By Walter Williams, UW emeritus professor of public affairs, and Bryan Jones, UW professor of political science 

As the United States teeters on the verge of recession, the emerging view is that the branches of government responded with notable swiftness to enact an economic stimulus package. Glowing accounts of the striking bipartisanship came forth from the president and congressional leaders of both political parties as well as mainstream analysts.

Quick, however, is not necessarily good. The stimulus package does not come close to bringing the biggest bang for the buck, despite widespread agreement among respected economists across the political spectrum about the most effective options.

One-third of the costs go for a business tax break that cannot help, while two options rejected by the Bush Republicans -- extending the unemployment benefits and increasing food stamps -- are actually six times more effective in stimulating economic activity per dollar of costs than the costly business tax break.

Rather than see the stimulus package as a political and economic success, we see it as a mark of the continued failure of the political system to face problems and design policies directed at ameliorating them.

First, the experience with the economic stimulus package shows clearly that the federal government now lacks the capacity to cope with the massive economic problems that are pushing the nation toward second-class economic status.

Second, the source of this inability is the unshakeable ideological belief of President Bush and the Republican Party that income tax cuts are the cure-all for the nation's economic problems. This core belief led to a flawed stimulus package, a repeat of the bad logic leading to the administration's 2001 and 2003 tax cuts.

Third, the 2008 legislation has many of the same flaws as the earlier tax cuts that put the U.S. on the path toward fiscal insolvency, left the middle class in the worst financial straits in the post-World War II era, and brought the widest income inequality since the 1920s-effects we document clearly in our new book, "The Politics of Bad Ideas: The Great Tax Cut Delusion and the Decline of Good Government in America."

We watched in horror as the president and Congress traveled the same road to pass the ineffective economic stimulus package. It seems like we are seeing the movie sequel titled TAX CUT DISASTER III.

As in the first two movies, the ideological commitment to the Great Tax Cut Delusion has been buttressed by Bush's refusal to look at plain evidence of how severely the 2001 and 2003 income tax cuts damaged the fiscal balance sheet of the nation and the health of its economy. This intransigence has been aided and abetted by the continuing reluctance of the congressional Democrats to take a stand against Bush's destructive tax cuts.

A stimulus package similar to the final bill had been negotiated in the House by Treasury Secretary Henry M. Paulson, Speaker Nancy Pelosi, D-Calif., and the House Republican leader John A. Boehner of Ohio. It provided full rebates for most tax filers of $600 for individuals up to $75,000 of income, $1,200 for couples up to $150,000 and $300 per child.

Those earning at least $3,000 a year but paying no income taxes receive $300 per individual and $600 per couple. The main business tax cut allows for "accelerated depreciation."

There is widespread agreement among respected economists of different political persuasions on the impact of available options for stimulating the economy.

Mark Landi, the chief economist of Economy.com, has assessed various tax and spending changes by determining the increased economic activity per dollar of cost. The greater the increase in economic activity for each $1 of outlay, the greater will be the effectiveness.

Landi found the most effective option to be a temporary increase in food stamp benefits that yields $1.73 additional economic activity per dollar of cost. A close second is extending unemployment benefits at $1.64 in increased activity for each $1 paid to the eligible unemployed.

The director of the nonpartisan Congressional Budget Office, Peter Orszag, observed: "Food stamp and unemployment benefits can affect spending after two months, rebates would affect spending at the end of 2008." The Congressional Budget Office rated options on three criteria: cost-effectiveness, timeliness and certainty of effect. Unemployment benefits and food stamps were the only options to win CBO's highest rating as an effective stimulus in all three categories. No other option received the top rating in more than one category.

Accelerated depreciation write-offs -- the main tax cut for business in both the House and Senate --yields $0.27 in economic activity per dollar of tax cut. Thus, its impact per dollar of cost generates one-sixth as much economic activity as that of a dollar in food stamps or unemployment benefits. And the tax cuts cannot be implemented until late spring or summer at the earliest, while unemployment insurance and food stamps could have an effect almost immediately.

Democrats and Republicans made important trade offs in the House package. But the latter shaped the package both by forcing through the roughly $50 billion for business and blocking any benefits for food stamp and unemployment insurance benefits. The $50 billion for benefits to business that the Republicans demanded as the "price" for their support of the stimulus package rendered the $150 billion legislation marginally effective at best.

Senate Democrats lost in their fight for food stamps and unemployment insurance. The GOP won again in the case of a $300 payment to 20 million Social Security recipients and 250,000 disabled veterans after strong protests from the aged and veterans lobbies. The House quickly agreed to add a $300 rebate to the bill.

Senate Majority Leader Harry Reid, D-Nevada, sought to bluff the Republicans. He threatened to put up for vote only the Senate bill that included unemployment insurance benefits and the House legislation without the $300 rebates for Social Security recipients and disabled veterans. But he backed down and the Republicans added not only the $300 tax rebates but an amendment disqualifying illegal immigrants.

One can view the legislation as a victory over gridlock and partisan bickering. The stimulus package gained wide praise as a good bill mainly because it seemed to feature the kind of hard work and compromise by the two parties that had vanished in the Bush presidency. Yet the final legislation is an overwhelming victory for Bush's tax cut ideology over sane economic reasoning.

Why did the Republicans refuse to use the two most effective options developed by highly reputable experts? We can find no explanation in any of the usual suspects: The package was not sensibly designed to stimulate the economy, and, if politicians are held accountable for economic performance, it was not designed to help them stay in office.

In particular, Republican true believers refused to deviate from what the authors call "The Great Tax Delusion," in which tax cuts are the optimum fix for economic ills whatever the "facts on the ground."

Republican tax cut dogma rules out budget expenditures such as unemployment benefits or any other highly effective spending programs on ideological grounds alone. In contrast, the belief in the force of business incentives to stimulate investment is impervious to either economic reasoning or sound evidence showing how poorly this option works.

A September 2007 report by the major Wall Street investment firm of Goldman-Sachs made the point that companies invest money on hand if the expected returns are likely to exceed the costs of a new project, "and that usually requires growth in demand strong enough to put pressure on existing resources."

In the case at hand, it does not take training in graduate level economics, only a little common sense, to figure out that the declining demand in the current downturn makes investments unattractive even if funds are available.

Research gave the same answer. In their Federal Reserve study of the effects of the accelerated depreciation incentives initiated in 2002 and increased in 2003 to stimulate the weak economy, the researchers found "only a very limited impact" at best on new investment.

The Democrats did force the Republicans to improve the economic stimulus package somewhat, but The Great Tax Delusion still dominated the final legislation. Despite this, the economic stimulus package -- a replay of the 2001 and 2003 tax cuts that warrants the label TAX CUT DISASTER III --won praise as the kind of bipartisanship needed in the federal government.

Putting the business benefits in the final legislation is the opposite of real bipartisanship. Bush intransigence and the Democrats timidity produced a bill that had none of highly effective stimulus options and wasted one-third of the total funds on business benefits shown to be ineffective by economic reasoning and research on a similar earlier effort.

The almost-uniform praise by the chattering classes and the press of a process that led to a flawed economic stimulus legislation as exemplary bipartisanship is deeply disturbing, bordering on a national delusion.

Rather than coming to praise this process, we'd like to bury it. It is just one more depressing example that the federal government lacks the will to cope with the major economic problems that threaten the United States.

For seven years, the Bush's tax cut ideology has trumped reality, harmed the nation's economy and its governing institutions, and pushed the middle class into the worst financial mess since the Great Depression.

The Great Tax Cut Delusion and its false promise of a free lunch for the American people must be cast aside as a patent medicine dangerous for the nation's health. If not, we risk speeding rapidly toward a second tier economy and a vanishing middle class.

"False Promise of Free Lunch," by UW Professors Walter Williams and Bryan Jones, posted Friday, March 21 to blogs.uwnews.org. UW news blogs is a service of uwnews.org, the University of Washington Office of News and Information.

by Walter Williams, UW emeritus professor of public affairs

John Edwards has stopped his presidential run but he still has a critical contribution to make in the campaign and beyond. Like a latter-day Al Gore, he should continue his message that none of the major candidates have addressed.

Only Edwards has cried out, “Corporate greed and political calculation have taken over our government and sold out the middle class.” Only he has warned of “the iron-fisted grip that corporations have on American democracy.”

Edwards faces a Washington establishment that fears real change to the status quo. A Washington Post reporter wrote before the Iowa caucus that “Edwards continued to veer closer into alarmist territory.”

Is Edwards’ message “alarmist“? Definitely not. In our analysis of George W. Bush’s economic policies, The Politics of Bad Ideas, political scientist Bryan Jones and I found that the middle class is in dire straits, that a tiny super-rich elite reap most of the income gains, and corporate America controls the Washington government.

THE MIDDLE CLASS. Census data on income in 2006 (the latest available) shows that real median family income for working-age households fell $1,336, or 2.4 percent, from 2001, when that income level was $56,062.

The decline from 2001 to 2005 is by far the longest string of yearly decreases in the real median family income of working-aged families in the postwar era. Commerce Department data indicate that from 2001 to 2007, a smaller share of gains in income went to workers and a larger share to corporate profits than in any postwar economic recovery.

On average, the entire middle class experienced limited income gains and kept up its living standard by zero saving and massive borrowing. The middle class is hurting.

THE SUPER-RICH. The Urban-Brookings Tax Policy Center estimated that in 2006, the 0.3 percent of families (three in a thousand) receiving a yearly income of at least $1 million got, on the average, $118,000 from George W. Bush’s tax cuts. That’s nearly 160 times more in tax benefits than the middle fifth of families that averaged $740 in benefits.

The New York Times’ David Cay Johnson wrote that 28 percent of the investment tax cut savings went to just 11,433 of the 134 million taxpayers, those who made $10 million or more in a year, saving them almost $1.9 million each. By comparison, the nearly 90 percent of Americans who make less than $100,000 a year saved $318 on average.

GOVERNMENT CONTROL. These immense disparities came about solely because of the Bush tax cuts. Such largesse from the Bush tax cuts that funneled benefits to a super-rich elite is a perfect example of control over the government by the rich and powerful.

An excellent case in point is the House of Representatives’ effort to offset the cost of fixing the Alternative Minimum Tax (AMT) so that it would not hit an added 25 million mainly middle- class households in 2007.

The House chose to offset the lost revenue from the AMT fix by removing certain tax advantages for investment fund advisors and hedge fund managers, some of whom earn over $1 billion a year.

Washington Post reporter Jeffery Birnbaum described what happened:”Dozens of lobbyists were hired to pressure lawmakers, and campaign donations were stepped up, especially from Wall Street executives.”

Wall Street wealth won. Members of Congress were bought. A handful of super-rich people, who are big campaign contributors, escaped a hefty tax increase. The cost of the AMT fix was paid for by borrowing so future generations will bear the costs.

No wonder the number of Washington lobbyists has increased threefold since 1996 to 36,000. That’s over 60 lobbyists per Congress member.

The greater prosperity and economic equality of the early postwar era that made the American Dream realistic to a broad middle class has vanished. John Edward’s notion of two nations now applies. Plutocracy—government by the wealthy—is the order of the day in 21^st century Washington.

Others, including this author, have warned of the dangers of plutocratic governance. So too have people in the case global warming -- without much impact until Al Gore took center stage.

It is as daunting a task to awaken the American people to corporations’ iron-fisted grip on democracy and the likely destruction of the middle class. John Edwards’ credibility and anger plus his honed-toughness as a trial lawyer make him the ideal choice to stay in the bully pulpit.

by Walter Williams, UW emeritus professor of public affairs

However grim John Edwards’ chances may be in the race for the presidency, his message must be heard. As president or as a latter day Al Gore, Edwards must not stop shouting, “Corporate greed and political calculation have taken over our government and sold out the middle class.”

Edwards faces a Washington establishment that fears real change to the status quo. A Washington Post reporter wrote before the Iowa caucus that, “Edwards continued to veer closer into alarmist territory, warning of ‘the destruction of the middle class’ and 'the iron-fisted grip that corporations have on American democracy.'”

Is Edwards’ message alarmist? No, he’s on the mark. In our analysis of George W. Bush’s economic policies, The Politics of Bad Ideas, political scientist Bryan Jones and I found that the middle class is in dire straits, that a tiny super-rich elite reap most of the income gains, and corporate America controls the Washington government.

THE MIDDLE CLASS. Census data on income in 2006 (the latest available) showed that real median family income for working-aged households fell $1,336 from the 2001 level. The decline in 2001-2005 is by far the longest string of yearly decreases in the real median family income of working-aged families in the postwar era. Commerce Department data indicate that between 2001 and 2007, a smaller share of gains in income went to workers and a larger share to corporate profits than in any postwar economic recovery.

On average, the entire middle class experienced limited income gains and kept up its living standard by zero saving and massive borrowing. The middle class is hurting.

THE SUPER-RICH. The Urban-Brookings Tax Policy Center estimated that in 2006, the 0.3 percent of families (3 in a thousand) receiving a yearly income of at least $1 million on average got $118,000 from George W. Bush’s tax cuts. That’s nearly 160 times more in tax benefits than the middle fifth of families that averaged $740 in benefits.

The New York Times’ David Cay Johnson wrote that 28 percent of the investment tax cut savings went to just 11,433 of the 134 million taxpayers, those who made $10 million or more [that year], saving them almost $1.9 million each….The nearly 90 percent of Americans who make less than $100,000 a year saved $318 on average.

GOVERNMENT CONTROL. The immense disparities just discussed that enriched the relatively small number of families with at least a million dollars in yearly income at the expense of the rest of the American population came about solely because of the Bush tax cuts. Such largesse from the Bush tax cuts that funneled benefits to a super-rich elite is a perfect example of control over the government by the rich and powerful.

An excellent case in point is the House of Representatives’ effort to offset the cost of fixing the Alternative Minimum Tax (AMT), so that it would not hit an added 25 million mainly middle- class households in 2007.

The House chose to offset the lost revenue from the AMT fix by removing certain tax advantages for investment fund advisors and hedge fund managers, some of whom earn over $1 billion a year.

Washington Post reporter Jeffery Birnbaum described what happened: ”Dozens of lobbyists were hired to pressure lawmakers, and campaign donations were stepped up, especially from Wall Street executives.” Their 2007 campaign contributions in nine months exceeded the total for the previous two years. Hiring registered lobbyists cost $8 million in the first half of 2007, over twice as much as all of 2006.

Wall Street wealth won. Members of Congress were bought. A handful of super-rich people, who are big campaign contributors, escaped a hefty tax increase. The cost of the AMT fix was paid for by borrowing so future generations will bear the costs.

No wonder the number of Washington lobbyists has increased threefold since 1996 to 36,000. That’s over 60 lobbyists per Congress member.

The greater prosperity and economic equality of the early postwar era that made the American Dream realistic to a broad middle class has vanished. John Edward’s notion of two nations has come to pass. Plutocracy—government by the wealthy—is the order of the day in 21^st century Washington.

Others including the author have warned of the dangers of plutocratic governance. So too have people in the case global warming, without much impact until Al Gore brought his credibility to the cause.

It is a daunting a task to awaken the American people to corporations’ iron-fisted grip on democracy and the likely destruction of the middle class. John Edwards’ credibility and anger plus his honed-toughness as a trial lawyer make him the ideal choice, whether he is president or not, to stay in the bully pulpit and sound the warning.