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Will the Stimulus Really Help? January 24, 2009

Posted by neoavatara in Economy, Politics.
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http://www.cnn.com/2009/POLITICS/01/24/obama.economy/index.html

The economic stimulus package will cost upward of $1 Trillion this year.  That is approximately $3,000 for every man, woman and child in this country.  Or, another way to count it, it is approximately $10,000 of debt for every child alive today.  So is it worth it?

Today, President Obama released a five minute speech outlining the plan.

“Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. And we could lose a generation of potential, as more young Americans are forced to forgo college dreams or the chance to train for the jobs of the future,” Obama said in a five-minute address.

One point:  for us to lose $1 trillion in production, that would mean an 8% decrease in GDP (out of a $13 trillion economy).  That would be among the biggest drops in GDP than any single year.  The biggest are -13% in 1932, and -8.6% in 1930. Unlikely scenario.

But, back to the stimulus.  First of all, let us break it down.  Obama states that it will be a multipronged approach to revive the economy:

1. Improved Regulation – Obama rightfully states that our financial regulatory system is broken.  The problem arises when you ask which regulation would you remove; the answer is none.  There only solution to the regulatory problem is to add new regulation.  I am all in favor of better regulations, but do we really need more?  I would argue we really need less.  As a doctor, we see how much ridiculous paperwork there already is because of reams of regulation that exist.  Are we going to compound the problem by adding more beaurocracy?  A healthier regulatory system likely will be less onerous and more effective, not just more red tape.

2.  Oversight of TARP funds – This is the most ridiculous of the points.  Republicans asked specifically for this in October, and were shot down by Democrats, Bush, and Obama himself.  In fact, some Democrats went so far to call the Republicans as unamerican and uncaring because they didn’t blindly support TARP.  Now, they want oversight?  A little too late.  Most of the $350 billion already spent is sitting in bank coffers, and there isn’t much they can do about it. Sure, they can add oversight for the next lump sum; but the question will become, how many banks will take the money if the regulatrions by the federal government get to be too much?

3. The Economic Stimulus Package – The Big Kahuna.  The Giant Enchilada.  Approximately $1,000,000,000,000.00 of your tax dollars at work.  To do what, exactly?

  • First, middle class tax cuts, initially proposed to be $500 per person (or for you big spenders out there, approximately $9.60 per week to splurge on.  Hooray!).   Of course, Congressional Democrats are trying to reduce this amount.
  • Obama doesn’t want to touch the Bush tax cuts on the top income earners.  But again, Democrats are fighting hard to remove the Bush tax cuts, including the death tax.
  • Increase business tax refunds on losses.  Again, Democrats are against this.
  • Increasing unemployment benefits, always a positive in a recession.
  • Double within three years the amount of energy that could be produced from renewable resources. That is an ambitious goal, given the 30 years it took to reach current levels. Advisers say that could power 6 million households.
  • Upgrade 10,000 schools and improve learning for about 5 million students.
  • Save $2 billion a year by making federal buildings energy efficient.
  • Triple the number of undergraduate and graduate fellowships in science.
  • The bulk of the remaining dollars are to be spent on ‘Shovel ready’ projects, that can be started immediately.  The plan would spend at least 75 percent of the total cost — or more than $600 billion — within the first 18 months, either through bricks-and-shovels projects favored by Democrats or tax cuts that Republicans have pushed.

Great.  Here is the problem.  Most of those projects are construction or construction type jobs.  If you are laid off from Lehman Brothers, or Microsoft, or Pfizer, how many of you are trained or ready to do construction work?  The projects themselves may be ‘shovel ready’, but the workers are not.  Maybe more importantly, this money will be spent on roads, bridges, etc.  Which is all great; but will spending on these things really bring about long term economic growth, or just a short burst of economic stimulus.

Here is my problem with the stimulus.  I am not totally against the government spending huge sums to stabilize the economy.  But you have to provide the structural basis for LONG TERM GROWTH.

A new bridge, a new road, all great things; but as for economic stimulus, they only really provide the stimulus to those directly working on the bridge, the road, etc.  And sure, those people will spend money, and it will ‘trickle down’…though Dems hate that concept.  But 5 years from now, will that road or bridge provide any economic growth?  Unlikely.

Let us step back for a moment.  What does provide economic growth longterm?  Well, projects that increase production capacity, efficiency, and innovation.  That is why I fully support the proposals on energy and education.  Spending more money on EFFECTIVE education would provide long term reasons for growth.  But of course, it doesn’t provide any short term stimulus.  Energy could be a long term driver of growth, if we become the world leader in innovation.  But to do that, we need to modernize our current energy system.

How about tax cuts?  Well, they provide both long and short term benefits.  The problem right now is, will anyone create jobs because they have more money in their pocket from tax cuts?  Unlikely, since none of their ‘products’ are selling.

And I haven’t begun to talk about the pork in this bill that will do nothing but feed the liberal intellegensia’s hunger for useless government spending.

The irony is, we might be better off handing unemployed people $10,000 each to spend.  That would provide more economic stimulus than anything any of these guys is proposing.  Government must provide a safety net to the approximately 5 million people who may lose jobs in the two years of the recession.  And funding for long term growth is essential.  But we should be very wary of the hundreds of billions that are being spent on roads and other line items that have little or no long term value.

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