Tuesday, February 10, 2009

A little frustrated. . . .

I must say. . the economic stimulus package and the debate therein is frustrating the old random mind these days.

President Obama is framing the discussion that if you don't agree with the package than you are being "partisan" and you have ulterior motives. Also, according to him, he's the one who cares about the country, and jobs, and those against the package care about politics.

(first off, this is fear mongering in the worst degree., . . but we'll stay away from attacking Obama here)

Now, the reason I am against the stimulus package is because I think it's a bad bill. . . a terrible bill in fact. This has nothing to do with my party affiliation (I don't have one) and it has nothing to do with me hoping to gain the "I told you so" upper hand in the next election.

Are there Republicans who might be operating this way? Sure,. . who knows. What I do know is that some of the Republicans have had very, very cogent concerns about the bill and have disagreed with it ON IT'S MERIT'S, not for political reasons.

Here's an article that explains just how bad this bill is: wow Don't take my word for it. . this guy is from Harvard.

Here's an article that shows some of the dumber pork projects lumped in with this bill Again, this isn't Rush Limbaugh or anything, .. it's the Wall St. Journal.

(I thought the President was against pork like this? And, even taking the idealism out of it for a minute. . . .in our current state, could we not skip the pork for this one bill? Just this once? )

Bottom line, I don't like the bill because I think it's a bad bill, not because:
a) I'm a republican (I"m not)
b) I don't want job creation (I do, I think this bill might hurt)
c) I don't care about the economy(I do, I think this bill will definitely hurt)
d) have a vendetta(I don't)



Andy said...

I'm with you. I;m not a fan of this bill. But I think in the current political environment, it was the only bill that could get passed.

I wanted to see a bill that was 100% stimulus spending coupled with the second half of the TARP plan that directly attacked troubled assets and the flow of credit.

Create more jobs and loosen the flow of credit and the crisis is being attacked both from a "symptom" and disease" standpoint.

I would have loved a stimulus bill like the New Deal. You look at the great depression recovery and the GDP recovered and grew every year except the two years New Deal stimulus spending was frozen.

The capitalist in me says let the market go ahead and correct on its own. Americans have gotten fat and happy on cheap credit and we need a bit of deflation to reward savers and penalize borrowers that have taken more from the economy than they produce. And penalization like that is painful. But our generation can't live in this consequence free environment.

Yet, that will be long and painful, and generally bad for the world. It would teach the Baby Boomers and Generation X/Y to be more fiscally responsible, but it would destroy the retirement of the Baby Boom generation.

So here's Andy's ideal stimulus bill. $700 million that is directly related to stimulating job growth. No pet projects, but stimulate job growth in areas that will make America more competitive on the global marketplace and make our economy more efficient. Reduce those wedges of transaction and transportation costs and find a true equilibrium point in the market for good and services.

In other words, build roads, fix schools, invest in education, make energy use more efficient, spur research and jobs in areas that will position America as a manufacturing economy once again. Bush didn't cause the gap between rich and poor to widen -- losing our position as the worlds best manufacturers did. We're losing ground there to the rest of the world and the middle class and working class needs American industry to be strong to thrive. Provide tax credits to employers who wish to add employees and grow their businesses.

Take that and couple it with the TARP program only buying bad assets and unclogging lending channels and that will put a bottom in place.

From there, it is up to the work ethic and resolve of the American people to get us out of this, because we are all in it together.

The problem with my plan? It would never pass congress. Without heavy tax cuts, you don't get a single vote from a republican. Republicans believe only tax cuts stimulate an economy. Democrats believe only spending stimulates the economy. I think a mix of both are correct in the long term. I'm not saying it either side is right or wrong, but you have to have tax cuts to get republican votes.

Mistake #1 for Obama was that he put some tax cuts into his original bill. If the original bill would have had no tax cuts and the bill ended up being 30% tax cuts, he would have garnered a lot more republican support, republicans get a little victory and we have a bipartisan bill. But Obama didn't want to give the republicans a victory so he put forth a bill that already had significant tax cuts. So Mr. President, who was playing politics?

Long story short (too late) -- is this bill better than no stimulus at all? Absolutely. Is it the most effective use of nearly $800 Billion? No, it is not even close. But in this environment, even if the bill is only 60% effective or 50% effective -- well, then that is better than no economic stimulation at all.

Don't look at the markets "reacting" to this bill. All the experts have said for months that the bottom will be in the first half of 2009 and we will stagnate for a year.

But what will REALLY help the economy more than anything else is when the American people stop living off borrowed money and buying into every myth that the good times will last forever.

Buffet predicted this five years ago -- our continued current deficit (trade deficit) would eventually catch up with the American economy over time or all at once. Guess what. That time has come in the form of a housing pop where American stored their borrowed and leveraged wealth, and the financial institution that skirted the rules and allowed it to happen.

Andy said...

Quick edit to my second paragraph (I wanted to see the bill pass as 100% spending coupled with the Bush tax cuts earlier this decade). As I infer in my closing, a combination of tax cuts and spending are the ideal solution.

aaron said...

I think more of Boehner and the boys than you do.

Even with Obamas original tax cuts, I don't think they're only holding out for political points. . I think some of these guys genuinely don't like the bill and would change it even more if possible.

It's easy to be the sqwaking minority, when they knew it would pass anyway.. . that's a "luxury" you have as the minority.

I like some of your ideas, but I also would've liked to see it 100% focused on the mortgage industry, like mandating a 4.5% interest rate or something. . than everyone re-fi's, then the banks are back up, . . and then we're back at the starting line.

But, it's all moot now, let's see how it works.

Andy said...

See, even locking the rates at 4.5% for a year doesn't do anything for the people who bought $300K houses that are now only worth $200K. That wealth is lost forever and if someone didn't have equity built, that lost wealth needs to be covered somehow because of a reappraisal in a refi or you still lose your place regardless of the rates.

And if you lose your house because of that, then you just handed a $100K loss to a bank that as no more money to lose. But if you don't refi, then you are locked into a huge rate but you still have another 20-30 years to hope your house goes back up in value so you can cover yoru equity loss. Which leads to another issue. If people all stay in their houses, then the banks stay broken and credit stays frozen.

Only way to completely "fix housing" is to boost home values back to 2007 values and there is no possible way to make that happen except for the government to eat the toxic mortgages and losses, which is what the TARP was supposed to start doing.

That's why this crisis is so complex. There was tremendous wealth lost when housing popped, and there is NOTHING that can be done to correct that.

I think Boehner's philosophy is sound thinking, bt historically a little off based on history. Some minor tax cuts will help businesses hire employees, but you have to create demand in the market place for jobs as well, not just slightly more favorable conditions for hiring. It's really push vs. pull thinking. The pubs want the "push" by creating conditions that will drive demand for labor. Dems want the "pull" by spending to create the actual opportunities right now. In economic theory, both work. But the last 80 years of history favors the pull, albeit slightly. And when a majority of job losses are in manufacturing, the pull outperforms push stimulus by about 15%.

Here's the rub on why push theory is off right now. I'd feel differently about push if Bush hadn't already slashed taxes at the beginning if his first term. We shot that bullet early and it would have had a huge impact if they still had that cut to use in late 07 as a stimulus instead of in 2002 when the economy was doing relatively fine.

Both sides are taking a gamble here. If the stimulus works, the pubs take another hit that they are clueless on the economy. If it doesn't work, dems take a HUGE hit -- they've been riding the Clinton wave of better managing the economy over the last two decades.

It's really just too bad that the sides couldn't work together better. There are smart people on both sides, but they can't all be right -- they can't all be wrong.

Sad part is that it will be 2011 before we know how well it is working or not.

Sadder part is that you and I are sitting at home on a Friday night talking nerd stuff. Is it 1994 again?