Thursday, February 5, 2009

Latest Thoughts on the Federal Stimulous Bill

I still oppose the bill and see that more Americans, as they learn about the bill, oppose it too. Last week 42% supported it, now 43% oppose it: A Rasmussen poll shows 37% of Americans support the bill and 43% oppose it. Most Americans believe that a dollar of tax cuts is better for the economy than a dollar of government spending. There are forms of "tax cuts" (about a third of the house bill) for individuals, including those that don't pay and Federal taxes at all. There were no business related tax cuts in the bills that I've seen that would give investors new incentives to invest. Such a plan would cost much less than 850 billion, be much more sustainable, and give the sign that America is open for business: Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes

I find that there are some more problems with this stimulus bills (House and Senate are very similar I've heard), even if you ignore all the waste and controversial areas I mentioned in my previous blog post. According to a report posted on the conservative think-tank, the Heritage Foundation: The Obama administration seems to be doing wrong things... increasing the government programs and spending to save the economy. This would be basically increasing our debt and kick up our debt to GDP ratio by 13% in 2009 and 23% in 2010. Doing this would have a inflation on the short term Interest rates and this would probably increase even more over time. "That would mean that today's mortgage rate of 5.33 percent would be between 6 percent and 6.4 percent. Such increases in interest rates would significantly weaken the economy further and delay for many months any hope of significant recovery." See "The Global Government Debt Bubble Threatens the Economy". This article has solutions but the Obama admistration is on track to do the opposite. SCHIP is another example, of how the President and Democrats are increasing the federal spending unnecessarily. SCHIP apparently has some big problems:

The more libertarian Cato Institute quoted the WSJ "$646,214 Per Government Job" and said the government spending is going to areas were there are already low unemployment in the government. Manufacturing and construction have the highest unemployment (not to mention jobs for engineers like me)... for the new government jobs the est. cost per job is ridiculous at $646,214 / job.

Besides the 34% of the bill that are tax cuts or tax breaks for education or home buyers, seems like Obama believes in Keynesian economics (that says spending on infrastructure can help get you out of a recession / depression) but there is only $30 billion spending on roads and $32 billion on a smart grid for energy (that's only 8% of the 819 billion total). I guess the idea is that non-infrastructure spending, all the other governments spending will do the trick. Remember the 1970's, the interest rates were high and Stagflation was in effect... Keynesian was in the model apparently. According to Wikipedia... that's when Keynesian economics was thought to be dead and that brought about the Supply Side economics we saw in the 80's.

BTW: I just heard on the radio just now that the Obama administration predicts the unemployment rate will virtually not change at the end of two years. Currently the rate is 7.2% and they predicted it's 7.0%. So what's the deal with it? It's only going to increase our debt and not reduce unemployment by a significant margin. I found a source: