Thursday, February 18, 2010

Stimulus failure breakdown

In light of the fact that the White House is now fanning out across the country to falsely claim that the stimulus has worked,I believe it is our duty to do our part to help inform the public what the reality is.One way to look at it is did it accomplish it's stated goals?Here they are direct from the A.R.R.A.

(1) To preserve and create jobs and promote economic
(2) To assist those most impacted by the recession.
(3) To provide investments needed to increase economic
efficiency by spurring technological advances in science and
(4) To invest in transportation, environmental protection,
and other infrastructure that will provide long-term economic
(5) To stabilize State and local government budgets, in
order to minimize and avoid reductions in essential services
and counterproductive state and local tax increases.

1.The country has lost 8 million jobs since the start of the recession and 4 million have come during the last year in which the stimulus was in effect.President Obama warned that the unemployment rate could exceed 8% without passage of the stimulus and as we know it did anyway,all the way up over 10%.Christina Romer is the chief economic advisor for Obama and she is on record as stating that the stimulus has already achieved the bulk of it's job creation despite having only spent 30% of the appropriated money.I think it's clear by any measure here that the stimulus has failed in achieving this goal.

2.Who qualifies as 'most impacted by the recession'?Certainly if you have lost your job or your house or your business,you would qualify.You may have lost a large percentage of your investments and that would also include you.I think it's safe to say virtually all Americans were impacted in some fashion,but the above scenarios probably account for the 'most impacted'.We've all heard the unemployment scenario.We have seen our home prices plummet.Commercial real estate is only just now coming into play and foreclosure defaults are a ticking time bomb which will affect all of us at some level during the next couple of years as they begin to unwind.Banks will fail along with businesses being shuttered.Suppliers will then feel their share of the pain as will the employees.The housing price drop attributed to sub-prime mortgages has already been factored in for the most part.Now it is due to unemployment caused foreclosures and this won't let up until the other shoe drops on the commercial side.Stocks have surged tremendously since the spring of 2009 allowing many people to recover their losses.However,the market hasn't risen due to sound fundamentals.It has been due to companies improving efficiency and productivity at the expense of job losses as well as refilling inventories which were allowed to drop artificially low during the recession.These are not sustainable scenarios long term.Supply and demand will now dictate increasing inventories and companies have cut to the bone so any balance sheet increases forthcoming will have to be the usual way.Demand must drive profits and it isn't there.People have less access to credit and have also adjusted their spending downwards due to the recession.The jury is still out on the recent stock market gains and we'll see if they hold up over the next year of the stimulus.All of these factors leave only one outcome-those most affected haven't been helped by the stimulus.

3.Investments in economic efficiency.Sounds rather vague.Yet another area the federal government has no business spending taxpayer dollars.They also have no constitutionally provided authority either.This isn't what was intended by 'promote the general welfare'.Economic efficiency has certainly been improved due to the nature of the recession itself.Companies had to slash and cut to stay alive thus becoming more efficient necessarily.Advances in high tech are still driven by one thing.Profit.That's the rainbow at the end of the tunnel for the companies that expend the resources to develop these advances.The government has determined that it's role is to provide seed money.I believe rather than being the enabler,it should instead not be the anchor.Regulations and the years long process of jumping thru these regulatory hoops are the main roadblock to start-up companies doing research and development.Instead,the government likes to pick winners and losers.You need look no further than the nightmare at Monsanto and what they have done to the corn and soybean industry.We're seeing it play out right now as Government Motors has set it's sights on Toyota.Government is exploding in size and scope and the regulatory burdens are only getting worse,so again,it's another failure as economic efficiency is a pipe dream.

4.Infrastructure building for long term benefits defeats the goal right out of the gate.A stimulus program by definition is a short term,temporary boost.Creating long term projects such as infrastructure are necessary for our civil society to continue to advance.However,these don't qualify as a stimulus project in any way due to the fact that they take decades to complete.This simply falls under the Rahm Emanuel 'never waste a crisis' mentality as a means to justify these programs as a method to boost the economy.Once again,using taxpayer dollars for funding is taking money out of the private sector.There are only rare exceptions such as the Hoover Dam project.This can be shown to have opened up potential markets and growth opportunities where none existed prior.Rebuilding roads and bridges,weatherizing and the other types of projects,while necessary,can still only be categorized as busy work under the stimulus platform.Another failure in the concept of boosting the economy short term.

5.Stabilizing state and local governments.Another area the federal government has no business being in.And how well has it worked?Here in Michigan,our governor has taken full advantage of the 'free' money to patch holes in her budget.She will again in her projected budget for 2011.This allows her to kick the can down the road and leave it to the next governor to actually address real reform.Many states have redirected stimulus dollars from intended projects to fill budget gaps.Yet,have you heard of any that have stabilized their budgets?No,the opposite is true.This is the same for the industries and companies receiving bailouts.They are being rewarded for their misbehavior and are now inspired to do it more.Delaying the pain has the guaranteed effect of making it worse later.A comparison would be a low tire on your car.You could stop and put air in it or replace it with the spare.Painful now because it will probably make you late to wherever your going.However,if you wait and keep driving on it trying to make it home,you'll likely ruin the rim and make the cost much higher later.The federal government cannot play the role of savior to state and local government.All revenue for any level of government comes from the same source.The taxpayers.Even corporate taxes are passed on to us so it's an indirect tax on us.They try to play a shell game by shifting revenue around,but it doesn't address the underlying deficiencies.Again,no stabilization happening here.

In all 5 of the stated goals of the stimulus,it has been an abject failure.You don't need to play the democrat game of accounting for saved jobs or attacking republicans who attend ribbon cutting ceremonies.You can depend on the fact that by the end of year two of the stimulus,we will be amazingly close to the Obama estimate of 3.5 million jobs 'created or saved' by the stimulus.Yet,when you break it down,it doesn't pass the smell test.More to come...

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