Dissecting the Faux Stimulus Fiasco

This analysis of the House stimulus bill (click to enlarge) was put together by the Washington Post, and it is a great public service. (HT: Mark Perry) It's not exactly representative of the final bill that will be voted on this week, but it's good enough to give you an idea of the absurdity of this whole enterprise. This is what jumps out at me: very little of the bill involves immediate stimulus or anything that might be actually stimulative; only a little over 10% of the money gets spent this fiscal year, and about 30% gets spent next fiscal year (so much for the argument that we needed to pass this thing urgently); about 30% of the money goes to transfer payments (taking from one person and giving to another); only $20 billion would be spent over the next 18 months on highway construction; and about 20% of the bill doesn't get spent until 2012-19.

This means the bill amounts to a gigantic spending spree, and has very little to do with providing immediate stimulus to an economy that, in Obama's words, would face a catastrophe if it weren't passed. And I'm not making this up. When asked about "GOP criticism that the stimulus had turned into a spending plan", Obama replied, "That's the point. Seriously, that's the point."

The bill is just a gigantic Democratic wish list and will do more to permanently expand the size of government than to stimulate the economy. The real tragedy will be that a permanently larger government will require permanently higher taxes, and an increased tax burden will almost surely mean less growth and a slower advance in our living standards. This bill should be called an "Economic Destruction Bill" because it will end up hurting the economy much more than it helps.

President Obama has started out his administration in the worst way imaginable. His stimulus is not a a stimulus. His calls for bipartisanship in crafting the bill were phony. His understanding of economics is zero. Instead of hope, he used fear of disaster to promote his bill. He has squandered much of his credibility in just two weeks. If this bill emerges from Congress in anything like the form represented in this chart, I predict it will go down in history as one of the most egregious examples of government waste in history.

Does this mean that investors should turn pessmistic and sell their stocks? I don't think so, because I believe that the market has already factored in a future that is absolutely miserable. This bill won't give us a depression, but it will reduce the chances of a sharp or quick recovery, and it will mean sub-par growth for the foreseeable future.

Comments

[Dave Wrixon]

Americans have placed a lot of faith in Obama.

Most are going to be deeply disappointed at the outcome.

This will have a profoundly negative impact on sentiment in all markets.

2009 Feb 09 08:28 AM

[Jim Hawthorne]

The Washington Post is to be congratulated for this outstanding graphical representation of the proposed bill. There can be NO doubt now of just how complex a proposal this is and that there is much to digest.

However, I would have appreciated a more temperate and reasoned critique than the shrill attack provided by Calafia Beach Pundit.

'A gigantic spending spree'? When 20% doesn't get touched until after 2012, and then over 7 years to 2019???

As for the criticism that 'about 30% of the money goes to transfer payments'; this is rather quaint, for that is precisely what governments have always done and always will do. Governments do not create wealth!

There is always room for criticism and even more for improvement! But inaction is not an option, and the stimulus package is a great deal more palatable than TARP!

2009 Feb 09 09:11 AM

[John Polomny]

Hurry up and attack Iraq or there will be mushroom clouds. Hurry up and pass TARP or else there will be martial law. Hurry up and pass the stimulus or else we will have an economic catastrophe. Has anyone else caught on to how our politicians of both parties are always creating a crisis that can only be dealt with by hurrying into some type of decision or legislation? Thhe result being that when we hurry into a decision it ends up being a fiasco.

2009 Feb 09 09:22 AM

[SantaRosaChuck]

Lest everyone forget, the REAL give away number is rapidly approaching 10 TRILLION, according to Bloomberg News.

www.bloomberg.com/apps...

And an earlier article sourced from Bloomberg last November:

www.sfgate.com/cgi-bin...

It is time we stop letting the politicians define this issue and the terms used to discuss it. Otherwise they have once again fooled you with their legerdemain.

2009 Feb 09 09:23 AM

[Steve in TN]

I remember a similar sized graphic in 1991 representing the proposed Hillary Clinton all-encompassing health care system. The difference is that proposal died a natural and well deserved death.

2009 Feb 09 09:28 AM

[atlasman]

Actually instead of just beating up on the existing plan which I recognize is really easy, I would like to see someone that matters to propose a plan that will actually work. I read somewhere that Rahm Emanual said something along the lines that there is an opportunity in every disaster (sorry, too busy to google this morning). My only hope is that the disaster that is this plan will present an opportunity for real change that will have a meaningful and positive impact on our economy.

When I was studying economics at NYU in the late 90s our professor gave us the assignment of balancing the budget while simultaneously making only changes to the baseline budget that would improve the economy in the long run. You would be shocked how easy a task this was to complete. However most of the steps were politically impossible such as ending the ethanol subsidy. Perhaps if the problem is beg enough the politicans will have the guts to create a plan that works despite the impact on the various special interest groups.

In my opinion such a plan would include the following:

1. Modest investment in infrastructure specifically in the energy/auto space. T. Boones plan is not exactly right but a great starting point.
2. Change tax system to flat or better yet fair tax
3. Abolition of all the laws creating to "Protect us" but in the long run just hurt business and make a bad situation worse. The top of that list would be Sabanes Oxley.

If you do not know what I am taking about in the last point go speak with a successful entrepeneur. I could blog for hours on this but I am afraid it would only result in a waste of a bunch of my time and a bunch of thumbs down because most people do not understand the damage each well intended law has in e real world

2009 Feb 09 09:42 AM

[atlasman]

PS - Sorry for the typos, doing too many things at once this morning.


On Feb 09 09:42 AM atlasman wrote:

> Actually instead of just beating up on the existing plan which I
> recognize is really easy, I would like to see someone that matters
> to propose a plan that will actually work. I read somewhere that
> Rahm Emanual said something along the lines that there is an opportunity
> in every disaster (sorry, too busy to google this morning). My only
> hope is that the disaster that is this plan will present an opportunity
> for real change that will have a meaningful and positive impact on
> our economy.
>
> When I was studying economics at NYU in the late 90s our professor
> gave us the assignment of balancing the budget while simultaneously
> making only changes to the baseline budget that would improve the
> economy in the long run. You would be shocked how easy a task this
> was to complete. However most of the steps were politically impossible
> such as ending the ethanol subsidy. Perhaps if the problem is beg
> enough the politicans will have the guts to create a plan that works
> despite the impact on the various special interest groups.
>
> In my opinion such a plan would include the following:
>
> 1. Modest investment in infrastructure specifically in the energy/auto
> space. T. Boones plan is not exactly right but a great starting
> point.
> 2. Change tax system to flat or better yet fair tax
> 3. Abolition of all the laws creating to "Protect us" but in the
> long run just hurt business and make a bad situation worse. The
> top of that list would be Sabanes Oxley.
>
> If you do not know what I am taking about in the last point go speak
> with a successful entrepeneur. I could blog for hours on this but
> I am afraid it would only result in a waste of a bunch of my time
> and a bunch of thumbs down because most people do not understand
> the damage each well intended law has in e real world

2009 Feb 09 09:44 AM

[scfranklin94]

Atlasman, I completely agree that the Fair Tax idea is the best out there, but it will never happen, because the number one way that congress gets campaign funds is by continually adding tax exemptions for special interests.

Sarbanes-Oxley has to be one the worst crafted bills ever created, but it has been a godsend to accounting companies bottom line. It sure did a lot in preventing CEOs at financial institutions from taking on systemic risk, didn't it?

2009 Feb 09 10:02 AM

[Randy Watchdog]

It's striking that Obama pushed "investments" in America and this is just pork spending. Does it seem odd to anybody else that we're more worried about getting people free equipment to watch TV than we are about getting them high speed internet access or job training? Does anybody else think that we have created a mass of folks between 5-8% of the population who doesn't want to work and that government actually relishes keeping them in that same spot? Wasn't Obama going to help and inspire these people.

Obama spoke of personal responsibility in his inaugural address. Investing in job training for unemployed or underemployed people seems to be needed. And you can "inspire" folks to participate by requiring this before receiving additional transfer payments.

If we are going to put a financial anvil around my daugher and granddaughter's neck, I would like to be able to point out - 30 years from now - how Obama and the Congress used this crisis to make America better. This, rather than using the crisis to open the cookie jar and throw money out the back door to each congressman's pet project.

What we know we need: more higher quality education, more high speed internet access, more investment in alternative energy, widespread infrastructure needs, more spending in rural areas, less spending in D.C., more money in Alzheimer's and Cancer research and more and more incentives built in for people and companies to take the right road.

2009 Feb 09 10:15 AM

[Mr. Boombox]

The tone of most of these comments is the correct one. This "stimulus" package is one of the most cynical frauds yet foisted on the American Taxpayer. This bill is a gigantic Trojan Horse for socialism in the USA. The creeping incrementalism and smoke screens that the Democrat Party has hidden behind these past 30 years to implement their euro-socialism has now been abandoned in the name of "The Economic Crisis." They are using this self-inflicted disaster in order to ram more of their redistributionist "command and control" old-New-Dealism down our throats.

I believe that if THIS particular bill is passed at THIS particular level of spending, the growth of Government will prove too burdensome on the real economy and stifle what would have been a "normal" though uneven recovery beginning in late 2009.

TARP has been a partial success. We have had no more major bank failures and the unwinding of the swap positions of the Lehman's and the Bear Stearns' and the Merrill Lynch's, as well as the relatively orderly disposition of the foreclosed assets of WAMU, Countrywide, Ameriquest, etc. are proceeding without causing a general collapse. That has to be called a success.

Here is what I, Mr. BoomBox, Astrophysics-level Economics Genius, Auto-Didact and Miraculous Prognostcator predict and recommend with utter and complete Metphysical Certitude, needs to happen.

a) Suspend "Mark-to-Market" rules for all banks and financial firms taking Federal TARP or Investment funds. Allow the "toxic" assets to find their own levels in an orderly fashion, instead of unnecssarily wiping out TRILLIONS IN SHAREHOLDER EQUITY. This is so elementary, a retard could figure it out. Which is why the Federal Reserve and Treasury haven't figured it out. Not enough of them think at a "retard level."

b) The Fed must CREATE a separate "Derivatives exchange" market and create valuation mechanisms for every different class of Credit Default Swap, MBS, CMBS and other "toxic" type of derivative. In order for MARKETS to FUNCTION, they need transparency and a mechanism for transmitting pricing data. Again, retard-level stuff. See Comments above.

c) Suspend the Capital Gains Tax for 3 years and "phase it back in" over a 5-year period, back up to a limit of about 15%. Retards, take note, this is what is called "stimulus" in the "real world." The real world being that not inhabited by Million-Dollar lobbyists, Mercedes-Marxists and the Greedy-Money-Grubbing, Red-Toothed Government "Welfare Establishment."

d) Reduce Corporate taxes to at least the level of IRELAND for Christ's sake ! What are we some Third-World Banana Republic that elects SHAMELESS HOLLOW DEMAGOGUES TO THE PRESIDENCY?? Oh, wait, errr, uuummm, eehhhhh, yeah I uhhhh, guess we are.

So, I see that at least the retard level of the electorate is healthy.

2009 Feb 09 10:17 AM

[plumstupid]

The Dems. The DEMS! Oh, the inhumanity of it all! Whatever are we to do? Whatever are we to DO!

2009 Feb 09 10:33 AM

[tonyb]

dear mr pundit--you are correct. this pork bill is right out of roosevelt's 1930's playbook. the next step is to bastardize the census. watch for accorn people and local democratic activists to be hired by the census to ''estimate'' [ie, overestimate''] people in rebublican disticts which lean democratic. then they will gerrymander the districts to their benefit. today on the news we heard of the dems plan to give dc a 'congressman' and 2 senators, not because they are a state, but because they are 'in essence a state' in the union. guess what party they will represent. and lastly, look for rumors to be spread in late summer of 2010 before the elections, in republican districts, where local dem activists and accorn people will quietly spread around that stimulus money [yet to be spent] won't get here unless we elect a dem. by then, the depression will be deep, and people will be desperate. stacking the supreme court will follow. the good news is that the plan will fail because of the massive defecits, debt and unfunded liabilities of the us gov. they will collapse under this onerous weight in due time, and good people will see through their sophistry. we have much pain to endure in the interim.

2009 Feb 09 09:54 PM

[auto44]

Unfortunatly, I am not as brilliant as Mr. Boombox. All though he resonates some of my sentiments. As this is a very complicated issue and bill, I am wondering how any of the folks voting for or against this came to an informed decision so quickly. That includes the president. I sincerely doubt that some of the finest corporations in the world could move something this large that quickly. My opinion,for what it is worth is that most of the folks we have elected are not all that bright and their greatest and in most case only talents are getting themselves reelected and trading pork for campaign finances.

2009 Feb 10 10:59 AM

[brokerinbirmingham]

On top of this back door method of socializing medicine, we'll be paying for illegal immigrant healthcare. Middle America gets screwed again.
*****Watch the census - being taken over by Rham Emanuel!***

www.foxnews.com/politi.../

2009 Feb 10 05:58 PM