This is quite an extraordinary bill that just passed in the House of Representatives. It is such an unmitigated disaster that one would suppose that it was written by people who intentionally chose to go against the basic principles of economics. Atleast, as understood by anyone with some semblance of common sense. For some excellent analysis of the pork barrel spending in this bill, I refer you to the excellent editorial at Wall Street Journal titled A 40 year wish list. This takes apart the main thesis of infrastructure spending in the package and how it will stimulate the economy. Here is an excerpt:

In selling the plan, President Obama has said this bill will make “dramatic investments to revive our flagging economy.” Well, you be the judge. Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There’s another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities. Add the roughly $20 billion for business tax cuts, and by our estimate only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus. And even many of these projects aren’t likely to help the economy immediately. As Peter Orszag, the President’s new budget director, told Congress a year ago, “even those [public works] that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”

Rest of the money is earmarked for fulfilling every democrat’s fantasy  and to bring about transformative changes in the economy in the direction of alternative energy and climate change. Now, I am against wasteful spending at all times, but the size of it in this package is just astounding. The government, of course, will need to find a way to come up with the cash to spend (this is also true for the previously approved TARP program). This can be done through one of three ways

  1. Print money: This would result in high inflation rates in the coming years. High inflation may be a nightmare scenario for the country as the economy is currently reeling from record unemployment and declining incomes.
  2. Raise taxes: a bad idea in any time, let alone in these times.
  3. Borrow: Well, the only way to entice someone to lend money to the US government, with its less than stellar balance sheet and record deficits, would be to offer high rates of interest. The interest payments would ultimately put the cost of the stimulus to over a trillion dollars. Presumably, China and other countries’ appetite for US debt is boundless. Curious to see that the Obama administration has added programs aimed to get US out of foreign oil enslavement but maybe willing to get into foreign economic enslavement to pay for it. Maybe our kids and grandkids will figure this economy thing out and will be in a better position to repay these loans (notice, we are effectively burdening the future generations with this debt load).

Yes, the congress is willing to take these risks so that $252 Billion can be transferred to those people who sit on their derrieres and do nothing

Government is not the most efficient job creator

This whole package is based on a faulty premise that the government can create jobs more efficiently and cheaply than the private sector. Yes, some of the projects are worthwhile to do and should be done but even for those, the benefits may take some time to be realized. What the economy needs is a stimulus that is immediate and goes straight to those who run businesses and can actually help with job creation. I would recommend that President Obama and his team seriously consider expanding the corporate tax cuts as well as consider ways of easing capital flows to small and medium sized businesses. These businesses form the entrepreneurial backbone of America, are integrated in the communities and create the most jobs. Help them grow and the economy will start growing Editor’s Note: Hal in his comment to this Opinion referenced an article which I believe should be read by everyone. Here is the link to “Turning Japanese – The Audacity of Reality” editorial by James Quinn at Financial Sense If you agree with the opinion expressed in this article please take a moment to share it with others using the share/save social media button below. This will help in getting our voices heard. The future of our country and our future generations is at stake

Shailesh Kumar

Shailesh Kumar

Shailesh Kumar is an Entrepreneur, investor and blogger. He writes about value investing at Value Stock Guide. Learn about the stock market and discover the techniques proven to work best for long term investors for finding appropriate stocks to buy in their portfolio to get superior risk adjusted returns.