Day: March 4, 2009

Why I think the stimulus package is a bad idea

Ok so I normally don’t get into politics in this blog, but I can’t go on without stating my peace about this stimulus package.  This is just my opinion, so take it for what it is worth.  (You’all know I love politics- so it can’t come as much of a surprise!).

Recently President Obama has put forth a $800 billion stimulus package and that’s only a small portion of his $3.5 trillion budget.  Even left-to-center media outlets such as the Los Angeles Times has called Obama’s plan and resulting projections “optimistic, even quixotic”.  I agree.  Do you know this package, inflation aside, is the “largest single spending bill in human history”?

Personally I have always been a believer in low to no debt- purchasing only what I need first and then what I want second.  Call me old fashioned but I have lived to 28, gotten myself educated (earned my MBA last year), rent a nice apartment, and live a nice life without scraping up an ounce of debt- not for a car, credit card, nothing.   Yes, I have been given some advantages to help me stay out of debt; however, there were certainly moments when I could have gotten credit card and other types of debt if I had let my guard down. For example, I went to an affordable graduate program,  and I have always driven cheap cars. The truth is I”m not even that thrifty but on the other hand I have never allowed my spending to get out of control- to build into debt.  If I can do it than the federal government can. It just has to be a priority and there has to be sacrifices.

Clearly I understand that debt is a necessary tool for our economy and that balancing the budget at this point with two expensive wars and other problems is an impossibility.  However, that does not mean that we need to add to the debt by billions and trillions of dollars. Such a spending spree would be like me maxing out on my credit card when I am low on funds just to boost my confidence.   Everyone would think I was crazy.  Millions of people like myself feel the same way about the stimulus plan- a giant spending spree when we need to cutback! Why do you think Wall Street has failed to respond to the supposed promise of the stimulus package? It’s because economists know or  at least are uncertain of the possible side effects of  the plan’s high price tag.

Some will counter my argument by saying that the spending will increase consumer confidence, build public works and provide new jobs.  I am not convinced we need to spend this much- if the concept is true to begin with.  Obama’s stimulus package is often compared to 1940’s legislation such as the GI bill, which paid millions to educate our troops.  Such legislation shows a clear investment benefit that I do not see from the stimulus package- nor do I believe such an investment would cost trillions of dollars.  To me it feels like anything whether it is of value or not is being tagged as something that will stimulate the economy.  It’s like a giant stimulus parade that keeps growing and growing- right along with our debt. Take a look at this interesting article in the Wall Street Journal about this over-spending.  In it the author argues that such reckless spending actually hurts our economy and will force us into “a longer period of recession”:

“But after five weeks in office, it’s become clear that Mr. Obama’s policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence — and thus a longer period of recession or subpar growth.”

Others will argue that the New Deal of  the 30’s and 40’s was an example of government stimulated growth.  I used to think this to but in recent reading I have done there appears to be much debate on this topic.   Economist’s Christina and David Romer (who incidentally actually work for Obama on his Council of Economic Advisers) said “a simple calculation indicated that nearly all of the observed recovery of the US economy prior to 1942 was due to monetary expansion.  Huge gold inflows in the mid- and late- 1930’s  swelled the US money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods.”

Isn’t that interesting?  My whole life I have been taught that the Roosevelt spending and the war got us out of the Great Depression.  (Despite my mother arguing the opposite!) In fact, the National Bureau of Economic Research did a a study on the effect of the economy from military spending during World War II.  They found that “military spending had virtually no effect”.  Even if you do not accept such an argument, the stimulus presented in the 30’s and 40’s paled to what is being offered now- and my fear is that we’ve only just begun.

I do think that some of the New Deal programs had a positive economic impact merely for the motivation it gave  melancholy unemployed workers.  Massive groups of unhappy citizens are bad for democracy and create shaky policy, even revolutions; therefore, some government spending in this regard is appropriate- just not trillions of dollars.

There are clearly items such as stabilizing the credit market that need to be addressed- but wasn’t that what the $700 billion was for that we already spent? $700 billion we did not have?  Now we are adding to it!  To me it is outrageous.  Do you all realize that with just this $700 billion you could give every American $3500 to spend how they wish?  Doesn’t that put it in perspective!

Again, I recognize the need for some intervention and spending but I just think the stimulus plan and the budget are out of control. The fact is that before this our government was already in debt to China and other countries.  Now we could end up as a pawn in their international games.  I want a fiscally independent America.  One that can look at this crisis and actually plan for a productive economy in the future- instead of building mountains of debt for future generations.  Let’s have a little bit of perspective here and be willing to sacrifice pork programs (and even good but non-essential programs) for the plans that will truly build up the confidence and strength of Americans and our economy.   I love this country and I want to see it succeed not flounder in wasteful debt!

Take a look at this video.  It is admittedly right-wing but I think the statistics make some good points.  To Senator Shumer- I am one of the chattering class, and I care: