Category Archives: Stimulus

February 18, 2009 · 4:21 am

Prognostications

Despite my busy schedule of swimming, golfing and soaking up the sun here in Hawaii, I have been keeping abreast of developments back on the “mainland”. (We’ve got TV and the WSJ here. Internet too.) While it has been amusing watching the Obama Administration floundering with their tax dodging appointees, the serious business of the economy and the fate of the “stimulus package” keep the laughter in check.

Obama and the Democrat Congress have been moving quickly on several fronts and I have noted that they are working their way down my list of predictions of what they would do once they had control of the levers of government. One of my three faithful readers once said we would have to wait to see the accuracy of my predictions. So, I thought it might be useful to go back through my blogs and make a comprehensive list so you could keep score at home. Maybe print out a copy and put it on the fridge? Run a yellow hi-lite through the correct ones and red through the misses? Just a thought.

In a piece called “Elections 2006” written prior to the ’06 Congressional elections, I predicted that the Democrats would takeover Congress but, that Bush vetoes would slow their worst instincts. Careful readers will note that this piece is not on the blog. Hey, I don’t show you everything. I sent it to a selected list of friends. So too with a 11/12/06 piece called “Now What?” In that piece I predicted the following:

· The election of a Democrat as President.
· The election of a veto proof Democrat Senate.**
· A recession.
· Closing down of Guantanamo and release terrorists.
· Restrictions on intelligence gathering with possible disastrous consequences.
· The raising of taxes.

Looking pretty good on the above ’06 predictions. (**With the three RINO Republicans, it looks like they have it.)

In case you missed it, Obama has ordered Gitmo closed and already dismissed charges against the mastermind of the USS Cole bombing (Ali A Kaboom?). While everyone was looking the other way Congress also reversed the estate tax reduction and increased tobacco taxes. But hey, BHO and the Dems have only been in power for less than a month. They’re just getting warmed up. Like I said, I did not post those predictions but if you want the pieces, send me a polite email.

In blogs I did post I made the following predictions:

· The Democrats would enact the “Card Check” legislation making it easier for unions to organize. · Pass the “Fairness Doctrine” to stifle conservative talk radio.
· Return the restrictions on drilling for oil and natural gas on public lands and offshore.
· Give more money to the auto manufacturers.
· Not allow the construction of nuclear power plants.
· Enact Cap and Trade carbon emission limits through the EPA, which will cripple coal-fired electric generating plants.
· Toss huge amounts of money at solar and wind power.
· Abandon missile defense and reduce our nuclear arsenal. (or upgrade it).
· Enact restrictions on private gun ownership.
· Appoint “living constitution” proponents to the Supreme Court.
· Squelch school choice.
· Abandon any efforts to enact tort reform.
· Attempt to make illegal aliens citizens.
· Put the government in charge of health care.

In less than a month BHO and his comrades Nancy and Harry have made an impressive start on that list. New Sec of the Interior, Ken Salazar has already cancelled 77 drilling leases in Utah (Bob Redford is thrilled) and is now “reviewing” the opening of drilling off the coasts. Right.
One thing I did not anticipate… that the White House would be audacious enough to take over the US census. With that power play they get to fiddle with the numbers that determine Congressional districts and distribution of money to various groups.

Of course, the biggie is the so-called “stimulus” package that passed Congress on Friday. This massive spending bill was enacted before anyone could actually read it. At 1078 pages it would take more than a few hours, so no one knows for sure what’s in it. The scant details revealed so far indicate that the Democrats loaded it up with massive cash to their favorite constituent groups. My personal favorite is the $8 billion for a high-speed rail connection between LA and Las Vegas. In case you’ve forgotten, Nancy Pelosi is from CA and Harry Reid is from Nevada. As Craig Ferguson would say, “Coincidence?” Sure. The $4 billion to community groups like ACORN comes in a close second.

As I predicted, this stimulus will not work. Recessions usually last 18 months and despite Obama’s characterization of this one as the worst since (and maybe worse than) the Great Depression, the economy was actually in more trouble when Reagan took over from the hapless Jimmy Carter. Unemployment was 10.8% in 1982 and is 7.6% at latest count. It was 25.2% in 1932. GDP actually grew in 2008 and the Congressional Budget Office predicts a drop of 2% in 2009. That’s about the same as 1982 and a far cry from the 30% drop in the period 1930-32. But, BHO and the Dems needed a major crisis to ram this hard port tack into socialism down everyone’s throat. And, with popular support fading, they had to quickly pass the thing late on a Friday before anyone had a chance to see exactly what’s in it.

Obama and the Democrat leaders in over-hyping this economic “crisis” are actually making it worse. One of our biggest problems right now is fear and a lack of confidence. Running around the country on Air Force One telling everyone the sky is falling is not going to encourage anyone to purchase a new Chevy or invest in a share of stock. Reagan solved the recession of the early ‘80s by cutting taxes and exuding confidence and optimism.

Keynesian spending has not worked in the past and, from what we know of this package so far, will have little impact on the demand side that the proponents hope. Also, it remains to be revealed how much protectionist language is included in the bill. Historians note that FDR’s massive spending and the protectionist measures of that era prolonged and deepened the depression of the 30s. But, just because it didn’t work before does not mean that liberals won’t try the same thing again. For the Left ideology always trumps fact and previous experience.
Few are giving much consideration at this juncture on the inflationary impact of this legislation or the tax implications on future generations that will have to pay for it. The voters will eventually figure all this out. Look for big gains by the Republicans in the 2010 Congressional elections and the end of the Obama love affair in 2012.

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Filed under Keynesian theory, Obama, Politics, Predictions, Stimulus

January 27, 2009 · 2:20 am

Change I Can Believe In

With the economy tottering the new Obama Administration is pushing for another “stimulus package” of some $850 billion to perhaps one trillion. This on top of the one trillion already tossed out the door at various struggling entities such as banks, insurance companies and auto manufacturers. Together these two incomprehensible amounts of money will increase the national debt by a whopping 20%.

The bad news is that this reprise of Keynesian Theory will work no better than it did during the Great Depression when FDR was throwing money around or in the ‘90s when Japan tried the same thing. All together now…. “Here we go again.”

The latest news on the results of the TARP (Troubled Asset Relief Program) has just come in. This was the grand scheme for the government to ship off $148 billion to the top banks in the faint hope that they would start lending again. The bad news: Bank lending went down some $48 billion since they got the money. None of the money from TARP got loaned out and the banks made even fewer loans with their own cash. Why? Because their balance sheets are a mess, that’s why. They have a pile of assets that are worth essentially zero because of the “mark to market” accounting rules enacted after the Enron fiasco. The Congress could help the banks shore up their balance sheets at no cost to the treasury by simply reversing this rule. It was political overkill anyway and under the present circumstances, a big hindrance.

The Obama team has proposed massive amounts of infrastructure spending with the hope of jump-starting the economy. They’re talking about highways, fixing up schools, tossing cash at solar and wind power programs and building new transmission lines to carry all this new electricity. One of the big problems with this kind of thing is that a lot of time elapses between the decision to build something and when someone actually turns a shovelful of dirt on the project. Most of money allocated for this kind of stuff won’t help the economy for a year or more.

If the Obama team insists on massive infrastructure spending, the least they can do is suspend Davis-Bacon. This act, passed in 1931, requires that “locally prevailing wages” be paid on all federally-funded projects. The phrase is shorthand for construction union wages. Because of this requirement and the red tape involved in federally funded projects, many companies refuse to bid on them, raising the cost of these projects as much as 40%. Suspension of Davis-Bacon during emergencies has been done many times before. Nixon, Bush I and Bush II have done it, the latter during Katrina. Even FDR did it. While it makes perfect sense now, I doubt Obama will take this sensible step. He owes the unions too much for their help in getting him elected.

As I’m sure you already guessed, I have a few additional suggestions. As already discussed above, they could reverse the Mark to Market accounting rules. It’s a freebie. Only problem: Politicians hate to admit they made a mistake. I suspect this is why they have not already taken this simple step.

A few weeks back a Texas Congressman made a suggestion to put money quickly in the hands of Americans so they could start spending again. (I forget the guy’s name. I could probably look it up but hey, I am in Hawaii and there are other things to do) [Editor’s note: Louie Gohmert (R-TX)]. Elegant in its simplicity, the Congressman’s idea was: If you are going to spend $350 billion in stimulus why not just stop deducting taxes from everyone’s paycheck for three months? For one thing, doing it this way avoids the inefficiency of having the government dole out the money. Anytime you run money through a bureaucracy you are assured of losing a pile of it with inefficiency. Remember the last stimulus package? Writing and mailing out a $600 check to everyone had to cost a ton. (I never got one, by the way. Big Brother, are you listening?)

The Bush Administration doled out some $13 billion to the auto companies out of the TARP funds. They will certainly be back hat in hand looking for more cash in the months to come. I would tell them “NO”, and then “HELL NO!” if they misunderstood. They should be allowed to go bankrupt. Hey, Chapter 11 is not the end of the world. They need to restructure, to renegotiate their labor and distribution contracts and to develop a business model that makes sense.

To balance this tough love Congress should give them some breaks on the CAFÉ standards by allowing them include their whole fleet in their calculations and by not imposing even tougher mileage standards in the near term. They could offset any perceived loss of fuel efficiency by allowing the importation of autos made by the Big Three in their overseas plants… especially small diesel cars. The chances of this happening?

None. The UAW will never allow the Democrats to do it.

Obama and his Democrat controlled Congress could do much to ease the minds of investors and business owners by voting to make the Bush tax cuts permanent. The fear and uncertainty of tax hikes continues to put a damper on the stock market and anyone thinking about starting a business right now has to be skeptical. Again, the chances of this happening are remote at best. Despite ample evidence to the contrary, the Left doggedly sticks to the myth that the Bush cuts were a sop to the “rich”. (One of my earlier posts has some specific numbers.)

Finally, I think it worthwhile to devote some thought to the revenue side of the equation. Eventually, someone will have to pay for all this massive government spending. The only idea that bubbles to the surface of a left wing brain involves raising taxes. Little credit is given to the drag that excessive taxation places on an economy or the degree to which it prevents a country from growing its way out of debt. (Think France and the other socialist economies of recent history.)

Besides taxation there is another way to raise revenue and many countries have become quite wealthy in this fashion. The Middle Eastern countries, Venezuela and Russia have exploited their oil resources to good advantage. Canada too. The US has plenty of oil. It also has 250,000,000 automobiles on the highway according to the DOT (2006). The US could raise billions of dollars in royalties, not to mention improving its balance of payments, drilling for oil and natural gas in currently restricted areas. I’ve read that many wells could be brought into production swiftly by utilizing existing offshore platforms and the new drilling techniques. As an added benefit, new supplies from domestic sources would help retard price increases when demand returns.

There are those on the conservative side who believe that Obama and the liberal Democrats want to use this economic crisis to move the US further toward socialism, just as FDR did during the Great Depression. They opine that moving more middle class folks off the tax roles and into receiving checks from the government will make them Democrat voters. Perhaps.

One thing is clear, unless they make intelligent, common sense decisions to let the American economy absorb the asset bubble and encourage the private sector to grow, this mess will persist.

A long recession (depression/stagflation) will impact everyone, regardless of your position on the economic ladder.

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Filed under Keynesian theory, Obama, Politics, Stimulus, TARP