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The more I look at the stimulus package, the less I like it



January 27, 2009 – Comments (4)

Many in the financial media have been pointing to the government's planned stimulus package aka the “American Recovery and Reinvestment Bill of 2009″ as the solution to our country's economic woes.  I was even somewhat excited about the prospect of the government riding to the rescue of the economy on a white horse...until I looked the gift horse in the mouth.  The more closely I look at the proposed stimulus package, the less I like it.

I blogged last week about the package will not be nearly the boon for infrastructure companies that many believe: The myth of the coming infrastructure boom.  Today I sold a significant portion of my remaining holdings in companies in the sector.  The small percentage of the total package that will actually be spent on infrastructure projects will be spread out over a number of different industries and some of the spending will not occur for years.  I highly doubt that the new government spending will come anywhere near making up for the tremendous loss of private capital that had been flowing into the sector.

Anyone who really believes that things in the government are different now that Obama is in office really needs to read the following New York Times article: Defense and No Apologies From Author of Fiscal Bill.

I hope that Obama will eventually be able to bring the best ideas from both political parties together and eliminate the waste and pork that has existed in Washington for years, but doing so will take time.  The government, and probably rightfully so, wants to put the stimulus package in action ASAP.  As a result, it is going to be filled with all sorts of garbage and pet projects of the bill's authors rather than things that would be really simulative for the economy.

I realize that Republicans are always going to feud with Democrats and that it is not surprising that they are bashing the stimulus bill in its current form, but Representative Paul D. Ryan of Wisconsin, the senior Republican on the Budget Committee, makes a valid point with this quote about the bill and its author Representative David R. Obey:

“This is 1936 economics,” Mr. Ryan said. “But it reflects David’s ideology and his economic doctrine. They took everything in their file cabinet that has been piling up for 100 years, threw it in this bill and called it economic stimulus.”

While they are nice and they help people, things like $30 billion to subsidize health insurance for those who lose their jobs and $15 billion to increase college Pell Grants will do very little to stimulate the economy right now, which is what we need.

Even the tax cuts in the proposed bill stink.  More than half of the cuts in their current form are $500 tax credits for people who earn less than $75,000.  Didn't we learn our lesson when the government sent out the stimulus checks last year?!?!  Studies have shown that one-time tax breaks are more likely saved than spent.  They don't do nearly as much to stimulate economic activity as permanent tax cuts do.  This tax cut is stupid.  It will not get spent with consumer confidence sitting at such a low level and the jobless rate rising. 

This sort of half-assed tax credit doesn't cut it.  By nature, the government is wasteful, just like any other large organization is.  Friedman had a very valid point that government spending does not really stimulate demand because every dollar spent by the government must be eventually paid for with taxes that are taken out of the economy.  One could argue that deficit spending to help us out right know when the economy really needs it is necessary.  Fine, but it you're going to do it, do it right.  Either give Americans a real tax cut and stop wasting money on pet projects OR spend the money on real projects that provide a lasting benefit for the country and create real jobs like modernizing the power grid improving railroads, building mass transit, etc...


4 Comments – Post Your Own

#1) On January 27, 2009 at 11:39 AM, tally2007 (63.83) wrote:

I so agree with you. This morning I got one of those "funny" emails from a friend regarding the stimulus package. You probably got the same one. You know, it's the one that said that none of that money will stay in this country, because if it's spent on electronics, it will go to Taiwan or China, fresh produce, Mexico, etc. Unfortunately, it is so true.

My father is 93 years old and still going strong. He even still rides his lawnmower and does his own yard. During the depression, he cut trees in CA with the work program established to create jobs, as did my uncle, still going strong at 90.

There are so many young men in this country with no hope of advancement --except through sports or other undesirable means. Why can't we use this same idea to get them working toward a productive future? It would save on all that taxpayer money going to feed those in prisons and give them the self-esteem needed to want more and possibly even go on to become more educated.

We need rapid transit and organic farms (that would also save on healthcare), windmills and solar panels. There's a start right there. Put people to work!



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#2) On January 27, 2009 at 12:04 PM, TDRH (97.30) wrote:

The last stimulus check went into the gas tank.   Not sure who this one will go to, but the effects will be short term and offer no foundation for future growth. 

For long term growth it is worth it to go into debt for viable, efficient infrastructure, education, or retraining displaced workers.   The service economy is dead and has polarized our country to both extremes.  We have to retrain and retool if the US has hope of being in the top three economies in the world going forward.  When I speak of education and training, I am not speaking of administration and bureaucracy, but that is another topic. 

The stimulus is a joke, and offers no long term view or goal.   It is a short term fix - that fixes nothing.     

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#3) On January 27, 2009 at 2:00 PM, mrindependent (57.57) wrote:

I am glad you see the light.  I have never supported any stimulus bill and never will.  The government is not institutionally capable of smoothing the economy. PERIOD.

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#4) On January 27, 2009 at 4:07 PM, rofgile (99.35) wrote:

I respectfully disagree with your analysis of the stimulus bill.

The large goals of improving the energy grid, providing high speed internet for everyone, and doubling the current renewable energy production within the decade are all fantastic goals.  I wish another big goal would be public transportation systems, but that is another matter.

The small funding that people are complaining so much about in health care, contraceptives, grants, etc are in the bill for a purpose.  This next year states are going to begin to have real budget problems.  The state spending on these areas funded in the bill will be the first things to be cut.  By the federal government getting in on these issues they are doing two things: 1) giving the states the ability to save the money from these areas to place in other needed areas during the coming tight budgets, 2) keeping the programs that the states will soon be cutting.

As a scientist, I am absolutely delighted that the bill is going to increase fellowships for students - and is going to increase the NIH budget.  Science hurt under Bush.  Really hurt.  It is nice that Obama is still keeping science as a priority even with other economic issues at the forefront.  

The other neat aspect of the bill is that part of the infrastructure projects is to modernize school buildings.  This is overdue - and is a great use of money for something productive.

Anyways - I am in favor of this bill since it is spending on education, science, renewables and helping keep small programs that will be needed when everyone is out of work and without health care.

In your previous post you had a breakdown on the spending of the bill in a graph form (before the bill came out).  Do you have an updated graph with the spending now that the specifics of the bill are available?  I am guessing the spending will be higher on the infrastructure section now..

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