Earlier this week, Obama kinda, sorta, gave us his wants and desires from Congress for a quick turn around on MORE MONEY. Come on folks say it with me ('cause Lord knows we all know it by heart at this point) "It's not too late to change course – but only if we take immediate and dramatic action." Ooooo, gloom and doom. Yeah……..been there, done that. Sadly, his radio address/YouTube video gives us no real insight. While it is clear that his words are full of promises and fear mongering, there are few details. We don't know where he is going to get all the money he's asking for. Immediately. Before catastrophe sets in. What about the jobs he is creating; no, saving; wait no, creating? No creating or saving, that's it. Throughout the speech there is really nothing more than window dressing, no actual road map. But, Obama would like Congress to get to work on passing this behemoth monster so it can be on his desk on day 1 of his term. It seems our recipe for "hope and change" is more of the same with over-bloated government instituting a very bad plan; an example of failed policy, known as Keynesian economics.
By several estimations, the numbers Obama laid out will result in 600,000 new government employees. That's fun. Do you think we will get through the DVM lines any faster? Or will we just make up positions for them. Maybe Road Hole Filler Czar. Maybe Lay Around and Do Nothing but Get Paid Czar. Or, maybe Obama will just start imposing all kinds of crazy rules, regulations and hoops for businesses large and small to jump through. Then those people can work in offices taking care of the resulting paper work nightmare. The rest of the jobs are going to come from the private sector. Hmm, I wonder how that will be accomplished. Will we as business owners be required to have a certain amount of employees or be penalized? It is a mystery why the private sector will suddenly have need for millions more employees, but that is just trivial fact-not hope and change.
Another huge complaint with the stimulus-what is the roadmap back from the brink of hell? With this thinking we are adding almost 1 trillion dollars to our existing deficit. There is no way to ever tax us out of this kind of debt. Taxes would have to be so high and people so oppressed there would likely be some kind of revolt. A plan of deficit spending, without desire for consumer spending, will only have a snowball effect from this point forward. 1 trillion this year, 3 trillion next year and on and on until our nation just collapses on itself. The few who actually make millions are not enough to take care of the rest of us. Period. Obama never lays out how we would get out if this mess. Only how we get in it. Well sorry-that isn't good enough for me!
Finally, in an interview with Charlie Rose two economists (Feldstein and Stiglitz) seem to agree with the very salient point-you canNOT force consumer demand!!!! A huge influencing factor in the economy right now lies in the fact that people are not buying. Spending all this money and creating (or saving-whatever) all those jobs will only float us for a year or two. Then what? People are in a saving cycle-not a spending cycle-we all got burned on that deal. It is very likely we will get two years into this thing and it will be just like the $350 billion that congress (or better yet Paulson) wasted away. It will have not worked, we will be that much poorer and we will have a several trillion dollar deficit.
Everyone in Washington must get a handle on ridiculous spending. The government already spends tons of money all the time! If spending was going to work we would not be in this mess. What congress must do is actually enact policies that will help every American. Payroll taxes should be lowered or eliminated. Investments definitely should be made in our infrastructure-but only on those projects that are worth it and can be afforded. Families who are losing their homes, but are actually trying and capable of getting out of their housing mess should be assisted. The American family needs a break. We are debt weary and spending shy. After some time passes we will have some money saved, begin to feel better about things and once again spend money. While I know Obama would disagree with me "Government is NOT the answer."
Most of the public sector jobs planned for in the stimulus will go to police, fire fighters, and teachers - many of whom will lose their jobs as their municipalities lose the ability to pay for them. I would rather my police/fire department be able to make payroll.
ReplyDeleteAs for the spending itself, I made a thorough statement on it at my blog but the short version is, if no one else is spending (or can spend) we will go into a downward spiral as more companies are making smaller revenues and either close or reduce staff, causing fewer people to have money to spend, lather, rinse, repeat. This will lead to drops in tax revenue and large increases in local, state and federal costs (for things like unemployment insurance) and may wind up costing much more than $700b and threaten municipalities and even some states with bankruptcy.
As for how to spend the money, studies have been done that show tax cuts don't show an increase in GDP of greater than 99% of spending, direct government investment though is an immediate 100% increase in GDP and winds up getting about 140-150% return on investment as the money spreads from the initial investment into the broader economy.
I do agree that we need to be careful where we spend the money. As I said in my post, paying for another bridge to nowhere means the money gets used once and has no return but investing in green energy, electrical grid, roads, etc. will keep giving back as the interstate highway program has since the '50s. Housing is also a serious area needing attention and is exactly why Obama needs the other half of the TARP funds.
Government is not THE answer. However, government is NOT the problem, either. It is only a tool that can be used wisely or poorly (and has been by both parties over the years).
There is one problem with massive government spending to "stimulate" the economy. It doesn't work. In order to spend the money, the government has to get the money from the productive sectors of the economy. So, in exchange for stimulating weak sectors of the economy, the government weakens the strong parts of the economy.
ReplyDeleteRecessions are a markets way of correcting and redistributing an economies resources. The government, in attempting to preserve sectors that are in trouble, is preserving industries that cannot be supported by the economy. The result is that resources that market forces would concentrate in strong, competitive, economic sectors are not available.
Further, any funds collected by the government for redistribution have to be filtered through government bureaucracies. These are notoriously inefficient. The result is that a significant percentage of the funds are lost through waste. In all honesty, since the bureaucracies have not been set up yet, there is no way of knowing how much money will be lost. However, bureaucracies from our past may give us some insight. Welfare, before being reformed by the Nixon administration, saw 70 percent of it's funding soaked up by bureaucracy.
Government policies implemented after the panic of the 1929 stock market crash, turned a deep recession into a deep and long depression. Hoover will forever be vilified, and properly so, for implementing government policies that weekend the economy, but Roosevelt continued on the same path and extended the depression by over half a decade. (http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx)
While government spending started to grow the economy after the crash, the economy became dependent on government spending and massive deficits. By 1937, when government cut back on spending, the private sector was unable to continue to grow and the economy plunged and the depression deepened.
Burdensome government spending contributing to economic growth has been disproved throughout history. Further, any survey of global economies would show that the less burdensome government is, that the healthier economies become. Per capita income is higher and personal and social freedom follow closely. The Heritage foundation has been compiling that information for years. The correlation is proof enough for me that economic freedom leads to healthier economies, greater wealth for all members of those economies and more personal freedom. (http://www.heritage.org/index/)