Why I Don't Like the Stimulus

Congress is calling for a second stimulus to inject new cash into our economy. My initial reaction was a bit jaded, in that I figure they’d wait till the congressional elections got a little closer to toss the second half of TARP into the market.

Being the conservative that I am, a proud believer in capitalism, ardent foe of graft, ardent supporter of earning your keep, and essential realist, a second stimulus does not settle well with me.

This article from the Wall Street Journal (hold your knees for a moment so as not to knock your shins from the jerk) states what I think is a fairly simple idea regarding the stimulus: “Every dollar [the government] injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. [The stimulus] merely redistribute[s] from one group of people to another.”

I am not an economist, but I find the statement very easy to understand. To toot my own horn, that may be because I am a graduate from the Bauer School of Business at the University of Houston and had the opportunity to study in depth how business are created and managed, how jobs are truly created, etc while acquiring certification in their No 1 ranked entrepreneur program. Further, I rounded out my education at South Texas College of Law focusing my studies principally on the U.C.C. (generally the beautifully intricate laws governing much of our financial schemes), Bankruptcy, and Banking laws. I can honestly say I have studied the horribly drafted laws propping up our banking system, including the punitive statutes that strong armed American banks into lending money to individuals with no means to actually pay for it. Motivated by a mostly good natured yearning for greater diversity (or fiery passion to give a helping hand to those less fortunate), these laws, among other things, ultimately gave us the housing bubble and put many of those intended to be helped in even worse positions. And I say all this as evidence that I have at least a modicum of understanding on the subject.

And despite the terrible results of this type of short-sightedness, even if well intended, is exactly what I fear will occur if our government continues “stimulating” our economy in this way.

People argue the stimulus worked. To that, I think it apt to respond that the surface, superficial bleeding may have been momentarily curtailed, but the death inducing internal bleeding never stopped, as is becoming evident, by the increasing decline in the economy.

The toxic assets bought up by the government are still toxic assets, but now we’re getting to pay for them collectively – with money lacking credibility because 1) foreign governments don’t want to bail us out, 2) confidence in the dollar is steadily falling, and 3) the theory behind stimulus is only that, theory, and not proven economic fact.

Case in point, the stimulus was supposed to help create jobs. With unemployment at 9.8%, and “trending up,” and the so-called, “real unemployment rate” at almost 17%, it’s hard to see how the first stimulus did much in the long run. The number of persons unemployed in the U.S. is now over 15 million, more than double the amount in 2007. Why? The amount of jobs “created or saved”, in the 100,000’s, were significantly less than jobs lost, in the millions.

Okay, so that’s one reason to doubt trumped up claims about the stimulus’ effectiveness.

Here’s another, by flooding the market with fresh U.S. dollars, the government is, bit-by-bit, destroying the value of its currency, which then makes our global neighbors reticent to use our cash. This also ratchets up inflation, leaving we, the American people, with decreasing purchasing power, both because we can’t buy as much and because we may not be actually earning much (i.e. no job and dependent on unemployment checks) – meaning less people buying stuff, less money going into the market, and a shrinking economy.

To add insult to injury, we have to pay it all back, and how do we do that? Taxes. We can either raise them and stifle the economy, or we can lower them and truly stimulate the economy, and generate the needed tax revenue (but we can’t do that and keep spending like a teenage girl with her daddy’s credit card – the gov’t being said teenage girl, daddy being us, the public).

Many states that relied on the first round of stimulus cash are still losing jobs and, big surprise, need more cash. For instance, look at Michigan, the state with the highest unemployment rate in the U.S. In the last ten years, the state has lost over 800,000 jobs, in the next year they expect to loose another 130,000 jobs (or 370,000, depending on how the math works out, I believe it’s meant to read the sooner rather than the latter). Not dismissing the 40,000 jobs being created by the state's green initiative, partly funded by Fed money I would assume, but 40k increase (taking up to the year 2020 to finally get to that mark) paired with 1 million decrease is hardly acceptable. And it's no secrete, California is bankrupt and on the verge of going the way of Argentina. And according this article, 46 states are essentially bankrupt and will need further cash from the Fed to survive. But what happens after that? Another stimulus…again and again? Increase taxes and witness the populace flight of the monied people a la New York? This tax and spend model is obviously not working. We don’t need temporary fixes, we need long term strategy.

The stimulus is not just delaying the inevitable, it’s making it worse. I believe it would be better to endure some hard times now, let the system correct itself, as it has the proven ability to do, and stop trying to wrangle the un-wrangle-able. Meddling with the market is what got us here in the first place. Don’t misconstrue and think I want laissez-faire, I don't and believe good laws can, and do help maintain growth. But, let’s stop thinking about tomorrow, and think about a decade from now, two, three decades from now.

"In reality, economic growth -- the act of producing more goods and services -- can be accomplished only by making [workers] more productive. Productivity growth requires a motivated and educated workforce, sufficient levels of capital equipment and technology, a solid infrastructure, and a legal system and rule of law sufficient to enforce contracts." [from the WSJ article above]

Not more government spending. Business establishment, business spending, business hiring – actual job creation. Private, not public.

Simple formula for economic prosperity = lower taxes (more to spend) + less government spending (that way they don’t need to tax our cash so much).

Why it won’t work:

1) A big chunk of our growing population (in number and in girth) would rather get paid for doing nothing, than do something and get paid for it (i.e. lazy). 2) The people in charge are intellectuals who’re running on theory rather than reality. Which is a general criticism of the left, good intentions mostly, but unable to deal/face consequences. Or, maybe the consequences are okay with them…I don’t know. 3) What I perceive, as true hatred for capitalism.