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TheGarcipian (56.60)

Road Signs: You Are Here (Part Two--The Obama Stimulus Plan)

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January 25, 2009 – Comments (18)

Since I hit my 20k character limit with my last post, I’ll try to keep this one shorter. &nbsp&nbspCheesy grin

Continuing from my last post, here are more signs of the times, as I seen them:

Falling Rocks road sign  Obama Stimulus Plan

If you think there’s only going to be one such plan, boy, have I got a bridge to sell you! When all is said and done, I expect there to be at least 3 such proposals and probably 4 or 5. Early in a crisis situation, it’s most important to stem your losses and protect your core. Emergency professionals will tell you this: you don’t immediately respond to those who are screaming in pain because you know they’re at least conscious (and alive). No, you check the non-responsive and the non-vocal for life signs, and give them aid first.

The economic recovery plan that Obama is proposing is moving in the right direction, but I think he’s got it backwards. As reported in SmartMoney’s February 2009 issue (p.84), a “recent study by Moody’s Economy.com found that for every $1 spent on a lump-sum tax rebate, the country’s GDP grows by only $1.02 within the first year; spend the same dollar on aid to state governments and infrastructure and the economy grows by $1.36 and $1.59, respectively. Investing in construction of roads, schools and water-treatment plants… will create employment opportunities for years to come.”

Yet the Obama plan (this first one, at least) puts less than one-fifth of its economic punch into the critical area of infrastructure. As reported on the Rachel Maddow Show on 23January2009 (video is here), a solid one-third of the Obama package is marked for tax-cuts, something we know provides less bang-for-the-buck than does infrastructure spending, yet the latter, as evidenced by Moody’s research, provides 50% more return on the money spent.

Here’s the plan breakdown visually:

Obama Stimulus Plan, Round 1

NOTE: That 18% on infrastructure is misleading; it’s really more like 7.5%, as reported in the video link above. You only get that 18% if you stretch your imagination and scoop a lot of extra stuff into the “infrastructure spending” bucket.

Maddow further reports the Republicans are complaining that Obama’s plan “isn’t what they would have written as they’d pushed for more tax cuts and less spending”. Well, too bad, dudes. I’ve personally witnessed the benefits of the tax rebate and tax cut policies of all Administrations since Carter, and they’ve not really helped that much, not when compared to infrastructure spending, something that has a broad & lasting effect on America. Yet Obama seems to be trying to appease these Republican senators. Q.Why, when it’s clearly not the best medicine for this country at this time? Ans: To make good on his campaign promises of tax cuts for the middle class, I suppose.

As noted by Representative Peter DeFazio (from my Oregon!) in Rachel’s interview:
We borrowed $160B last spring. It [only] gave us a 0.25% boost in one quarter of the economy. We borrowed that money… for the next 30 years, we going to pay for it… [only] 7% of the bill is in traditional infrastructure. It’s not enough, and it is a very bad tradeoff for tax cuts… It’s all about the Senate. If they’re wrong, we don’t need their votes. The best budget of the Clinton years was the first budget, and it didn’t have a single Republican vote. I want to be bi-partisan. I want to work with the Republicans, when they’re right. But when they’re wrong, and when they want to continue the failed policies of the past, we don’t need to buy them off with $300B in tax cuts.”

Amen to that, brother!

We need to get our priorities aligned and quickly. We have limited time and funds to get this right. Yes, there will be more stimulus packages (and you can get your precious tax cut then), and thus more debt for your kids and their kids to pay off (and less Social Security, Medicare, and such programs for you when you get old), but the longer we put off these tough decisions for immediate gratification ploys like tax cuts, the longer we will be in this hole. Rather than giving short-term handouts, let’s put Americans back to work, get them off of unemployment, begin building and repairing things like roads, bridges, schools, public transit systems, the national electrical grid and our water systems, while we build our self-esteem and make our country stronger at the same time.

ACTION: Call or write your Senators and ask them to align their priorities correctly by putting more funds towards infrastructure spending and less for tax cuts. You can reach them here. Look for the "Find Your Senators" dropdown in the upper right corner of that web page.

There’s more to write about, specifically regarding macro trends, but so I’ll not anger the 20k-Character-Limit Gods, I’ll close this blog for now and pick it up in a few days. In the meantime, I welcome your comments and criticisms on the road to making me a better investor.

Finally, I’m not into panning for Recs, but if you think others can benefit from these viewpoints, please Rec these blogs. Thanks and I’ll talk to you in a few days.

Best of Luck to Us All,
--Gar

18 Comments – Post Your Own

#1) On January 25, 2009 at 7:17 PM, Tastylunch (29.39) wrote:

I'm a little dissappointed it's so road centric although the Minnesota bridge collapse I think is indicative of how healthy the bridges are in many palces.

I was hoping for more money for rail. If Peak Oil rampages again we are badly vulnerable since we are so overreliant on freeways for commerce etc.

Plus rail helps lighten wear and tear on roads anyway. Freeways can be very destructive by creating huge boundaries in cities and hurting property values of the properties near them.

Just think we could use a little diverisification. :-)

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#2) On January 25, 2009 at 8:39 PM, EnigmaDude (98.08) wrote:

Gar,

Another great post. I totally agree that infrastructure projects is the best way to stimulate US, as opposed to the sugar fix of tax breaks.  Like Tasty, I would prefer to see less emphasis on roads and more on other things like water (my field) and the energy grid, as well as alternative public transportation - e.g. a monorail to the Colorado ski areas from Denver to move traffic off of I-70.

I gave you a rec and plan to follow this blog to get the take from other Fools.

Thanks for sharing.

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#3) On January 25, 2009 at 9:08 PM, madcowmonkey (< 20) wrote:

Gar- I heard on the Mark Levin (sp?) radio talk show that some people were saying the challenge for the road systems and the infrastructure was getting it done quickly and helping out the lower rungs of the economic class. Also, something about trying to keep the money out of the white construction workers pocket, but I don't really listen to Marks show for the truth all the time. I just like to see how good his pot is from week to week. 

Tasty- I agree. The states should be more like the island of Sodor from thomas the train shows. Everybody is always doing well on that Island. The property values would be an interesting one to tackle:) From what I remember in AZ is that people would move way the hell out in the desert to get out of the city, and then they would bsitch and complain about traffic on the roads, until a freeway was put in, which they were happy for, because it helped the value of their home. As long as it wasn't out the front or back door. This post just reminded me of something for another post.  It will be interesting to see how this infrastructure thing pans out, I think there is already too much emphasis on the idea already. 

 

EDude-I hated the traffic coming back from the slopes on 70. It literally took 3 hours longer coming back then getting there.

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#4) On January 25, 2009 at 9:39 PM, Tastylunch (29.39) wrote:

madcowmonkey

Yeah the property value thing really depends on where you are. If you are on the inside like me it hurts, if you are on the outside well then I suppose it cna help. :-)

Never really got into Thomas the Train, my cousins were more Teletubbies  kids for some reason. :-)

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#5) On January 25, 2009 at 11:27 PM, cwlawrence (< 20) wrote:

You make a good argument and have some compelling numbers to back it up. However, what about the psychological effect of tax cuts versus infrastructure? Not that I think tax cuts should receive a full third of that money, but I do believe that they play a role. I will support it because I believe that Obama and his team are smart enough to have thought of all this.

Also, you fail to even mention the effect of the other half of the stimulus package... what's up? You don't think this will revive some of the hardest hit of the last eight years?

And finally, Tastylunch, you are absolutely correct. We should take back the 'big three' bailout and put that money into public transportation. Afterall, it was GM and their gang who wrecked trains in the first place...  And it was Robert Moses and his roads that killed cities, built the damned suburbs and subsequently destroyed American culture...

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#6) On January 26, 2009 at 1:17 AM, BigFatBEAR (29.39) wrote:

I agree with Tasty - roads are overdone and inefficient.

I also like Engima's idea for a CO monorail type thing because I-70 makes big-name skiing not appealing to me.

Personally, I'd like to see investments and innovation in the energy and communications grids.  

Last, I wanted to link up some good economist blogs that talk frequently about the effictiveness of gov't spending. Paul Krugman is very liberal and favors a huge stimulus for health/infrastructure, while Mankiw is more center-right, and supports tax cuts as the most efficient and productive route.

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#7) On January 26, 2009 at 9:10 AM, Gemini846 (80.98) wrote:

Sometimes the simple solutions (The CO monorail is an example) that fail because the up front expense is greater than the long term vision. How many stops would that train have, maybe 6-8?.

You get small town governments who would be left out complaining that it wouldn't go through their town so they ask for money for busses and roads et et but never set up the programs.

Here is another example closer to home for me. 

St Pete is trying to move the Rays stadium 11 blocks at a cost of nearly half a billion dollars w/out solving the fundamental problem of parking and the backups on I275.  A light rail that would go over the old Gandy span straight into downtown tampa would allow for a heck of a lot easier commuting. It would reduce congestion on game nights by at least 50%, would encourage more visitors from Tampa, and would provide transportation in both directions for commuters during the day.

Our city planners have opted for more sprawl expanding the interstates on both sides w/out touching the bridges at all. One decent sized pile up blocking 2 lanes and you're on the thing for an hour.

New Orleans has the same problem and ironically the rail lines are already in place.

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#8) On January 26, 2009 at 9:32 AM, binve (< 20) wrote:

Gar, excellent post! And excellent comments too. Tasty has it right on. Light rail solutions have to become more commonplace. Right now oil is cheap. Speculation made it (near term) unsustainably expensive, but the same capricious forces rushed out of oil and into treasuries, so now oil in unsustainbly cheap. But eventually the world will have to deal with peak oil. It is inevitable. Having smart insfracture spending plans that prepare for this is a good idea (IMO). Also there are ways to fund more agressive alternative energy initiatives, which again (IMO) we desperately need for the long term. Here is a link to an interview with John Rubino. http://www.howestreet.com/audio/johnrubino_2008_1217.mp3 The whole interview is good, but skip ahead to 10:45 where he talks about green energy and ways to fund it in this cheap oil environment. It will not be politically palateable, but I think that would be a necessary step. Thanks man!

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#9) On January 26, 2009 at 11:02 PM, TheGarcipian (56.60) wrote:

Tasty, I did not know so little was going to rail. And when they mention "roads", I instinctively think "bridges too" (since they're extensions of the road system), but you bring up good points. I shouldn't automatically assume that. Bridges should come with a higher priority, I'd think, because when a bridge goes down (as in MN), no amount of roads are going to be able to compensate for the economic pain that will cause. I think you and binve have some excellent points re: light rail.

In defense of roads, though, I will say that the USA faces a more difficult problem in rail design & deployment than does Europe or Japan.  There, populations are more dense and distances people are willing to travel are much smaller, so rail systems make very good sense there. Now, I'm not giving up on rail for our large urban areas (Portland is a leader in light rail solutions, and of which I'm very proud), but we also have to face the more difficult "urban sprawl" problem that is commonplace in America. All I'm going to say here (then I'll leave it alone) is this: Roads are cheaper per unit passenger per unit mile than railways (not so for goods!), and they provide more options for people flow. So while I think we should certainly put more money into rail (for our future, with Peak Oil Theory), we can't forget about our nation's highways either. I think we're saying the same thing.

EnigmaDude, living out on the West Coast, we are acutely aware of the energy grid problems, especially in California (Enron gouging, anyone?). While the water systems need upgrading too, I think the electrical grids trump them because blackouts can cause so much more economic pain (think of the wasted food in your freezer for one). We can store water fairly easily, but electricity is so much more volatile.

MCM,  like Tasty, I never had reason to get into Thomas the Tank Engine, but a longtime friend did after his son saw my mom's set for her grandchildren. After visiting me at my parents' house while I was back in town for a short visit, he will forever regret that visit to my parents' house: it cost him over $1000 in Thomas subsidies in the following months!

cwlawrence, you bring up some good points about the other half of the stimulus package and the psychology of the investor/taxpayer. Let me take them in that order. First, I must confess I've not delved into the details of that 49% going for "Health Education States", so I'm ignorant there (for now). For the taxpayer psychology, though, I have thought about it. Take a quick poll around you: in the current economic climate, if you were given a check today for 1%-3% of your AGI, would you spend all of it in order to stimulate the economy? If so, you're one of the few. Most people will spend some of it, but they will also save some of it. Much as the banks are hoarding the $700B that we've just doled out to them, saving it for future acquisitions and not flushing the money into the economy directly and presently. Which is why the Moody's report numbers jive with reality: tax cuts/rebates offer less productive economic gain (as measured by a rise in the GDP) than does infrastructure spending.

Regarding your last point about "take back the Big Three bailout and put that money into public transportation," I agree to the extent that we should do so only if we take out an equivalent pro-rated portion from the largesse granted the banks and investment houses. Crumbling infrastructure is everyone's problem; we shouldn't single out a particular industry. Personally, I'd rather see us give Detroit one last shot at converting their plants to fuel-efficient vehicle design & manufacturing than giving Wall Street more dollars for their bloated balance sheets. At least Detroit was making something tangible, more than I can say for our bankers and their infinite derivatives, CDSs, MBSs, etc. See my previous blog here under the section entitled "Largesse Looms Languidly" as to why. Thanks.

BigFatBEAR, I tried reading some of the posts by Mankiw and Krugman, but being bred as an engineer, I feel lost in a lot of their fuzziness. I want hard facts, and unfortunately, it always seems they can twist the facts to say what they want them to say, leaving out important pieces of data, for instance. Me? I'm just going to keep trying to learn... Thanks for the links.

Cheers all and thanks for the replies. There are more blogs to come,
--Gar

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#10) On January 27, 2009 at 9:46 AM, madcowmonkey (< 20) wrote:

$1000 on Thomas....ouch! I buy all used track for my two boys. It is good clean fun entertainment.

As for the pie in the sky. I find it disheartning that the government feels that throwing money at public schools is the answer. Much of the money is wasted on regurgitated (sp?) text books and idiotic and meaningless programs that do nothing more than what an everyday babysitter could do....this is unfortunate.

I use to be a teacher, so I use to be able to see how money was allocated, especially for the kids that were behind and came from bad circumstances. The kids don't need money thrown at lame brain programs, they need people (good teachers) that actually care about making a difference in the kids life....period. I am surprised at how good the public schools are at developing a kids dependency on programs that the US can't fund for very long. In reality, I think we see less of a return from the money that is given to public schools for programs. The reality is that they just need more teachers, they don't even have to be good, they just have to be human to the kids.

In AZ, my class sizes for High School Algebra, Geometry, and Trig were all over 30 students  and the biggest class was 38. I didn't even have enough room in the class to fit the kids in. Funny thing is there are qualified teachers out there looking for a teaching job, while working teachers are doing twice the work with twice the size of classes than should be allowed.

As for the health. I doubt the government will make much of a difference here. This is the biggest issue that I see in my line of work. There are more and more people that are broke from losing their job or getting too old to work and they can't pay their medical bills or pharmaceutical needs. It doesn't seem too bad now, but there will be a monsterous issue coming our way with this in the future. 

I am very interested in seeing how Obama is going to help in that sector (health care) more than anything else.

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#11) On January 27, 2009 at 1:33 PM, Tastylunch (29.39) wrote:

TheGarcipian

definitely we're on the same page man. Roads only took hold so strong in the US because they did and still do make the most financial sense. That being said I think we both agree, that the nature of the oil shocks provides an incentive for at least a complete backup system to transport freight and long distance commuter travel. :-) I know my city is serviced by ZERO commuter rail. Its' emabarassing.

My city is trying to get stimulus money for a streetcar system (at the "cheap" cost of 37 million per mile!!!)  But I think that makes a lot sense than light rail. 

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#12) On January 27, 2009 at 1:38 PM, Tastylunch (29.39) wrote:

madcowmonkey

man that is disheartening. I guess the question becomes how do you get quality people into schools then.

Maybe the answer lies with our senior citizens, maybe we could give social security/medicare benefits to those retirees who spend x number of hours at local schools. That might not work either I suppose as it might make the differences betwene poor and rich neighborhoods worse (i.e. lots of old people may want to volunteer at Gangbanger High but Abercrombrie elementary may be swamped with the elderly.)

I don't know, man but there's got to be a way to get more teachers in.

I agree Healthcare is the elephant in the room, I prefer not to think about it. I just try not to get sick. I'm more worried about my parents. :-(

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#13) On January 27, 2009 at 4:53 PM, madcowmonkey (< 20) wrote:

I think the retirees would be good to an extent. Sometimes too old doesn't mix well with this generation. My personal opinion is that funding for schools is ample if you do away with all of the standardised tests and bs text books. If we did away with this, the extra money could be applied to hiring more people in the core classes....English, Science, and Math. Not to say PE isn't an important area for the students, but just not as important:)

Personally, if my kids attended a school that has more than 20 kids in a class I would pull them, not because I don't think they would be able to perform, but because the teacher wouldn't be able to perform as well.

As for health. The cost of insurance is ridiculous and the cost of the services is ridiculous. I think a system that the state could implement would be to have an alternative to the system right now. Choice A = go with a private hospital/doctor that you don't mind paying an arm and a leg for. Choice B = go to a state funded facility/doctor and be able to afford the treatments or visits. 

Medicaid and Medicare are just stripping tax payers of their money and the system has shown to have some serious flaws. Again though, there are some alternative programs that I haven't mentioned, but I don't intend to write a book either.

The one thing that I talk with about my parents are getting help before it gets too bad and to take preventive measures to make sure they do not come down with something that could put them out of work for a few months. Of course senior madcow still hangs out in the AZ Sun all day, even though he had some skin removed because of some form of skin cancer.

I guess this is the fine line between what is considered a Democracy or not.

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#14) On January 27, 2009 at 5:18 PM, Tastylunch (29.39) wrote:

madcowmonkey

True , good point.

Maybe Retirees could fill some other non direct niches , like cafeteria workers, janitors etc. so more salary money could be freed up for more teachers.

Maybe we ought to look to privatizing school sports, as loathe as I am to do that (as I think it can help raise fund for the school and would worry about poor kids not playing in a pay to play kind of scenario) maybe we just need to cut down on construction costs etc and just have schools be classrooms,  a cafeteria and a gym again.

man I hate health insurance a bunch of theives if you ask me. If you don;t use it you pay an arm and a leg, if you do they jack your premium and/or boot you. There's got to be batter way. hwat it is I don't know.

Yeah when you get to be  sneior I think most seniors view it as a wuality if life/health balance. Ther's certain things my old man would rather be dead than have done to him or give up. Sounds like Senior Madcow may be the same way.

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#15) On January 29, 2009 at 7:01 PM, TheGarcipian (56.60) wrote:

Here's a great metaphor for this economy, courtesy of The Daily Show's Jon Stewart and Merrill Lynch's John Thain. The video also discusses the Obama's $825B Stimulus Package and the feet-dragging done by the obstructionists currently in Congress.

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When will they stop with the "spending" rhetoric and realize whether it's spending or tax cuts, it all means the same thing: more debt taken on by us all. If you don't make your interest payments because you've got less tax income, you're still not climbing out of that debt hole. Stewart's last line in that video above pretty much sums up the failed policies of tax cuts over the past 8 years.

The followup to this video was given by John Oliver (also last night on The Daily Show), commenting on the first 8 days of the Obama Administration.

Enjoy both vids!
--Gar

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#16) On January 30, 2009 at 6:00 AM, TheGarcipian (56.60) wrote:

And of course, Stephen Colbert weighed in on the House bill and how all 177 Republicants are handling their loss of power there ("our only regret is that we have but one arse to cover for our country"). Personally, I very much like Colbert's idea for backing up their rhetoric and putting their principles into action...

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#17) On January 30, 2009 at 8:59 AM, madcowmonkey (< 20) wrote:

The S.A.C.K. Program......classic.

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#18) On February 06, 2009 at 12:28 PM, TheGarcipian (56.60) wrote:

This week, House minority leader John Bonehead's comment about the Democrats working with "a flawed notion that we can borrow and spend our way back to prosperity" really irks me. I'm not crazy about the Obama plan, but I think there are some good merits to it (in particular, switching all federal vehicles to hybrids is smart on so many platforms). Besides, someone should show Bonehead that the very definition of "stimulus package" is not what he may order up on his hotel room's private movie screen, but is instead government spending.  That's the very definition of federal stimulus, you doofus!

Of course, all this is just political theatrics by the now-powerless and whining Republicants. We heard a little of this disdain about spending when we bailed out their banking friends and investment idiots on Wall Street, but it was extremely faint when compared to bailing out the American worker or, God forbid, the automakers. Jeez, they're complaining about stuff that's not even in the bill anymore (I'm looking at you, Sen. David Vitter of LA). I mean, really people, all this theatrical drama over 2% of the entire bill? Is that chip on your shoulder really that heavy? Is your long-term vision really that impaired?

In case it is, I'll let Jon Stewart put this double-speak into clearer perspective with some "Then & Now" speeches. Remember to respect the monkey paw!

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