Congress thinks you’re an idiot. Are you?
March 6, 2009 by: Dave Ozment
Much has been written about the recent stimulus package. At first I committed to not writing about it because I did not have much more to offer. I have since changed my mind and offer small doses of my perspective in this exciting installment.
Stimulus Musings , in bite size offerings
When you consider that debt played such a critical role in the genesis of this financial debacle, is it not worth 15 seconds to consider that heaping mounds of new debt on top of the problem is perhaps not the best solution? This is not a hole we can dig out of.
Huge bushels of the bailout dollars are going to state and local governments to help stimulate the economy. …wait for it… yes there it is. Local governments are not exactly pictures of efficiency. When was the last time you visited the DMV? And can you even look at a fat, puffed up, red-faced local politician and NOT envision at least some level of whitewashed corruption? Yes, it is a stereotype but for a reason.
Even when state and local governments spend money on infrastructure they often get it wrong. A perfect and recent example is in Atlanta where I-75 north was under construction for over a year so an extra lane could be added, and it was needed. When the new lane opened it was quickly obvious that the math was wrong. The roadway noticeably slanted towards the median and the guardrails appeared to lurch into the roadway. Within days the number of wrecks increased and within weeks the new lane closed. Now we have an extra large shoulder on the left side of the highway. Untold millions spent for a new shoulder on the highway? And these guys are charged with rebuilding our infrastructure AND stimulating the economy. Moma mia is right.
Are you hearing the manner in which the media is boasting how the stimulus funds will be used by state and local authorities? The money will be used to cover existing deficits. That tells us that we are borrowing from the inefficiencies of the federal government to pay for the inefficiencies of state governments. It also tells us that a vast majority of these dollars will be spent on pre-existing budget initiatives. In many instances the number of true dollars being spent or projects being funded will not increase but rather the ineptitude of local government will be paved over by the great infrastructure plan of 2009. Yes, the pun is intentional.
Alas, my favorite, the tax deduction for new car buyers. This is so rich I hardly know where to begin. I suppose the obvious nod goes to politics-as-usual, something in which this leadership group vowed not to participate. So obvious is the stench from this glad-hand to the Michigan delegates. But even more transparent is how this piece of legislation assumes, is counting on for its very success, the idiocy of the electorate. Real people across the economy are struggling and the pick-me-up the government offers is a tax credit on the purchase of a new car. Is that supposed to be punch line? A tax credit on, next to time shares, the worst purchase a person can make? Really, that’s what you have. A tax credit for a horrible purchase (new cars lose roughly 40% of their values within the first 2 years) to help prop-up an industry running a failed business model, which, by the way, we are also bailing out too?!?
This is wired to fail AND make the government look good. Screen writers have never been so creative.
In the end, we appear to not comprehend that the true nature of a bailout is to get the water OUT of the boat. Rather we have a centralized government borrowing money from our future to cover the inefficient debt-riddled local governments meanwhile we offer incentives for the citizenry to take on more debt in a effort to prop up car manufactures. All the while no one has an interest in actually plugging the hole in the hull.
To be sure, this ‘plan’ will generate jobs. There’s simply too much money been tossed around for that not to happen. But drug use, forest fires, and liquor store robberies create jobs too, just not the kind that help to propel society forward.
Photo By: AgitPropDevices
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Generally I do not post on blogs, – but I would like to say that this post really forced me to do so! really nice post.
Thanks Matthew, I appreciate the kind words.
Dave
It appears that we have a problem of perverse outcomes. Clever people have looked at the financial structures and figured out ways to twist things around to their advantage; which at the same time destabilized the very structures being exploited. It’s like the old story of creating a monster that stops obeying. (I suppose several PhD theses are already begun.) A similar problem, I think, is that of African-American social perversion. African-Americans were mistreated to the point that they no longer believed in the society. Then the society righted itself, confessed to its sins, and expected the AAs to come around. Some did, but many haven’t yet.
Thanks for the commentary Atkins. To be honest I’m not sure where you’re going with the AA commentary so I’ll steer well wide of taking that on without additional clarity. In no way do I think that stupid spending by congress is an issue of race.
As for the other… yeah, I think you’re right. In many ways the financial system was exploited for the gain of a relative few. The packaging and reselling of mortgages which led to a sweatshop mentality for cranking out mortgages was destined to fail. There was no way for that not to fail… Previously, Republicans pushed for deregulation and won, then Demoncrats pushed for relaxed lending practices which eroded the remaining ‘in-house’ regulations existing within many lending institutions and won. The packaged mortgages are treated as gold and the only governing body left with merit were the bond raters who were clueless.
With this set-up, who can be surprised at the run-up and collapse?
You’re also spot on that a full generation of PhD candidates will feed on these events.
So, what would you do to right the economy?
@ Atkins – great question, and certainly one I’ve earned with my post. For starters, allow me to defuse the potential political underpinnings to my post, your question, and my response. I was equally opposed (and actually more active in my opposition) to the Bush bailout last Fall as to Obama’s recently spending plan. To me, this is not a he said/she said situation… there’s plenty of blame across both isles as well as in/out the beltway and on/off Wall Street.
In either case or any case, I just don’t believe you can borrow your way out of debt. Joe Sangl says “first rule of holes is to stop digging”. So the government – whose only source of income is our income – can’t borrow generations of debt into the future to stabilize our current economy. To me, the logic flow simply does not support it. My can’t do this with my small wallet, what makes someone think it will work with our big wallet? I really don’t know.
To truly fix the economy one must find what makes it go. If we want to increase jobs then let’s find/help the segment that actually employs the most people – small business. If we want to help the housing market then let’s allow tax credits for everyone who can afford to buy a home rather than just the first time buyers who may not be the most qualified buyers in the first place. If we want a free flow of cash to support industry then let’s incentivize investment and savings rather than encouraging folks to buy new cars with more debt when so clearly the debt/purchase model has failed… mortgage defaults and gridlocked credit markets anyone??
Government does not make the economy go and with so many of these dollars going to local governments it is a recipe for sustained disaster. Even CNN questioned this in a recent story on West Virgina’s plan for $21MM earmarked for a highway called corridor H… it is a peacemeal highway system that has been on the books since the 40s that sucks up ever dollar the state throws at it but has virtually zero traffic and connects nothing to nothing. So we’ll hire a few folks to move dirt and when the money runs out we’ll have accomplished 6mos of employment and some reorganized asphalt… and then we’re right back where we started….
Rather, I’d suggest small business tax credits equal to that same $21MM for any net job created in 2009. These jobs would be sustainable jobs because small business owners operate with a greater since of accountability than does a politcian… a small business owner wants to feed his/her family whereas a politican wants to be re-elected.
Ok, enough of my rant… I could go on but that’s not the point. The point was to provide a response to your question and I trust I’ve done so. That doesn’t mean you have to agree with my response… there’s plenty of room for many good answers and I’d truly welcome you or anyone else to share thiers.
Thanks for your question, I hope you’ll visit and comment again!
Dave