Just Say No

By Mayor Michael Halfacre, Fair Haven

All Republicans, and all those concerned with our State and Federal government fiscal policy, must take heed of that Reagan-era phrase, and oppose the proposed bailout up for a vote today in the House of Representatives. Republicans must stand together to oppose the pork-laden and, by most economists' accounts, ineffective stimulus package.

Republicans can not be sucked in by a token inclusion of tax cuts. To be bought out in that manner will only serve to seal the Party's fate in the 2010 mid-term elections and the 2012 Obama referendum. The current recession will be "owned" by Obama due to his support of the bailouts during his campaign, his "hands on" work during the transition, and this current massive bailout. Combined, they will seal our economy's and Obama's, fate.

To voluntarily accept ownership of this bad idea in the name of "bi-partisanship" will likewise seal the fate of our GOP.

As a start, bailouts are not good long term fiscal policy. The best explanation I’ve seen comes from Michael Ashton, a very smart trader with Nataxis Securities:

Increasing the debt dramatically– unless the debt simply doesn’t matter – implies that a share of future growth will be diverted to replenish the resources diverted to this crisis. If 5% of GDP is expended, and assuming generously that that buys 5% of current growth, then paying it back will require at least a 1% drag for 5 years or an 0.5% drag for 10 years. That’s the low end, and it assumes that wasteful programs are terminated when they are no longer needed and that stifling tax rates used to repay the debt are eliminated as soon as the debt is paid. It hardly needs to be said that the track record on this score is not good.

In my view, a lower level of debt, a lower level of activity, but a faster rate of future growth is better than a higher level of debt, a higher level of activity, but a slower rate of future growth….If initially we have a 10% greater contraction, but 1% greater growth per year thereafter, then it will take just around 11 years to “catch up” – but 20 years from now we’ll be 10% further ahead than we would otherwise be.

…I would argue that sufficient pain needs to be administered so that we can avoid future “unwinds,” the next of which would surely be worse if the Fed and Treasury are out of bullets.

One reason to worry about the huge government programs is that they crowd out private spending. Another reason is that they will need to be paid for some day through lower spending (unlikely), higher taxes (fairly likely), or debasement of the currency as a hidden tax (that is, inflation…and I fear this too is increasingly likely).

Time and again, history has confirmed that the best way to create jobs and stimulate the economy is through tax cuts. After seven years of New Deal policies, unemployment stood at 20%. But Kennedy's 1963 tax cuts, Reagan's 1982 tax cuts, and Bush's 2001 and 2003 tax cuts all created more than twice as many jobs, respectively, than the Obama package promises.

In addition to the foregoing principals that militate against bailouts, we must ask ourselves, why would anyone give the politicians in Trenton any money? The State of New Jersey has proven utterly and completely ineffective at managing its money.

Whether it was a raid of the pension fund, the tobacco settlement, or the bond proceeds of the Schools Construction Corporation, large sums of money in the hands of New Jersey politicians has never proven to instill fiscal responsibility. And Washington wants to hand over 4 plus billion dollars? No thank you.

For goodness sake, Congress demanded Detroit automakers make reforms to their failing business model before a bailout, but New Jersey will not be required to do anything about its failed business model?

Those of us who care about fiscal policy, and the long term health of the free market economy that our great country was built upon, need to remember the names of those in Congress who have voted for these colossal bailout packages. In Monmouth County, Representatives Holt and Pallone have voted for every bailout presented. When, not if, the Bailouts fail, bailout the Country by voting them out in 2010.