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Saturday, July 11, 2009

Are We Stimulated Yet?

They say the stimulus is working, that we'd be worse off without it. They say we might need another massive stimulus bill. And they say only 10 percent of the first stimulus has actually been spent.

This is what we're hearing out of Washington as this week draws to a close. (Some of it we've been hearing for a while now.)

• The initial $787 billion stimulus is working. Things would be even worse now if we hadn't passed the first stimulus package.
• The economy was worse than we thought; we may need another stimulus package.
• Only about 10 percent of the money from the first stimulus package has been spent.

I'm willing to accept that there is more truth here than error.

Of course the stimulus is working -- so far. You could spend your $80 billion on bow ties for stray cats or a study of the mating habits of fence posts in the western deserts, and it would still stimulate economic activity. Someone would get paid to do something. Someone would buy stuff from someone else. Someone else, in turn, would buy other stuff, and so forth, and the economy would be stimulated to some degree.

On the other hand, any moron with a credit card can improve his standard of living considerably for a few hours or days, if he is sufficiently short-sighted. It is only later, when the bills come, that spending far beyond one's means is revealed as folly. Only later -- or in California's case, much later -- does the moron begin to see how much worse off he is in the end for spending irresponsibly in the beginning.

So for now our stimulus package is stimulating. Only later do the bills come due, in the form of debts, deficits, excessive inflation, and massive opportunity costs. No doubt the perpetrators of this colossally expensive economic fraud hope to be able to blame these consequences on others, by the time they appear.

I also believe that the economy is worse than they thought. They apparently thought that a mere $80 billion or so of immediate stimulus would be enough to right the ship -- judging by what they've actually spent -- so that's how much short-term stimulus they put into their stimulus package. It follows that the other $700 billion or so must have been something else. Perhaps it was a massive, cynical, opportunistic collection of payoffs to favored groups and causes?

Here's another way of looking at that 10 percent. If the entire appropriation is supposed to be short-term economic stimulus, it's too early to tell how well it's working, let alone whether we need more stimulus, because 90 percent is still unspent. If the bulk of the package is supposed to be long-term stimulus, it's too early to tell if that's working. The only way it makes sense to say already that we need another stimulus package, when only 10 percent of the first one is spent, is if only that 10 percent was intended to be stimulus. This brings us to the same conclusion as before: The rest must have been meant to be something else, such as a cash bonanza for a party newly returned to power and wanting to reward its friends.

If we need more stimulus, and if we insist on doing it foolishly, by having the government either print money, borrow it, or seize it from the people, so that it can then inject it back into the economy -- roughly the equivalent of removing some of the wood from a campfire, soaking it in water, then returning it to the fire and expecting the fire to burn hotter as a result -- then we ought to spend the next 10 percent, or maybe even more, on stimulus instead of payola. If that's not enough, we spend the next 10 percent after that, and so forth. We could do this nine times before walking off the end of our $787 billion.

Of course, it would be better to craft some sort of economically sound stimulus, such as a six-month tax holiday for workers and small businesses. But don't hold your breath. You see, I also believe that Washington genuinely feels the need for another stimulus, just as an addict truly believes he needs his next fix.

Forgive me for saying so, but we shouldn't be surprised at all this. It is the natural consequence of democracy unrestrained by sound economics. This mess is the predictable result of thought processes which were quite apparent in many candidates for federal office (not just Democrats), even before the November 2008 elections -- for anyone with eyes to see, that is. Regrettably, it's hard to see clearly when you're drunk on vague promises of hope and change.

David Rodeback comments (7/12/09):

In an excellent piece, George Will reminds us that the "first" stimulus package was really the second in this downturn. He talks about renewed interest in a value-added tax (i.e. "tax everything that moves"), wonders why anyone would invest in the US right now when we're undermining our own competitive advantages -- investing in India would make more sense -- and also offers this insight:

But before embarking on Stimulus III, note that only about 10 percent of Stimulus II has yet been injected into the economy in 2009. This is not the administration's fault, the administration's defenders say, because government is cumbersome, sluggish and inefficient. But this sunburst of insight comes as the administration toils to enlarge governmental control of health care, energy, finance, education, etc. The administration guesses that these government projects will do better than the Postal Service (its second-quarter loss, $1.9 billion, was 68 percent of its losses for all of 2008) and the government's railroad (Amtrak has had 38 money-losing years and this year's losses are on pace to set a record). (emphasis added)

The health care argument is an important one, but did I read that first part right? Are we hearing that the federal government is now incompetent even to spend money? And if this is true, is it good news or bad?

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