10 Absurd Conservative Myths About Obama's Recovery Plan

Here it is: our moment of economic truth. We're standing at that historic fork in the road where the nation decides, now and for the foreseeable future, whether it's going to hang on to the catastrophic assumptions of the free-market fundamentalists and rely once more on the nostrums that have so far failed to fix the mess, or take a bold step down a new, more progressive path that will finally re-empower the American people to build an economy that works for us all.

As usual, the conservatives have absolutely no conscience about what they did to create this mess. If they did, they'd all be holed up in their gated communities or on their private islands, embarrassed into silence at best and terrified of peasant uprisings at worst. Instead, they're jetting into D.C. en masse in a last-ditch attempt to head the country off -- or at least make sure that any money that does get spent ends up, as it always has, in their pockets.

To that end, the self-serving myths are starting to fly so thick and fast that the staff here at CAF has been working full-time to keep ahead of them. Here's some of what they're flinging in this latest B.S. storm -- and what you need to know to fire back.

1. The proposed recovery package is too big.

False. Most progressive economists agree (and Paul Krugman is downright emphatic) that it's going to take a minimum of a trillion dollars of well-placed investment to pull our economy out of this ditch. This is no time for half-measures, blue-ribbon committees, pilot projects, or trial balloons: this is a life-or-death crisis that requires immediate and massive intervention.

CAF Senior Fellow Bernie Horn puts it this way: "The American economy is huge and it’s at a standstill. It’s like a motionless 100-car freight train -- or one going backwards slowly. A small locomotive simply can’t pull it forward. We need an engine large enough to work, one that can create millions of jobs. If anything, a $775 billion 2-year plan may be too small rather than too big."

Dean Baker of the Economic Policy Institute echoed this same thing on MSNBC's "Countdown" last Tuesday night. It's got to be big. And it's got to be now. Anything too small -- or too late -- and the American economy will be at serious risk of stagnating the same way Japan's did in the 1990s.

2. If we can't afford (insert pet project here), we certainly can't afford this.

Yes, we can. What we really can't afford is a huge recession that undercuts the tax base. That's a vicious cycle that will make it increasingly harder to dig out the longer this goes on. The Congressional Budget Office projects that the current slowdown will cost the federal government $166 billion in lost tax revenues in 2009 -- a number that could easily get even larger in coming years if we fall into a real depression. If we get on that trendline, we could lose a trillion dollars in government revenues by the end of Obama's first term. We need to invest what we have while we still have it if we hope to have a strong economy going forward.

This argument is based on the limited view that wealth is mainly generated by loaning or borrowing at interest -- a common enough assumption among financial people over the past 30 years. A more progressive view is that real wealth is generated by labor, combined with access to resources required for production. Putting people to work creates wealth. So does ensuring that our current failing energy regime is replaced as rapidly as possible with one that's infinitely renewable and that we will finally be in full control of. And so do other kinds of infrastructure investments, which form the footing on which a new round of businesses can rise and thrive.

Businesses have always invested their capital to create more capital. The best parts of Obama's proposal involve getting the government to do the same thing. Conservatives are resisting this because don't believe that there's such a thing as the common wealth -- which is how they've rationalized their plundering of our common assets. We need to make it absolutely clear that we do believe in the common wealth -- and that their assaults on everything that allows America to generate national wealth are going stop, right here and right now.

3. It's more important to balance the budget. Fix that, and the rest will take care of itself.

Read history much? Herbert Hoover is history's poster boy for the idea that balancing the budget during a recession is the best way known to turn it into a full-on depression. And that wasn't a one-off: FDR repeated the lesson in 1937, when he succumbed to the pleas of budget-hawk conservatives and tried to balance the budget -- a move that put the brakes on what had, until then, been a solid recovery.

Looking forward, this year's numbers also show the case clearly. Economists are already estimating that spending by individuals and businesses will be off by $300 to $500 billion in 2009. The upshot of this will be millions of lost jobs, which in turn will mean even lower spending and more job losses next year as the country accelerates toward depression.

The only way to halt this slide is for the government to step in and fill the hole with an additional $300 billion-$500 billion of its own spending -- and to spend that money on investments that will create as many jobs as possible. The longer we wait, the more government spending it will ultimately take to pull us out of this -- and the less able we'll be to muster that much cash.

Balanced budgets are important, but not as important right now as making sure every American has a paycheck they can count on. We can't afford to sacrifice the fate of the entire country to this one economic ideal.

4. The worst thing we can possibly do is raise taxes. Or borrow the money, God forbid.

More misplaced priorities.

As for taxes: Obama's already told us, without apologies to anyone, that he plans to raise taxes on people making over $250,000 a year -- the people who've profited most from our current high levels of inequality. Practically, it makes sense to raise taxes on the affluent, since they're increasingly the only ones left who actually have any money. And morally, it's only fair that those who've gained the most from conservative mismanagement of the economy (regardless of their own political leanings) should be the first to pay the bills for it.

As for borrowing: Don't look now, but the whole planet is reeling from financial problems as least as big as ours. Even in the midst of this colossal fiscal mess we're in, if you're an individual, business, or government with excess capital to store somewhere, the USA is still the safest place on earth to park it.

They're so eager for our American brand of low-risk investment that they're even willing to lend their cash to us at interest rates that are very close to zero (and may actually turn out to be less than zero, once you add in inflation). If someone offered you the chance to borrow massive amounts of money without paying interest, you'd do it, right? Well, that money's already sitting on the table, just waiting for us to put it to work jump-starting our economy again. We'd be fools not to take it.

5. When you want to stimulate the economy, tax cuts always beat government spending hands-down.

Another conservative fantasy that disintegrates on contact with reality.

The chart that shows the effectiveness of various forms of government stimulus, based on recent attempts, is here. (Conservatives will be infuriated to learn that food stamps come out on top, generating $1.73 for every dollar spent. Infrastructure investments come in a respectable third. The bottom half of the chart is wall-to-wall tax cut schemes.)

The problem with tax cuts is that people don't spend them in ways that get the economy moving. The Wall Street Journal reports that only 10 to 20 percent of the money remanded to taxpayers in the 2008 tax rebate actually got spent. The other 80 to 90 percent ended up in people's personal savings, were used to pay off creditors, or were simply absorbed by inflation and higher living costs.

Knowing this, we're a bit dismayed Obama is proposing to sink as much as 40 percent of his stimulus package into tax cuts. That's too much, if you ask us. But at least they're targeted at the middle class -- people who are more likely to spend that money here in the U.S., rather than ship it off to investments abroad.

6. Large-scale government investment would inevitably turn into an orgy of waste, fraud and abuse.

True -- but only if we let conservatives run the show.

The fact is that all human endeavors -- from running a household to running a nation -- entail a fair amount of waste, fraud and abuse. Bad decisions get made. Greed gets the better of people. Not everybody is as honest as we'd wish them to be.

But in spite of that truth, nobody in history can top the Americans when it comes to planning and executing successful large-scale investment projects. (A thousand years from now, that's what they'll be saying about us: Not always smart about foreign policy, but man, could those people think big -- and they usually pulled it off, too.) In our happier past, good management, careful oversight, and clear accountability have always gone a long way toward preventing really big problems, and ensured that we got the most for our collective buck.

Unfortunately, if we've learned anything about conservatives at this late date, it's that they'll defang or dismantle these mechanisms every chance they get. They think rules are for lesser mortals, oversight is a form of Big Brother-style oppression, and accountability is for people who can't afford lobbyists and lawyers. I don't think anyone would even try argue any more that when it comes to waste, fraud, and abuse, conservatives are the hands-down experts.

What's ironic is that they're now offering edifying moral guidance to the rest of us on the subject. All you can do is point and giggle at the stupefying hypocrisy of it all.

7. We need stimulus now -- and tax cuts are the only way to get the money out there fast enough.

Not really, no. Much of the infrastructure spending in the recovery package will be targeted at projects that are “shovel ready” -- the ones that are planned, approved, and sitting on the shelf ready to go as soon as there's money to fund them. Some of these could start generating jobs as early as April or May.

Some of this money will also be aimed at covering state budget deficits. That money will also be spent immediately on things like health care, child-care programs and other underfunded state services that employ large numbers of people.

That's a lot of direct funding that will put people to work quickly -- quite likely, faster than giving people tax cuts and letting them trickle out through the economy.

8. It’s wrong to bail out spend-thrift states. Let them stimulate their own damned economies.

Please. Haven't we all had a lifetime bellyfull of tax revolutionaries and drown-the-government-in-the-bathtub crazies? I swear...can't live with 'em, can't just shoot 'em....

States aren't in trouble because they overspent their allowances. Almost every state constitution in the country requires that the government balance its budget every single year. You want fiscal sanity? Anybody who's put in their time in state government knows all about it. They've made the hard choices, and faced the consequences, too.

The problem is that the recession has undercut state tax revenues to the point where these governments can no longer afford to cover their obligations -- some of which (like bonds) were taken on years ago, when times were better. Commitments that were fiscally prudent by any measure back then are wiping them out now. Budgets that were balanced and sound when they were first outlined a couple years ago are impossible monsters today.

And, unlike the federal government, the states can't deficit spend their way out of it. That's why they need federal help.

9. This whole Keynesian thing has been totally disproved. It didn’t work during the Depression. It didn’t work for Japan in the 1980s.

Say what? We know that rewriting history is a favorite conservative pastime. America is Christian country. Slavery was good for black people. Bush was never a real conservative. Saddam was in cahoots with al-Qaida. And on it goes.

The campaign to discredit Keynes (which is directly traceable to the Heritage Foundation) is a new and rather audacious fiction -- one that leaves both progressive and conservative economists as gobsmacked and sputtering as scientists get when you bring up "intelligent design." And the factual basis for it is, if anything, even more specious.

Paul Krugman addresses both the Depression and the example of Japan in his new book, "The Return of Depression Economics." According to his telling of the tale, in both cases the affected economies strengthened as long as the government continued to infuse capital into them; but bobbled when there was enough improvement that the budget hawks could get some political traction. When the spending flagged, so did the recovery. In Japan, bold steps alternating with repeated failures of nerve created a liquidity trap that stagnated the country's economy through most of the 1990s.

Keynes' prescription has worked everywhere it's been tried -- as long as governments acted boldly and quickly enough. It's not medicine that works if you take it in half-doses, or quit before the course of treatment is finished. In fact, doing it with less than full commitment can actually make the situation worse.

10. This is a partisan program that's designed to promote the Democratic agenda.

No. Almost every businessperson in America -- including the conservative ones -- are stepping forward in support of the stimulus package. The U.S. Chamber of Commerce is on board with it. So (unsurprisingly) are most of the building trades and engineering groups who stand to prosper with a new round of infrastructure spending. The current economy is hurting everyone, regardless of political affiliation -- and most Americans agree that it's time for the government to step in and get things going again.

And Yes. I've written before about the way this kind of investment in the health and well-being of the middle class can, in the end, transform long-held conservative beliefs about how the economy should work. A stimulus package that works will prove that government can do important things that no other entity can do; that it can effectively in the public interest; and that there's actually such a thing as a national common good that deserves to be protected. In short, it will reaffirm progressive values in a way that's irrefutable, and will earn the enduring respect of the country.

Bernie Horn and the Institute for America's Future research staff contributed extensively to this post. For other sources, follow the links provided.