President Doom’s Stimulus Hoax

By Guest Contributor AAA Again

aaa.again is the nom de plume of a frequent commenter who has agreed to be a contributing writer.  He writes from the perspective of decades of success in business, finance and entrepreneurial enterprise.   Learn more about him on the About Us page.

Valentine’s Day is fast approaching, and we all are all thinking about stimulus, right?  However, on this blog we talk about all things economic and political, including the government stimulus package.  For Valentines Day you are on your own.  Good luck.

In recent weeks this blog has more than adequately exposed and enumerated portions of the waste, fraud and hypocrisy that characterize the “stimulus” package, haphazardly crafted by a Congress drunk with its newfound power.  So I thought I would attempt to weigh in with some thoughts that are not so much an amplification of the problems with specific spending proposals, but rather some hopefully thought provoking queries highlighting the responsibilities of leadership, and some basic economic considerations.

Welcome to the Office, President Doomdoom-administration

During difficult economic times in the past, our national leaders have offered messages of various tones, such as President Roosevelt’s “the only thing we have to fear, is fear itself.”  Or how about President Reagan’s classic message of trust and hope:  “stay the course,” which led to “Its morning in America.”

On the other hand, President Carter, a less optimistic “leader,” gave us the infamous “malaise,” speech and admonished us to don our cardigans and turn the thermostat down.  Pretty inspiring, eh?     And now we have President Doom, who intones “pass my bill, or else disaster will follow, you will all be unemployed, to be followed by a slow and agonizing death.”  OK, I took literary license.  But you get my point.  This is not leadership.  This is fear mongering.

Ask yourself, with such supposed high stakes, why do we have the pure politics and blatant pork spending in both the House and Senate bills?  If things are so dire, isn’t there a responsibility to make every last dollar work to get a reasonable economic result?  As recent essays on this blog have pointed out, that is far from the case.  I remember when we suffered the 9/11 attacks.  The parties came together because there was real concern and fear in the country.  I don’t see fear in Washington today.  I see opportunistic, garden variety pork politics designed to expand government.

Give It to Me Straight, Doc!

How bad is it??  For those who are not students of economics, there actually has been wide spread agreement among economists for some time that government fiscal stimulus (spending) is not a particularly effective counter to recessions.  (Paul “I Never Saw a Government Expenditure I Didn’t Like” Krugman aside).

Somehow the notion has lost its way in the current environment.  Why?  Perhaps because monetary policy – the Federal Reserve induced reduction in interest rates – is viewed as tapped out.  The rates can’t go any lower.  Or perhaps because of the canard that “these are extraordinary times,” so we can throw the rules out.  Politicians making justifications like that should make you suspicious.

Extraordinary times?  Let’s talk about that.  The primary statistic we get in media reports and political speeches is “job losses greater than any time since the Great Depression.”  Have you noticed that only raw numbers are cited?  What these people fail to tell you is that if properly characterized, job losses as a percent of the size of the population aren’t even close to the worst.

The “workforce,” defined as everyone with a job, plus everyone who is unemployed but wants a job, is 47% larger today, than it was at the beginning of the 1981-82 recession. You would expect the raw job loss numbers to be bigger today.

The unemployment rate during the 1981-82 recession reached 10.8%.  It is now 7.6%.  President Obama says we’ve lost 3.6 million jobs since the current recession began.  In fact, if that number doubled the unemployment rate would reach 9.8%, still not equal to the 1982 rate.

Give It to Me Straight, Doc! II

So will the stimulus cure it??  I won’t get into boring academic jargon or mathematical models.  Let’s just say, it will work, but just a little, and not nearly as much as advertised.  But more importantly, one has to ask, as any economist would, not just what the potential benefit of an economic policy is, but also what are the costs?  So what are the potential costs of the stimulus?  They are threefold:

  • A short term stimulus may have a benefit in, well, the short term.  But when the stimulus is withdrawn, the effect is reversed.  Said another way, unless you believe in a strategy where we are to have serial stimulus packages every two to three years, (which is silly, not to mention unaffordable) we are just moving recessionary contraction from today until a couple years from now.  Kicking the can down the road, if you will.
  • Classic government fiscal stimulus largely takes the form of construction projects.  It sounds so seductive and easy.  “Hey!! Here’s some money.  Go build some stuff, and employ some people.”  (It gets labeled ‘infrastructure,’ today.)  Well, yes, we do need some infrastructure rebuilding.  But how much?  More importantly, has anyone noticed that we just came off an easy credit and government policy induced building binge, ending in a classic bubble bursting?  That bubble means we simply have too many structures, residential and commercial, and more construction workers than the long term needs of the economy suggests we should have.  The country needs to make adjustments; those workers need to get at the task of moving into other lines of work.  But what does the stimulus package do?  It has us, and those workers, diving right back into that construction mess.  This only means that when the stimulus money runs out, those workers are two years older, and still facing the same problem.  Delaying the inevitable is not good policy, it’s a cruel joke.  But it is classic government, and it carries a cost.
  • Again, without getting into economic jargon, there is a textbook economic identity that no economist, left or right disagrees with:  savings = investment plus the current account.  (The current account is the deficit, however financed.) So if the government stimulates spending then in the short run savings must go down (your only choices are to spend, or to save), which means investment goes down or the current account goes down.  Said another way, we reduce growth inducing investment, or we finance the deficit with more debt, or selling off assets.  Those are real costs.

If your eyes have glazed over, let me put this all into summary perspective.  All this means is that working our way out of the current economic issues will take time, perhaps two to three years.  This is the way a large and complex economy works: slowly.

Remember the 1999 bust??  Then 9/11.  It took time to recover.  Bust in ’99, sliding into recession in 2000; recovery not until 2003.  Recoveries require population growth, older goods wearing out, productivity growth, investment and innovation.  Perhaps, dare I say it, even a tax cut?!  In other words, recovery the old fashioned way.  Slow, steady, hard work.  Beware the man peddling a magical quick fix.  It’s not what it seems.

President Doom is clearly playing politics, telling us of his concerns about the unending depths of the recession, but in my opinion really using this fear mongering as a prod to implement a leftist agenda.  Further, all the costs I cited about the stimulus have a common theme: they don’t solve the problem, they just kick the problem down the road a few years.  In my opinion, President Doom is hoping for a quick fix, hoping that the 2010 congressional elections will be conducted in an environment of recovery.  However, chickens eventually will come home to roost, as his pastor has informed us.  I don’t like politicians who play politics with people’s economic wellbeing.

We once had a great President, Ronald Wilson Reagan, who entered office facing runaway inflation, sta
gnant productivity and high unemployment, and a dispirited public.  He told the nation that if they stayed the course with his policies, and put their belief in themselves, the country would recover and achieve new heights.  It was tough, but two years later he was right.  And twenty-five years of growth and prosperity were unleashed.  He didn’t go for the expedient quick fix.  That’s called leadership.

Unfortunately, in this Presidential election cycle we got President Doom, who trades quick fix gimmickry for political gain.  As all the country has just witnessed, it’s the Chicago/Illinois machine way.

6 Comments so far

  1. Chuck on February 15th, 2009

    fear mongering? No. Obama is telling it like it is.

    After 8 years of economic disaster under Bush policies, with millions being thrown out of their homes onto the street, and millions losing their jobs and their health insurance this country is in terrible shape.

    I want an honest President, not a washed up actor trying to tell me everything will be ok if we just keep doing the same stupid things that got us into this crisis.

    Ronald Reagan was a GE washing machine salesman on TV, who hoodwinked people like my uneducated parents to vote for him.

  2. Sarah Livingston on February 15th, 2009

    Obama is trying to make things look as frightening as possible so we’ll lie down for his power grab. I live in Chicago and I think we understand better than the rest of the country.

    Obama is a tough, tough politician, trying to grab all the power he can.

    they accused Bush of trying to scare us when he talkied about the terrorists who had just demolished the world trad center! But its OK for Obama to try to scare us, to threaten that the whole country will go into a ditch if we don’t hand a trillion dollars over to him and his buddies.

  3. […] last Thursday, I was reading a post titled, “President Doom’s Stimulus Hoax” on Liberty Works, talking about the blatant fear-mongering spewing out of Washington these days. […]

  4. aaa again on February 16th, 2009

    Nice jumble of words, Chuck, but no intelligent thought.

    Here is a homework problem:

    1. Tell us exactly how bad the current situation is relative to The Great Depression, the 1958 recession, and the 1981 recession. Facts please, not mindless drivel.

    2. Tell us what the term “globalization” means, and exactly what policies it entails, and on what date its origination is pegged.

    3. Give us the relevant statistics on job creation, wealth creation, and equity creation during the period of globalization.

    4. Compare current policies with those that fostered glocbalization, by major categories.

    5. Which two Presidents are most closely linked with the most important policies fostering globalization?

    You in a heap a trouble now, boy!

  5. Chuck on February 17th, 2009


    Your stumped with nothing to say because you know Im right.

    you should be doing the homework.

  6. aaa again on February 18th, 2009

    Nice dodge, Chuck. Your inability to articulate a cogent argument is duly noted.