The Obama Stimulus plan: will it go down in history as the plan that saved America just in the nick of time from the evil misallocation and lax oversight from the Bush Administration? Well, there are many people dwelling in this fantasy. Sure, spending billions on new stuff is guaranteed to help in some way. Just as if you maxed out your credit card buying up goodies you've always wanted, your life will be marginally better - but you shouldn't be fooled into thinking you have outright earned those items. Your debt looms ahead of you.
Also, the title stimulus implies something more than stop-gap, ad hoc spending escapades. In a recent video from one of my favorite economists, Obama's So-Called Stimulus: Good for the Government, Bad for the Economy (also posted below) Dan Mitchell aptly notes, "Only in the upside-down world of Washington do people think that making government bigger is a recipe for economic growth." Sadly, believing this fallacy is so popular today, people are willing to turn economic facts on their heads. For example, I've heard some people claim that by the government investing billions of borrowed dollars, economic growth will follow. This fantastical leap of faith is not based on analysis of the funds invested and their projected cash flow outcomes. (Which, I'm sorry, that is how one measures economic growth of any entity.) This bizarre assumption is based only on faith in the rhetoric of Bush and now, Obama.
In order to determine whether or not the stimulus will actually stimulate anything (versus simply subsidize), the programs planned would have to be productive in the sense they will generate additional cash flow. Very few, if any, of the plans will do this with any certainty.
For example, the Western Area Power Administration will be given $3.25 billion in "repayable loans" that (surprise!) won't have to be repaid if their forays into new energy technology fails. This is highly speculative investment at best, with absolutely no guarantee of stimulus. Furthermore, the government is simultaneously discouraging private investment into wind energy.
To cite a personal example, my in-law's home sits atop a large hill where they are exposed to gusts of wind regularly enough they thought about purchasing a windmill to place on their property to help generate their own energy. According to the progressive think-tank, Network for New Energy Choices, not only are there bureaucratic hurdles to be overcome for such projects, private customers who provide electricity in excess of what they use end up subsidizing the electricity company, being forced to donate their electricity at a discount, thereby allowing the electricity company to sell to their other customers at a profit. Laws must change to allow more freedom, and less coercion by government entities.
Another dubious stimulus proposal involves allocating $22.129 billion to fund home loans to low-income section 502 borrowers in the form of subsidized ($4.108 billion) and unsubsidized guaranteed ($18.111 billion) loans. Don't let the word "unsubsidized" fool you. Again, if these low-income borrowers default, the government is promising private entities they'll foot the bill. Does this sound familiar to anyone? My favorite is how the Rural Development Housing and Community website pitches these loans to private lenders as "relatively risk-free way to expand [investment and loan] portfolios." Has the recent mortgage crisis not taught anyone anything?
If you were sick of Bush, you are probably saddened to hear this stimulus is more of the same. This video highlights some of the striking comparisons between the Obama and Bush policies.
2 Comments:
How far did you get in reading the stimulus bill?
@Daniel - too far, or not far enough, depending on the criteria.
Honestly, I only got into page 70 or so in the first version, and I've been skimming the Senate amendment for changes. But it's an enlightening activity to be sure!
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