Dear President-Elect Obama: It Won’t Work
Don’t get me wrong: I am praying hard for a quick, powerful economic recovery. My investments are underwater (heck it’s the Titanic resting in Davy Jones Locker. If the news reporting is correct (OK, that’s a whole different discussion), your economic rescue/stimulus plan isn’t.
TAX CUTS. Everyone likes one. Problem: the guy you are replacing already tried that (everyone got 6, shiny new Ben Franklins), and it didn’t work. People did not but an HDTV, paint the town red, or buy a closet full of shoes. With their tax cut, they paid off bills, paid down loans, and used it to stretch their grocery $$$ a little further.
ONLY GOV’T CAN SOLVE IT. This is simple, old-fashioned Keynesianism. This has already been discredited by another one of your predecessors: James Earl Carter. The strength and persistence of stagflation showed that K is wrong at least some of the time.
INFLATION. The current budget deficit is $1T, your budget deficits will be the same, TARP was $0.7T, your rescue plan is going to be $1T by the time Congress hangs their Christmas ornaments on it. Right now, there is no inflation: 30yr Treasuries are yielding a paltry 3%. But with so many Trillions floating around, you could be setting the stage for problematic inflation down the road.
SHOVEL READY. Gov’t spending takes 6 mos. to 1yr. to take effect; so, you say let’s fund spending ready to go. Problem: these are things are infrastructure stuff like roads, bridges, sewers, and water projects; these will benefit only construction, unless you believe in that trickle-down stuff. The job losses are in: financial, retail, service, manufacturing; these are the areas that need help.
HELP BY NOT HELPING? This country has gone through economic cycles before; they are called cycles because they go up and down all by itself, even in the absence of massive new gov’t spending and a presidential action plan. You are smart enough to already know this. I realize you are the cheerleader-in-chief. You are the leader, and must be seen to be doing something serious and concrete about this terrible problem. But, ah, could you pick an action plan that is, umm, less dangerous?