Wednesday, July 01, 2009
Hope is not a strategy:
In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.
To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.
We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further. In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs. It’s as if every worker in the city of Los Angeles received an unexpected layoff notice.
The author of the article suggests that there are two possible explanations -- that the stimulus has not worked, or that the economy was in much worse shape than understood and would be even worse without the stimulus -- and elects the second. There is, of course, a third, which is that the Obama administration could not honestly forecast the depth of the recession (even as it was pushing for the stimulus package) because then the Congressional Budget Office would have projected deficits even worse than now foreseen, and that would stoke opposition to President Obama's vast and expensive program to redesign the health care, energy, and financial sectors of the economy. Call me a cynic, but I pick the third.
Note that the three explanations are not exclusive. They could all be true; the stimulus has not worked, the economy was worse than understood, and the Obama administration deliberately downplayed the problem to disguise the deficits.
(My own thought is that Obama, and his closest advisors, did not care whether their forecasts were accurate. That would be typical behavior for machine politicians.)
The stimulus bill had nothing to do with stimulus, and everything to do with rewarding favored constituencies. It was going to be eagerly sought by the administration regardless of economic circumstance, though it might have been more difficult to get in a healthy economy and would have required a different guise.
Having said that, it does seem true that the administration has consistently ignored the easy to predict impact of loose monetary policy on financing our accelerating, massive and historic fiscal deficits. Eventually, the Fed will need to close the money chute, and when that happens we'll have to rely entirely on foreign savings to finance health care. That is obviously not going to happen, especially since the Chinese face their own very serious problem with an aging population.
I think the President is kidding himself thinking there is any possibility of continuing deficits at this level.
What amazes me is that some very smart people completely ignore the deficit in their political thinking, assuming the only challenge the President faces in spending more money, ie getting health care passed, is finding the right alignment of spending to attract Congressional votes. I've never seen such delusional thinking, except on climate change; it's a destructive and dangerous myopia.
I disagree. The stimulus bill worked.
The purpose of the bill was to award favored Democrat interest groups with vast amounts of cash.
The damn thing was written long before the market crash, for God's sake. How do you think they pulled it out of their underwear on a moments notice?
From that perspective, the purpose of the bill has been well surved. Everybody is getting the vigorish they were promised. It worked.
God help us...
Far from having a positive effect, I don't think there is any doubt that the so-called "stimulus plan" will have a deleterious effect on the economy. It can be no other way. Here's why.
Remember, the government has no money of its own. Every dollar it has for spending, it must first extract from an American citizen. The problem is that it takes the federal government $1.00 to procur the same amount of goods and services that can be procurred in the private sector for only $0.75. This represents purchasing power which is lost forever. The phrase that I give to this phenomenon is "the degraded purchasing power" of the federal dollar.
When $0.25 of each dollar's purchasing power is lost billions and billions of times over, this represents hundreds of thousands of jobs that will never come into existence because the federal government is spending our dollars instead of us.
So, the Stimulus Plan will destroy both wealth and jobs. No other outcome is even possible.
Even now, before the plan becomes fully effective, Americans innately sense the destructive nature of the plan. So, they are holding back, buying less, investing less, taking fewer risks. Thus, we see the current contraction in employment.
---Tom Nally, New Orleans