Obama economic stimulus package is a disaster
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 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 that 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
- 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.
- Raise taxes: a bad idea in any time, let alone in these times.
- 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
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
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The spending on our national infrastructure is needed badly. The tax cuts on business are also nice.
While I agree that the percentage of money you point-out would be better spent elsewhere there seems to be a huge diconnect between giving “thoughs who can create jobs” and willingness to spend it on actually making jobs an not just hording it.
The problem is if there is a lack of work and money to pay bonuses and give raises spending slows, when spending slows bonuses get cut and so does the work force because the company paying them isnt making as much money as it was. Giving the buisness’s that require people spending money to function money to hire more people wont do anything of the sort because they would be hiring people to meet a demand that doesnt exsist.
So they simply wont hire and will store and invest the cash. They will use this padding to the best of thier abilities to weather the down-turn and hope for a brighter day where their currently established business model will once again be gainful. Then they will reopen thier HR gates and say “see I told you if you just gave the money to those who merit it everything will pull-through eventually”. If they dont pull through they go into bankruptcy and get more money from the government to soften this blow aswell, with the chance of doing it again when that money runs out.
Thus the old “why pay someone who doesnt work welfare? Then they have no reason to work hard to get ahead” applies here aswell. Why would they try to change their failed business model or close-down and work to create a new one when they can just get enough money to weather the storm instead of creating a new foundation from their experiences that holds-up on it’s own?
Maybe the money should go into research to find business models that are currently seeing an up-turn in their industry and looking to expand. Then spend the money left to support these businesses in a variety of ways such as grants for R&D, government loans similar to something like FAFSA for commercial expansion, and prosecuiting all the white collar criminals in wall street and Washington DC that “gamed” the system into disrepair.
This bill just makes me want to scream. It’s a payoff plain and simple to those that helped get him elected. The fact that there’s a few things in here that count as stimulus is just for looks. It isn’t going to help the economy. But I really think it will hurt.
Read this editorial, it’s the track were on: TURNING JAPANESE – THE AUDACITY OF REALITY.
@Someone in Pittsburg, there is a basic fallacy in your argument. You presume that all businesses in this country are suffering today because each one of them are operating under a failed business model. You could make this statement about certain sectors and it will be true to some extent, but majority of service and manufacturing businesses are suffering not because their business model is bad, but because there is an extraordinary credit squeeze where even the best run and well qualified businesses are being denied credit. This is where the stimulus would be most effective. I personally know of a few companies that were profitable and well run and have been forced into bankruptcy because their banks had a change of heart and pulled their lines of credit
@Hal, the following quote from Rahm Emmanuel is interesting.
“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”
This is from the WSJ article that is linked in this opinion. BTW, I read the article that you referenced and it is an awesome piece of analysis and unfortunately it makes sense.
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[...] Obama economic stimulus package is a disaster | Personal Dividends (personaldividends.com) – January 29, 2009Obama economic stimulus package is a disaster. By Arohan on January 29th, 2009. This is quite an extraordinary bill that just passed in the House of Representatives. It is such an unmitigated disaster… [...]
@Arohan
I know two businesses burnt in this manner. These are the business I spoke of spending money to find. What I was trying to get at is the money would most likely not go to such business and will instead go to failing large industry companies like GM, AIG, etc.
If we spent the money looking for the type of business you point out then the governement could step in with this cash and offer a very low term loan sort of in the spirit of the FAFSA loan system for education. This would help to recover them from bankruptcy or keep them with legit loans they can acctually use for real developement instead of padding a multi-billions dollar company that wasn’t working so well in the first place.
In other words I agree and was aiming in the same direction you were, I simply didnt make that aspect detailed enough.
and the last few words were a frusterated rant
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This is a critical time for us and we need to ensure that we do not overburden future generations to feed the pork today!
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