Road Signs: You Are Here (Part Two--The Obama Stimulus Plan)
Since I hit my 20k character limit with my last post, I’ll try to keep this one shorter.
Continuing from my last post, here are more signs of the times, as I seen them:
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:
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,