Thursday, February 12, 2009

The stimulus package is flawed to the core

If I hear one more word about this stimulus package, I may lose my mind.

Actually, I may go nuts if I simply hear the word "stimulus" again. God only knows how irate I'll be if this monster gets passed.

But, of course, we know something will be passed, don't we? After all, we've got few conservatives left in Congress. The moment a Republican president started pushing to bail out our failing U.S. auto industry and was joined in the effort by a Republican running for president, it was pretty clear that fiscal conservatives were a dying breed.

Sure, real conservatives like Ron Paul are howling about this stimulus nonsense, but he's in a true minority. Even Republicans in Congress have picked up on the disturbing theme that the free market needs a major nudge from the government and that throwing good money after bad is a great idea.

For just a second, let's overlook the junk in the stimulus package that has nothing to do with economic growth (i.e., sneaking in some nasty government controls over health care, etc.) and talk about the flawed premise that gave rise to this nonsense. What the government is attempting to do is simply prop up a system that's unsustainable.

Here's the thing. Our entire economy is based on credit and, as such, is an illusion. Things have gotten so odd that prosperity is often viewed as something that can be obtained by those who have a good credit rating. When enough people borrow money like it will never be paid back, they get bitten one day.

Things have gotten so odd that a good number of economists out there have argued against tax cuts by declaring that they won't help because people might be tempted to (gasp!) save money instead of spend it. No, the answer to getting the economy going again is to get credit flowing once again, thus allowing people to borrow more money and get themselves further in debt.

How do we do that? Well, we have the government borrow money from our friends in Japan and China, thus putting the nation further in debt. The problem, of course, is that individuals and governments must make good on their debts one day, yet the government seems perfectly satisfied to delay that day as long as possible.

So we're just about to jump in and push off the inevitable for a bit longer. Still, we can't borrow forever and the longer it takes to learn that fact, the worse things will be when it does come time to satisfy those outstanding debts.

It's worth mentioning that some dramatic, societal changes will have to take place before we can address the nation's real economic problems. I doubt more than a few politicians have the guts to discuss anything else but the quick fix, temporary solution of a stimulus package.

We, as a society, have gotten ourselves in a mess. Look at it this way. If we go back 50 years, a fellow with a solid, middle class job like mine could easily afford to support a wife and a couple of kids. Here in 2009, however, my wife works and we get by just fine by virtue of her income.

What's changed? Taxes have gone through the roof in the past 50 years, the cost of living has increased dramatically and wages haven't risen nearly as much as everything else has. In that environment, it only makes sense that a lot of people have fallen back on credit to augment their incomes.

When you combine the easy availability of credit with the notion that we ought to have everything we want right now, it makes sense that people choose to go deep into debt rather than decide to save up and actually buy stuff with real money. When people can get credit easily, they're less fussy about how much things actually cost, so it's no surprise that we've watched the prices of everything go through the roof.

Take the housing market, for example. The ridiculous gains in values we saw through about 2006 were based -- in part -- on easily available credit. If someone with a pulse and a job can get a "zero down" loan to buy about any home he wants, then that person is less picky about how much the house actually costs.

The same goes for cars and just about anything else. If we're going to rely on growth in credit debt to fuel the economy, the problems that have been playing hell with us right now might get smaller for a time, but they won't vanish. No, they might lie dormant for awhile, but they'll grow larger in time.

In other words, the feds can dump as much money into this economy as they can borrow. The root economic problems, however, will remain.

7 comments:

Apollo said...

Very well put!

Sherry said...

Gotcha goin', huh?

Da Old Man said...

Mr. Hawg, as long as I can remember, a number of lies were always espoused.
First, that economics is very complicated. Second, that only the very learned few, educated in schools with walls covered with ivy could understand economics, and lastly, that the average person, who obviously can't understand economics, should just accept what they are told by those who know.
So, now, we, the great uneducated masses, have been convinced that inflation is good for us, taxes are beneficial, and the acquisition of "stuff"-- much of which did not even exist 20 years ago, is now so vital for our day to day existence, that we must get it no matter what.

I'm outta here before this turns into a major dissertation rather than a simple comment.

Sadie said...

THANK YOU! I'm so glad someone finally said it. I have to say that I'm tired to surfing around different blogs and seeing Democrat after Democrat whining about something or other (I actually saw someone the other day say that we should Nationalize banks!) and they obviously don't really understand anything - they're just jumping on the "let's-all-hate-Bush" bandwagon. I say that we let the big companies fail (isn't that what this country was based on - the freedom to succeed *or* fail?) because Lord knows they let us small business fail. Getting us deeper into debt, not to mention all the crazy stuff they snuck into the package, is just going to make this worse in the long run.

Anonymous said...

Your criticism of this stimulus bill is partisan and political. You don't mention all the jobs that will be created by this bill. You don't say a thing about what will happen to this economy if we sit on hands and do nothing. We have lost millions of jobs because Bush and the republican controlled house and senate did nothing to regulate wall street for the last 8 years. Now you want to stop the Democrats from doing something to help this crippled economy? Typical right wing, do nothing and blame the Democrats.

The Natural State Hawg said...

Apollo -- Thanks!

Sherry -- Pretty much.

Da Old Man -- It is tempting to rant, isn't it? The whole thing will end in disaster. Just hide and watch.

Sadie -- What the left seems to understand is fear and the belief that getting the government firmly entrenched in the economy is the only thing that will save us. Sadly, the Republicans have started to adopt the same philosophy. Sad, huh?

Anonymous -- How typical of a leftie to leave an anonymous comment, blame Bush and then float out some fear-mongering nonsense.

First of all, this problem has been setting up for 30 years, starting with the Community Reinvestment Act under Carter. That's where these zany loans that wrecked the housing market and have threatened to bring down the economy started. That wacky lending was expanded under Clinton and the Bush administration pretty much let the lads at Fannie Mae/Freddie Mac do whatever the hell they wanted.

So, I've taken swipes at both parties. Republicans should have never pushed for the bank bailout or howled about saving the auto industry, but they did just that.

Second, if you take a look at just what nasty elements are featured in this stimulus bill, they ought to scare the hell out of you. For example, we're looking at an additional $500 billion to buy up residential and commercial mortgage backed securities so they will more attractive to investors.

Once those investors buy up those securities, banks will be in a position to extend credit again for people taking out auto loans, mortgages, etc.

Isn't that scenario exactly what brought us into this mess? All we're doing is propping up an economy that's not sustainable.

Third, I'm all for a stimulus package that revolves around tax cuts so that individuals can pay off loans, put down payments on homes, buy cars and etc. Such a move seems unpopular as it might give consumers too much control over their own spending and (gasp!) they might have the audacity to save money.

It appears both parties are setting us up to fail with this whole mess. No one has the guts to take a hard look at how too much debt is going to come back to haunt us. It is easy, however, to prop that up and enjoy some short-term prosperity. However, we're fixing to put some measures in place that will lead to a severe depression at best or an absolute economic collapse at worst.

fwaggle said...

The last stimulus package would have been much more effective if it were timed differently.

If I remember rightly it happened just after tax time, what a completely idiotic time to make a stimulus payment? I read somewhere that an estimated ~80% of families used their stimulus payments to pay down debt - I know our's went directly to some back-debt to the IRS!

Then they shafted it up by delaying certain groups of people, so that the money was spread out - how the heck are retailers and the economy supposed to feel it if it gets spread out?

At the very least if they're going to do the stimulus thing again, they should do it inside two months before Christmas. Virtually no one's going to pay down debt when they have spoiled bastard offspring to buy things for on Christmas.

If *everyone* got their checks within a week of each other on November 31st, where do you think all that money's going to go? Straight into the retail market.

If you spread it out, people have to wait for their checks and this gives them time to think about something sensible to do with the money - not something conducive to jump starting an economy.

... and don't even get me started on all the strings attached to this new stimulus plan (some of which you mentioned).