Jan 28 2009
The economy is hurting because so many people lost so much wealth their consumption has slowed downÂ incredibly. This slow down inÂ consumptionÂ has caused a massive and expanding ripple effect. Now many industries are seeing their revenues slow down or dry up, which causes them to lay off people – and the cycle continues. The initial jolting loss of wealth can be laid at the feet of the Democrats and their reckless efforts to hoist homes on unprepared home owners. This mountain of bad loans, once it began to fall like a winter avalanche, tore through banks and consumers and investment packages, which caused the rippling we still feel today.
The massive retirement of the Baby Boombers, who are toning down their consumption as they step away from helping to drive the economy, also plays heavily into this maelstrom. Lowered consumption by them alone was going to be a challenge. As they started taking their retirement benefits without producing anything (like a ‘worker’ does in our economy) they become a drag on our economic engine, chewing up investment dollars, salaries, etc to cover their payments.
Into this historic economic storm steps the impotent Democrats and our young President, with fairy tale remedies that look like someone brought a plastic spoon to fight a modern war. The economy is driven by jobs – well paying jobs. These jobs generate the money we use to cover our debts, responsibilities and our basic needs (individually and as a country). We use what little is left over to indulge or invest. For too many years we have been addicted to the former and pretending it was the latter.
The pork projects and reckless schemes (like the Democrat housing market debacle) are prime examples of this over indulgence. Government can play a role, but it must be a minimal role and it cannot starve out the market by competing for the scarce resources which have become even more scarce recently. We need innovation and export. We need to be constantly on the front edge of business. We need new ideas and risk takers. We cannot be competitive while we spend our time and effort indulging ourselves with futilities.
America has been heading for this train wreck for a long time, but we kept putting off the day of reckoning to avoid the pain and taking it in manageable steps. No more, we must face reality.
So with all this in mind we can see how pathetically useless and impotent the current ‘stimulus package’ truly is. In fact even Democrat leaders know it is pathetic because Obama has already, in his second week, done what President do only in times of great need – he wentÂ to beg on Capitol Hill:
The rare trip by a president to Capitol Hill revealed the urgency in Congress and the White House over a cure for the souring economy. More than 70,000 layoffs were announced this week and fresh data showed unemployment last month rose in all states.
There are some good measures in the bill, things the Democrats let fester for years so they could score political points about all those ‘rich’ republicans, for instance:
The Obama administration indicated it would agree to a $69 billion Senate proposal to shield tens of millions of middle-income Americans from the so-called alternative minimum tax, a priority of Iowa Sen. Charles Grassley, the top-ranking Republican on the Senate Finance Committee.
Like too many these days who fear fractions, the ATM was made law using a hard coded dollar value, not some fraction of a consistently updated indicator (like average salary, etc). This was supposed to be a soak-the-rich scheme, but normal dollar inflation has made us all ‘rich’ relative when this liberal law was passed. It is about time and welcomed. But this won’t save the bill from failure.
The real problem is the stimulus it too little too late, and it is wasted on activities that cannot produce an immediate ‘stimulus’. Instead of being something like aÂ defibrillatorÂ giving a life saving shock to a patient, the package seems more like some hair tonic thrown around to grow back thinning hair. Whatever it does will take years and will be hardly noticeable for the near term.
The problem is the reliance on infrastructure projects to revive the economy – it is pure snake oil:
The economic stimulus package proposed by Democratic House leaders totals $825 billion and includes three broad pieces: a $365.6 billion spending measure for such brick-and-mortar projects as highways and bridges; a $180 billion measure to boost jobless benefits and Medicaid, among other things; and a $275 billion tax-relief package, which includes a plan to give a $500 payroll tax holiday to all workers, a proposal from Mr. Obama’s presidential campaign.
The largest part of this farce is long term projects. All infrastructure projects takes years to get started and years to finish. Another problem with infrastructure projects is they cannot become too pervasive or they cripple our economy. You can only have so many road projects running at a time in any area – otherwise you stop mobility and people drive around the effected area – which in turn hurts local businesses. In addition, there are only so many people and machines to do this work. The country is not far from reaching capacity on road work and has plenty of large infrastructure projects on going and in the works. Who wants endless ‘Big Digs‘ screwing up their region for years?
This fiasco is the epitome of political delusion. These people have been swigging their own PR bath water too long. They have used inflated and exaggerated reasoning to pass these measures in the past to the point they now believe their BS! It is amazing to watch the DC establishment come out and really believe they can right this economy with this plan.Â
And what is this feel good money for jobless claims and Medicare about? It is an admission they really cannot do anything to help people by creating jobs to replace those that disappeared in the market collapse of last year. The only element of the bill which has the potential to increase consumer consumption, and therefore create jobs, is the tax breaks. But $500 hand outs is not going to help much when having a $45,000 a year job makes raising a family very tough in most regions of the country.
I feel for the people hurting right now, but this farce of a bill is a sick joke. Look at the funding profile over the next few years and realize what little there will be is mostly coming NEXT YEAR!
You can get more detail on the phasing and elements from the CBO report – but the harsh fact is there is not going to be any near term help from this bill. The only element which could kick in quickly is the $500 ‘tax holiday’ gimmick. This is what CBO had to say about the speed with which the money would flow:
The budgetary impact of the bill stems primarily from three types of transactions:  Direct payments to individuals (such as unemployment benefits),  reductions in federal taxes,Â and  purchases of goods and services (either by the federal government directly or indirectly via grants to states and local governments). CBO estimates that impacts from the first two categories of transactions would occur fairly rapidly. In the third category,Â CBO estimates slowerÂ rates of spending than historical full-year spending rates in 2009 for a number of reasons:
- The billâ€™s enactment would likely occur nearly half way through the fiscal year.
- Previous experience suggest that agencies have difficulty rapidly expanding existing programs while maintaining current services; the funding in H.R. 1 for some programs is substantially greater than the usual annual funding for those activities.
- Spending can be delayed by necessary lags for planning, soliciting bids, entering contracts, and conductingÂ regulatory or environmentalÂ reviews.
- Agencies face additional challenges in spending funds for new programs quickly because of the time necessary to develop procedures and criteria, issue regulations, and review plans and proposals before money can be distributed.
Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources. The seasonal nature of some spending also affects the speed at which activities can be conducted; for example, major school repairs are generally scheduled during the summer to avoid disrupting classes.
The fact is very little of what they call “Direct Spending” can be started for real this year, or even next year. While the government can budget money, they need to go through the procurement process for new work efforts, something woefully underestimated in the CBO analysis. What this means is the amount of spending this fiscal year (through September) that is not “Direct Spending” is aÂ paltryÂ $29B. In an economy that runs over $10T a year that is like adding $29 to $10,000 and hoping it makes a big difference.
Government has been the problem here. It needs to role back it reckless economic schemes and stop indulging itself to the point of becoming a bloated cancer. It needs to release the private sector from the shackles of government regulations and trust the American people and their economic instincts to raise us out of this mess. We have allowed egomaniacal fools in DC to play god with our country for too long. They need to step back and let us do what we do best – produce wealth.
Update: Reader Crosspatch wrote an extensive and excellent comment on this very topic yesterday – worth a read.