Skip to comments.Obama's Stimulus Plan Won't Stimulate
Posted on 12/11/2008 3:57:05 AM PST by Kaslin
The economic stimulus plans unveiled by President-elect Obama over the weekend won't do much to help the economy. But they will vindicate all the dreams of liberal Democrats for higher government spending.
Of course, the basic choice facing any politician seeking to stimulate a moribund economy is whether to catalyze the supply side with tax cuts on business or the demand side by way of spending increases. Obama obviously made that choice years ago: He will work the demand side.
But once a leader makes that decision, he faces another: Will he emphasize important and valuable public works projects or will he just try to pass out the largest amount of money possible? By announcing that he is not "going to throw money" at the economy in the hopes of getting a pulse, Obama signals that he will stress the former approach and fund important public works such as school reconstruction, fiber optic cables, alternative energy generation and the like.
The problem is that such projects take a long time to plan and longer to build. Their immediate economic impact is highly attenuated.
In all federal capital projects, only about one-quarter of the funds appropriated are actually spent in the fiscal year. It just takes that long to plan, engineer and begin construction. And for every $6 spent in the last stimulus package, only $1 actually got spent on goods or services. Five dollars out of every six in the Bush stimulus package of 2008 went to pay down debt, mortgage or credit card or student loan or home equity, and not into the acquisition of new products or services.
So, do the math. If only 25 cents out of every dollar actually is spent in the fiscal year, and only one-sixth of that sum actually gets spent by the workers who get paid on new goods and services, only about 4 cents from every dollar actually stimulates the economy. And who says those 4 cents will be spent on domestically produced products? A lot of the stimulus will just feed Chinese imports, particularly with their low prices.
FDR faced just this problem in combating the Great Depression. In the National Recovery Act (NRA), Roosevelt set up the Public Works Administration (PWA) headed by Interior Secretary Harold Ickes (the original one). Ickes was a stickler for making sure nothing was wasted and in keeping the costs down. He managed a spectacularly successful public works program and built, without scandal or corruption, some of our most important national infrastructure. But he took his sweet time doing so. The economic stimulation was slow in coming.
Exasperated, FDR did an end-run around Ickes and set up the Works Progress Administration (WPA) under Harry Hopkins. WPA spent its money quickly and on projects involving little overhead or preparation. My mother got a WPA job teaching English to foreigners. Virtually all the WPA funds were spent in the fiscal year and the stimulative effect was immediate.
But in opting to go the Ickes route, Obama will find that he leaves a legacy of important contributions to our national infrastructure, but little in the way of real economic stimulation.
While a WPA-type approach might hasten the ameliorative impact of the stimulus package, Obama still faces the conundrum that most of those who get extra paychecks as a result of his spending will use the money to climb out of debt. In the '30s, credit cards didn't exist and consumer debt was very limited. Most people lived paycheck to paycheck. Extra money equaled extra spending. But now that most consumers will use money to pay down their debts, not to spend it, demand-side stimulation has its limitations. But Obama's ideology won't allow him to indulge in tax cuts "for the rich," which might work to get us out of the depression faster.
Designed to foment crisis.
The economic stimulus plans unveiled by President-elect Obama over the weekend won’t do much to help the economy. But they will vindicate all the dreams of liberal Democrats for higher government spending.
Its not supposed to stimulate. Its designed to make a dependent class of slavebots. Its all they ever wanted.
The economy wouldn’t need any stimulating if the democrats hadn’t messed with the free markets by forcing the banks to make the subprime loans and then providing Freddie and Fannie to hide them.
This trickle up crap has never worked - has anyone here ever been hired by a poor person?
It stimulated me to laugh out loud.
Trickle up poverty works. 0 will see to that, even if it takes trillions to prove.
Why does gov’t spending typically not result in economic stimulus?
You have to understand that the goal of stimulus is to create a return on the money you invest so the effect is multiplied over and over by the economy.
First, the money gov’t uses comes out of the economy via taxes. That leaves less money in the economy for investment. If the gov’t decides to print money, this leads to inflation, which erodes the value of the spending.
Second, gov’t does not spend wisely. Gov’t invests in construction and other projects that have little return to the investor. That small return is re-invested by gov’t contractors.
Third, gov’t spending is inefficient. Gov’t contractors are also less efficient than the market. Again, this drains resource leaving less for re-investment after the project.
Consider tax cuts. By leaving more money in the market, that money flows to projects that provide the highest return. That return on investment is again invested into the next highest return projects. This stimulates the economy faster and for less initial investment than gov’t spending.
Here endeth the lesson.
The Democrats are well known for their propensity to implement proven failed policies, whether it be economic or supporting trade unions like the teacher's union. They understand only to blame the Republicans when their failed policies fail again.
It is very sad that the political leadership of our country knows less about science and economics than they did 30 years ago. But that does not matter much with a dumbed down population further degraded by a couple decades of affirmative action.
Yesterday on Fox there was a woman with a book that looked to be near 500 pages, printed on both sides, with projects submitted by Mayors.
The mayors drug out all the stuff in their wish closets for inclusion. Walking trails, golf course work, stadiums, lots of museums and one prostitution mitigation.
All capital starts with labor. Dollars, laws, are all symbols, representation of capital, but not the thing its self.
Why do you think this started at the very furthest away from dirt poor laborers? Did they write, and think that ink on wood pulp printed as laws would change reality? Did the ignorant, dirt poor invent Collateral Debt Obligations and Default Swaps?
These are all products of an elite, and generations of people who have little physical contact with the world they liven in. They eat food that they have never grown, live in houses that can not maintain, let alone build, and prosper in nations that, as a group, they never deafened.
What a bunch of crap.
FDR turned a 3 year depression into the 12 year Great Depression with the costs associated with his public works programs.
They are absolutely right, but where was this criticism when W was persistently pushing the demand side, and failing miserably, putting us in this huge financial mess?
This will also turn out to be another HUGE government boondoggle like the Boston “Big Dig”, but much worse and much more costly.
How many sops to “minorities” (blacks, really) will be part of his stimulus package?
Blacks placed in positions that influence which projects are awarded and who gets the contracts and subcontracts (guess who they will favor).
Large number of “busywork” high level government jobs filled by blacks.
Requirements for unusually high percentage of contract set-asides for minority corporations.
Affirmative action style requirements for contractors to recruit and hire minorities along with racial preferences for under-qualified blacks.
Unusually high percentage of projects for black run cities, black neighborhoods and projects promoted by black politicians and race pimps.
Contracts that improve, add value to, or otherwise benefit black owned businesses or black owned real property.
Cries of Racism if anyone wants to look into:
Illegal favoritism or racial preference
Contract awards to under-qualified companies
Contracts awarded to minority contractors bypassing the bid process
Cost overruns by minority companies
Payoffs, phantom employees and other corruption that might reflect badly on blacks
[Obama will find that he leaves a legacy of important contributions to our national infrastructure]
I beg to differ. FDR didn’t have the option of building useless solar farms and electric cars no one wants. Obama has the option to build catastrophic pyramids.
Sorry to tell you this, but the government has already been doing this for YEARS! I spent 10 years in the Marine Corps, and the order catalogs actually have “minority” suppliers marked. You get a discount on your funds if you use the minority suppliers for your order.
Of course, it will get worse, but believe me it is already here!
Beat me to it! And well said! And lots of people are too stupid to see it or care, as they stand with their arms out, palms up, waiting for 'theirs'...
My grown step daughter,a Zero accolyte, never understood how her mother and me could vote “against our own self interest”, that we were somehow OWED something.
Reminding her of the quote that went along the lines of “democracy is fine until the people realize they can raid the treasury...” was met with complete incomprehension. And this woman has a masters...just no life smarts.
That is the mindset that voted this clown in.
Oh, you’re right - racial preferences arwe everywhere and it is already far out of balance.
But under Obama I expect to see it become ingrained and widespread at levels never before seen.
Blacks comprise about 13% or so of the national population and I don’t see anything wrong with them getting an equivalent amount of school slots, government jobs, etc., as long as it is earned on merit.
But under Obama you will see the numbers reversed with whites getting about 13% of the high level bureaucratic jobs, 13% of the contracts, 13% of the subsidies.
Doesn’t need to stimulate, just needs to placate.
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