Saturday, November 22, 2008

Thoughts on another stimulus package (2)

Obama needlessly stirred the pot by warning today that "millions of jobs" could be lost next year and that "we now risk falling into a deflationary spiral." Furthermore, he warned that "it's likely to get worse before it gets better." Not exactly inspiring, nor likely to restore badly needed confidence.

His solution appears to be boilerplate New Dealism with a Green Twist: massive spending to rebuild infrastructure (roads, bridges, schools, etc.), develop alternative energy sources, and build more efficient cars. (The latter being essential now that gasoline is on its way to under $2 per gallon.)

Investors whose portfolios have been devastated can now look forward to digging ditches, paving highways, pouring concrete and painting classrooms.

Excuse my skepticism, but I guess I didn't realize that decaying infrastructure, inadequate classrooms, and not enough Honda Civics were the root cause of the current crisis.

I'm led to revisit my concerns of early October. The market's collapse began around the time (late September) that an Obama victory began to be very likely. If another New Deal is the best he can come up with, then I can understand why the market is down.

UPDATE: The good news would be that he didn't mention raising any taxes. So as I thought before, he will probably allow the Bush tax cuts to expire on schedule at the end of 2010. No new taxes, no higher taxes, for the next two years.


Mark Gerber said...

I disagree about Obama stirring the pot by being honest and realistic. We just came through years where Bush and Paulson, and later McCain, repeatedly told the American people the fundamentals of the economy are strong. That distortion did not help anyone, and ultimately made things worse. Bush has spent years telling us how great the economy was when most people felt otherwise.

Now, most economists, including you, agree that unemployment is likely to rise going forward. About half the American people already believed a depression was in our near term future before Obama was elected.

Our country needs a president who is honest with the people. Obama is making it clear he understands the reality that our citizens facing economic challenges and are scared, and he is going to take strong action the minute he is inagurated. I find his directness to be a breath of fresh.

Scott Grannis said...

Mark: you make some good points. I suppose my concern is that raising people's level of concern about all the bad things that might happen is not a good thing to do. After all, this plan he is talking about is going to take an awful long time to implement, even if Congress manages to pass it in a week. I can't imagine any meaningful amount of money would be spent until the middle of next year at the earliest.

The problem with stimulus via spending is that it is very clumsy and takes a long time to implement and can be extremely wasteful, if not totally ineffective. How about stimulus via incentives instead? Like cutting taxes, etc. That works almost immediately and can be far more effective.

If you were really worried about deflation and millions of job losses, would the announcement of this plan really make you feel better?

But I suppose there's a good side to it: if the economy can survive until the middle of next year we might realize that a big spending plan was unnecessary. The economy does have the capacity to fix itself I believe, given time and lack of government meddling.

bix1951 said...

Kudos on your blog

bix1951 said...

I just discovered your blog this morning when I googled "pent up demand."

To quote Chauncey Gardner,
"There will be growth in the spring."

My point of view is that the economy is all psychology. Confidence is the ultimate arbiter.

And it does hurt to have negativity from anyone. The biggest push over the cliff was from Hank Paulson. The markets have plunged from that point. (HIS SELLING OF TARP)
I run a small business on the west side of Los Angeles. I operate apartments. This has been my best year ever.

I always stay fully occupied because I set my prices according to what the market tells me. If I can't rent a place I drop the price until it rents. This is a simple formula. I also give good service to my occupants.

What will the future bring?

I am annoyed when I hear a talking head on the boob tube pontificating about how the recession will be long and deep.


Such certainty
Broadcast to millions

I suggest people look at their own lives and not be fooled by the distortions in the media and from politicians.

Most people are doing great
Most people are not unemployed
Things are much better than we are led to believe.

Scott Grannis said...

bix: Thanks very much for your kind words, and the experiences you related reinforce my own belief that things are definitely not as bad as people are being led to believe. You represent the vast majority of people out there that work hard and smart; you're the backbone of this country and too often the unsung hero of the story.