverage of conservative and liberal politicians by the main-stream media.

And while the tilt I see in the coverage of congressmen, senators and governors is bad enough, at the presidential level, it's almost criminal.

Having been, of late, more concerned with local headlines than national, I must admit I let the cheerful coverage of President Obama's inauguration cost get by me. Never to fear, though. Some of my hawk-eyed fellow Opinionistas not only spotted the disparity, but they are raising a stink about it.



Clay Waters, a columnist over at NewsBusters, sums up the situation best:

"At a time when the United States is fighting two wars and faces a severe recession and huge budget deficits, the inauguration of Barack Obama as the nation's 44th president is estimated to cost $45 million. Bush's 2004 inauguration cost roughly $40 million. But though the figures are similar, there's been a major shift in the tone of coverage at the New York Times.

While the Times spent much of January 2005 making clear its disapproval of Bush extravagantly celebrating his inauguration during wartime, that concerned tone is conspicuously absent from the Times in January 2009, although the country is not only still at war in Iraq and Afghanistan, but also in danger of a deep recession. The difference? Perhaps because this time, it's the Times's favored candidate who is readying to assume the highest office."

Read the complete piece here.

The internet row quickly devolved into a juvenile game of who spent more, with less credible sources on both sides working cost figures to their own advantage. The commonly circulated figures at right-wing sites are Bush $42 million, Obama $120 million.

About.com ran the numbers, and under the title of "Urban Legends", they concluded that the real tallies, once the higher attendance figures for Obama are factored in, are probably fairly close to even, saying:

"The $42 million cited for Bush, while roughly accurate, doesn't include the cost of security and other incidentals covered by federal and state governments. The $120 million cited for Obama (which is actually a bit on the low side) does include those costs. It's a false comparison.

Traditionally, everything except security, clean-up, and the swearing-in ceremony itself is paid for via private donations. By most estimates, the Bush inaugural committee raised and spent about $42.3 million. At last report, the Obama inaugural committee had raised and spent almost exactly the same amount ("more than $41 million," according to the Associated Press)."

I won't go into the math, because I'm willing to stipulate that Bush and Obama spent roughly the same amount of money.

What I will get into is the difference in tone. For example, a few headlines from the time period surrounding Bush's 2005 inauguration:

"Republicans spending $42 million on inauguration while troops Die in unarmored Humvees"

"Bush extravagance exceeds any reason during tough economic times"

"Fat cats get their $42 million inauguration party, Ordinary Americans get the shaft"

Now remember, the same wars are still going on, topped with an economic meltdown of global proportions. With that in mind, now take a look at some headlines from the last few days:

"Historic Obama Inauguration will cost only $120 million"

"Obama Spends $120 million on inauguration; America Needs A Big Party"

"Everyman Obama shows America how to celebrate"

"Citibank executives contribute $8 million to Obama Inauguration"

Citibank? Can you imagine the outcry that would have gone up had Bush taken donations from a fat-cat bank in this anti-Wall Street climate? I can.

And what Everyman gets to spend $120 million on a kegger?

C'mon, reporters. Play fair. For once.

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