The Stimulus -- The Anatomy of a Failure

Discussion in 'Financial Cents' started by Quigley_Sharps, Jul 10, 2009.

  1. Quigley_Sharps

    Quigley_Sharps The Badministrator Administrator Founding Member

    The Stimulus -- The Anatomy of a Failure
    By Rich Lowry
    Barack Obama spent all of 2008 running against the sputtering economy and warned earlier this year of a crisis "we may not be able to reverse." Yet, as the unemployment rate climbs beyond the administration's projections, Vice President Joe Biden informs us that the administration "misread how bad the economy was."
    Apparently we were going to experience a once-in-a-lifetime economic crisis comparable to the Great Depression without a particularly high unemployment rate. This was the promise of the Obama administration, which indulged in hair-raisingly alarmist economic rhetoric while pumping out unduly hopeful economic projections. If the Reagan administration gave us the rosy scenario, the Obama administration has given us the rosy apocalypse.
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    The rosy apocalypse is an artifact of both ideological naïveté and knowing cynicism. The administration genuinely believed, against all historical experience, that government spending would boost us out of the recession. And it knew it had to assume an unrealistically rapid, robust economic recovery, because otherwise the already-horrid deficit projections would look worse. So Obama talked up the crisis to get the stimulus passed, and after that . . . happy days again!
    If only the job market were cooperating. In a report prior to the passage of the stimulus, the soon-to-be head of the Council of Economic Advisers, Christina Romer, suggested the unemployment rate wouldn't increase beyond 8 percent. It now stands at 9.5 percent and will go higher. The Obama stimulus is falling victim to the poor timing and inefficiencies of all such recession-fighting spending programs.
    Out of the $787 billion of the stimulus, roughly 60 percent goes to individuals in temporary tax rebates and increased entitlement spending. This will provide little boost to the economy. History says that people will only spend 20 percent to 40 percent of a temporary tax rebate, for the very good reason that they know it's temporary.
    According to the Bureau of Economic Analysis, disposable personal income increased at a healthy 1.2 percent in April and 1.6 percent in May. Is this money coursing through the economy? No, it appears most of it is being saved. In April, personal consumption declined 0.10 percent, and in May it ticked up a mere 0.20 percent. Americans refuse to spend their money as heedlessly as Obama's economic gurus hope.
    Then there is the direct government spending. It will definitely make its way into the economy. The question is when. It has to run through various bureaucracies, which means delay. According to Doug Elmendorf, the head of the Congressional Budget Office, only about half of the $308 billion in spending will make it out the door by the end of fiscal year 2010 (i.e., by next September). That's about $150 billion during the next year and a half in a $14 trillion economy - in other words, a trifling 0.70 percent of the economy during that period.
    Only 11 percent of that spending will take place by the end of fiscal year 2009. Most economists think the economy will be growing by the end of this year, so ideally the stimulus would begin receding in 2010 rather than taking effect in earnest. According to Elmendorf, even by the end of fiscal 2011, only 72 percent of the spending will have occurred. That means more of the spending will come in fiscal 2012 and beyond than is happening this year during the recession.
    And this stimulus was touted as timely and targeted? Confronted by the inadequacies of the current program, its advocates have a predictable solution - a new one. Since the worthiest projects were presumably already covered in the first stimulus, a second stimulus would have to fund even more marginal priorities, and it would get into the economy even later. In other words, it would replicate rather than rectify the failures of the first stimulus.
    Obama is resisting a second stimulus so far, but was foolish ever to go down this route. Now he's stuck hoping for the advent of his rosy apocalypse - as soon as possible.

    <SCRIPT type=text/javascript> checkTextResizerCookie('article_body'); </SCRIPT>Rich Lowry is the editor of National Review.
  2. ghrit

    ghrit Bad company Administrator Founding Member

    Yesterday, the Wall Street Journal had column that said the second wave of subprime mortgages is swelling. No surprise, either to us monkeys or the wizards in real estate. Hitch up your shorts, tighten your belt (if there are any notches left) it's off to the races.
  3. QuietOne

    QuietOne Monkey++

    So-called economists talk as if the stimulus package could have been a success if it was timed correctly. Silliness.

    The wealth of a nation isn't money. Wealth is what that nation produces. Money is a demand on that wealth. So our government prints more money, spends it on useless, politically attractive garbage and at the same time passes new laws discouraging production of actual goods and services. Why does anyone think this could actually work?
  4. overbore

    overbore Monkey++

    Exqusitly phrased and factually correct; well done, Sir.

    Laus Deo

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