From The Rational Capitalist:
Proponents of the “stimulus” plan claim explicitly or implicitly that the government can take other people’s money, spend it, and thereby cause a “stimulating” effect on the economy.
First, I’m not sure what they mean by “stimulating”. Do they mean that prices will rise? But if prices rise, then we all get poorer by definition so it can’t mean that. Will prices go down so that we can all afford more? Not really since spending lots of money on consumer goods rarely results in lower prices.
Please contact your Senators and let him or her know what you think of the “Stimulus” package which is scheduled to come to the Senate floor this Wednesday, February 4th, 2009.
The $819 billion-dollar bill passed the House of Representatives last week with a vote of 244 to 188. Read what the Wall Street Journal has to say on a few of the specifics. Or a recent article on how Japan’s “stimulus” failed. Other interesting articles can be found here, here, here, and here.
Here is my letter:
Doug Kass of Seabreeze Partners was on CNBC (Tue, Feb 3 2009, 7am EST), praising the current president’s economic team. He said the previous team was bumbling, but this new one was clued in and brilliant. The CNBC reporter challenged him, pointing out that secretary Geitner was part of the previous team. [Aside: As was Bernanke.]
A few days ago, Harvard Law School professor Elizabeth Warren, who heads a Congressional oversight committee, told the Senate Banking Committee.”Treasury paid substantially more for the assets it purchased under the [TARP] than their … market value”. Her evaluation was based on a detailed report that concludes that the Treasury overpaid by about 66%, paying $254 billion for assets worth $176 billion. (from: CNN)
In the popular media this translates thus: the banks cheated the tax-payers out of money. I heard Ms. Warren on NPR, where she was asked if Paulson knew about this. Her reply was that she did not know which would be better: that he knew and did it anyway, or that he did not have a clue. (My paraphrase, E&OE). More material for the populist Wall Street vs. Main Street theme. Sadly, the more that theme permeates popular culture, the worse for the economy.
As an individual, let’s say you have no savings, owe more money on your house than it is worth, and have a 50% chance of losing your job in the next 12 months. Would it make more sense to:
a) cut your spending and save more money
b) take out another loan and spend more money
Most individuals realize that (a) is the best option. In other words, when times are difficult, shouldn’t there be a tendency for individuals to cut back and save rather than take on more debt and spend? Duhhhh, right? If that is true for an individual, shouldn’t it be true for your neighbors? If it’s true for your neighbors shouldn’t it be true for your town, city, and country? If that is true, why is the federal government attempting to take more money from taxpayers and investors in order to spend it? Shouldn’t the government be cutting its spending like everyone else? If the government decreased its own spending and took less money from taxpayers, wouldn’t that immediately allow taxpayers to save more money by definition? If the government decreased its borrowing, wouldn’t that free capital up to be invested in private companies that are productive? Additionally, if the government decreased its borrowing, wouldn’t that tend to lower interest rates overall? If this is true, isn’t Obama’s proposal literally the exact opposite of what he should be proposing?