Time For An Economic Stimulus Plan
January 17, 2008
It seems like the only thing I’ve heard this week on TV is “economic stimulus” (I watched CNN last night, not American Idol). Hillary has an economic stimulus plan to help homeowners. Romney has an economic stimulus to help Michigan. Bush has an economic stimulus plan to help Haliburton. Everyone is offering their constituency an economic stimulus plan. Ben Bernanke (Chairman of the Federal Reserve) has announced his support for a 50 to 70 billion dollar economic stimulus plan.
All this economic stimulus talk makes me embarassed to be an American:
First of all, we are panicking because the economy may hit a recession, and we are doing everything we can to stop it. But recessions are not always bad things; they are necessary and filter out bad investments (like subprime mortages) that, if left unchecked, will lead to deep depressions (there wasn’t a single recession between the end of WWI and the Great Depression). A recession is often like a flu shot. It hurts, but at least you didn’t get the flu.
Secondly, we have a 14 trillion dollar economy. Is anyone really so naive as to think that $50 billion dollars can fix a problem within a $14 trillion dollar economy? It’s like trying to keep GM’s stock from falling by buying a few dozen shares.
Thirdly, the solutions proposed are not designed with the intentions of best aiding the long-term economy. The solutions proposed are designed with the intentions of best placating short-term voters. Hillary wants homeowners to vote for her. Romney needed Michigan to vote for him. Bush needs the economy to stay afloat long enough to coast out of office so we don’t wake up and impeach him.
And lastly, no one seems to care where the $50 billion dollars would come from. Nevermind that we are already hundreds of billions of dollars over budget, and that the National Debt is now over 9 trillion dollars. Nevermind that a delayed recession coupled with a massive debt and retiring baby boomers will almost guarantee a depression. No, let’s give people a tax rebate. Maybe they can start doling out “Soma” too.
P.S. Obama did not once mention an economic stimulus plan in the Nevada debate. He also mentioned that maybe, just maybe, it would be a good idea to balance the budget.
One of your best posts yet, Andy. I knew there was a reason why I keep you around.
Holy cow, Andy and I agree on something!
Just a quick note, just because Obama did not mention a stimulus plan in the debate doesn’t mean he doesn’t have one. He has talked about one that is even larger than Hillary’s proposed.
But I completely agree that a temporary stimulus package isn’t going to do anything. When Bush tried it in 2001 most people ended up just saving the money, rather than spending it (according to folks at NPR), delaying any ’stimulus’ the money may actually have.
Yes recessions hurt some people, although most really don’t feel it at all. But you are absolutely correct in saying that they are necessary. The last two slowdowns we had came at the tail end of massive overvaluation of assets causing people to believe the good times would never end: the dot com boom/bust, and now real estate (and not just subprime mortgages). When people’s expectation become unrealistic they have to be brought back to earth. It’s just not politcally popular to say so.
I honestly don’t think there is a single politician out there who believes that $50 billion dollars is going to help one iota. If they actually believed that I could never vote for them because of their monumental ignorance of economics. But they can’t say that for fear of being accused of not caring about ‘working and middle class families, the backbone of America’.
Another reason I admire McCain for telling Michigan the truth. Even if they didn’t want to hear it. (And I do give a belated compliment on the post from the 15th too).
I’m also worried that a “stimulus” plan is just another set of words for “pork”. At this point I’d be up for first saving that $40 billion a year the US spends subsidizing agriculture. If we are going to a enter a recession why should 2% of population receive special treatment? After that we can scrap the missile shield and pay back the national debt. Thats all the stimulus we need.
Andy:
And to fill the pockets of the lobbyists powerful enough to get that money directed their way. There’s no way that money is going to be “made available” for loans or whatnot; no, it will go to specific business who “show” they have a “need” for it. You know, like banks that despite the crashing mortgage market, have posted profits every quarter since 1937 (I exaggerate, but you know what I mean).
Aside from that..
You’re right, $50 billion is NOTHING compared to even the size of the defaulting mortgage market. What are we at now, something like $700 billion? And that’s just straight investment, not including investments that are set to default in the next 6 months, and investments that will be pulled as a result of the mortgage defaults.
The real effect of the mortgage implosion will amount to TRILLIONS, so you’re right, there’s not a whole lot any government can do about it. And recessions are necessary, as you say, to separate the wheat from the chaff.
Personally.. I think we’re finally starting to see the end result of Bush’s economic policy. He got to ride Clinton’s coattails for his first few years in office, and the GOP has touted the economy’s robustness for years as evidence of his good ideas. I don’t think they were good ideas, and I think what we’re seeing now is the beginnings of the consequences of his policies.
Obviously it’s WAY more complex than “Bush caused it” but his culpability certainly is not zero.
In my opinion our Government tends to be rather short-sighted on what they feel is best for our economy as a whole. For the past twelve years I have earned my income as an In-Home Care Provider through my State’s Senior and Disabled Citizen’s Program. While I understood the necessity of redefining the levels of care we are willing to provide our growing population of baby boomers who are now coming into their retirement years, I find that cutting the In-Home Care Services from the over-all Social Services Package was a rather short-sighted blunder. Not only did I have clients that lost their much needed services, forcing them to move into a nursing facility or do without the assistance they need, I lost revenue. A lot of revenue.
Before Bush decided to revamp the Social Services Program (SSP) I had so many clients that I was earning an average of $1500.00 to $2000.00+ a month, depending on how many hours I wanted to invest in working. Earnings that I actually paid taxes for, not to mention the house that I was able to buy (which meant that I also paid property taxes as well) until I had to sell my house because I couldn’t afford the payments anymore. And there was still a two+ page list of available clients always on the boards (Which is actually fairly necessary in this line of work due to client turn-over as clients die or are placed in long-term care facilities when they are no longer able to live alone or depend on their primary care-givers.) in need of a Provider.
Now, after Bush’s SSP revamp, there are hardly any clients available and it’s a fight just to find even minimal employment with which to support myself. And it’s not like these clients were actually a drain on society as I know that many of my clients paid in a portion of the monies that I was paid, depending on their ability to pay. Not to mention the fact that it is a well known fact that keeping these people in their homes is more cost effective than keeping them in a facility. Or the fact that as one person I was able to service several clients in their homes rather than several providers serving one client, as would happen, in a facility.
Consequently I’ve found myself unemployed more often then employed over the better portion of the past three years. While I have been thankful to be able to receive unemployment benefits (UIB) and foodstamps (FS) during the lean times between clients (making me, in my opinion, a drain on society rather than an asset) I find the necessity to draw on these meager resources rather frustrating to say the least, as you can imagine, and nerve wracking in the larger sense.
UIB’s are only available for a given period of time and then they expire, leaving me with the worry of where I’ll be in the future when my benefits run out. Even though I have been looking for work in other fields I haven’t been able to locate more durable employment there either (After all, we all can’t be CEO’s, Actor’s, Singer’s, Writer’s or Survivor Winner’s and such.).
Not only that, you are not allowed to obtain an education while you are receiving UIB’s either. Another short-sighted blunder in my opinion. How can one become more employable if they are not able to persue the education that would make them more employable?
I think that we need to reconsider the effect that these rulings, and others like them, have on our economy. If our Government had thought to revamp the Senior and Disabled Person’s Program in a different manner, say for instance, charging a higher fee for their services, rather than cutting their services all together, people like me would still me an asset to society and the people who received these services would still be living in their homes rather than in a more costly facility. And secondly, if I could have spent the past few years attending a training program in addition to receiving my UIB’s I might actually be able to find employment in a different field by now, again, making me an asset to society rather than a drain.
[...] And thanks to the stellar input of my good friend and co-blogger Andy, great conversations — like this one — happen with encouraging [...]
Kathyrn - I am so sorry to hear about your difficulties as a result of short-sighted economic policies. I think the most important thing the government can do to keep our country strong economically is to subsidize job training and education, and I am shocked to hear that you cannot pursue educational avenues while receiving UIB’s. That seems to me to be the ideal time to pursue new job skills.
Barack Obama mentioned in the Nevada debate his plan to provide free tuition to students of any age willing to work a set number of hours per week outside of school and maintain a certain GPA, and to provide loan for things like room and board while undergoing education or training. (I think he set the number of hours of work too low at 10 hours per week in terms of its impact on our economy, I think it should be 15 or 20, but I really have no room to criticize that since my parents paid for me to go to college). I think John McCain said some similar things in Michigan.
I hope deeply that in 2009 we have a government that will create avenues for new jobs since it appears to have no interest in protecting old ones (except Mitt Romney, but he’s about 15 years too late, and only cares about jobs in Michigan which he wants to protect with ridiculous government subsidies).
Patrick, Arjun, Mark: I think Bush came into office with the goal of increasing the economy from the top-down. Unfortunately, this was tried in the 1920’s, where Henry Ford, author of the “fair wage” was earning 345 million dollars a year by todays standards. This wage disparity (which is basically John Edwards entire platform) was considered largely responsible for the Great Depression.
The underlying problem with the economy is an extreme maldistribution of income between the working class and the capital owners. When a CEO can make 300 million dollars while an average worker’s wages haven’t even kept pace with inflation what results is a dysfunctional market economy starved for consumption spending. The average American has had to fuel his/her spending with debt obtained by borrowing on the equity within their home - that phantom equity has now evaporated.
In order to correct this out of balance condition there needs to be laws in place (similar to the anti-Trust legislation) that caps the annual income of all capital owners and their surrogates (CEOs, CFOs, etc.) at a specific federal percentage above that of the highest paid worker within their respective firm. Also, we need to eliminate labor arbitrage by canceling all Temporary Worker Visa programs (L-1, H1-B, etc.), and establish tax penalties for firms that expand their workforce above some threshold through outsourcing, or replacement hiring in foreign locations.
Essentially, FDR was accurate when he characterized the Great Depression as an out-of-balance Economic malady. Rural income prior to the Great Depression was significantly lower than urban income, now (overvalued home equity) as then there was unlimited amounts of overvalued phantom equity flowing into the stock market, the income differential between labor and capital while nowhere near the current astronomical level was still much higher than sustainable. There in lies the root cause of the out-of-balance condition that precipitated the Great Depression. Any system including the market economy that gets to far out balance does not function properly. Certain constraints need to exist to keep the market economy from slipping into a dysfunctional state. Balance is the essence of stability nothing short of this will guarantee permanence.