Obama’s Stimulus Plan Is A Complete Joke
In November, America wanted a change, any change. Boy, looks like we are getting one, and for the worse. With the S&P 500 now down 12% already for the year in 2009, Wall Street seems to be seeing through the democrats fraudelent attempt at a ’stimulus.’
Let’s go back to the root of the problem real quick. Americans went crazy in the housing market, buying home they couldn’t afford at prices that greatly overvalued the home. Wall Street took on this risk by making these loans and through CDOs, proliferated and polluted this risk throughout the system.
If this weren’t bad enough, the banks overleveraged themselves making these loans, essentially making them insolvent. So a lot of capital and manpower was devoted to an inefficient good…a lot. Now, with the credit crisis, capital is having a harder time being put towards actual efficient projects, such as small business loans for real, profitable businesses.
Japan had a similar property investment bubble in the late 80’s that led to similar bank failures, so this sort of situation isn’t new. Heck, our property asset bubble looks tame by comparison. Just before the bubble broke, the Japanese were valuing a small commercial district around the Imperial Palace as being worth more than the entire state of California! The Nikkei index reached its all time high just shy of 39,000 in 1989.
The Japanese tried multiple efforts at reviving their failing economy. The cornerstone were Keynsian-style economic stimulus programs, much like ours. Theirs focused more on bridges and tangible investments, unlike ours which are more just pure pork.
The Japanese result? A recession lasting more than a decade. Economic growth was flat throughout the 90’s. The Nikkei is at 7650. Did I mention the Japanese debt/GDP ratio is now about 180%
The democrats are trying to frame this entire situation as a short term problem brought on by a sudden drop in credit and spending power of the American consumer. Their view of the problem tries to boil it down to a high school economics course viewing that ‘aggreggate demand’ is artificially small so ‘pump priming’ through government spending will cut down on unemployment. Even if the government spending is a bit wasteful, the added spending power of people with government jobs will cause that money to be respent wisely, thereby increasing demand.
Wishful thinking. If government spending was so great, then Europe would be the world’s leading economic powerhouse and the Soviet Union’s economy would have been decent. What we have and have had is a massive misplacement of capital and labor. Too much capital was put towards home construction, property investments, investment banking, etc. Too much white collar labor in these sectors was created.
We have other problems too. We have too many lawyers; we spend too much time in school. We have the highest years of schooling of any country and can you say you really learn anything vitally important in higher education? Remember, we’re spending massive amounts of money and putting a large part of our labor force towards a fundamentally inefficient industry. The amount of education we get keeps going up and up, yet our retirement age isn’t budging. This means people are working less as a percentage of their life. So we have less people working but more entitlement spending, not exactly a recipe for economic growth
We have some massive underlying issues in the economy that ’stimulus’ isn’t going to help. Wasting money doesn’t create efficient jobs and encourage innovation. Rather, by delaying taxing cuts and scheduling in tax increases (as the Japanese did), we discourage innovation and push capital overseas. America and Japan have the two highest corporate tax rates; new, mobile industries that emerge over the next few years will find themselves choosing to make a country besides ours home.
We need to get back to basics. We need companies that make a product efficiently and make money. We don’t need to save and subsidize corporate behemoths that are too big for their own good. We need to stimulate small businesses by keeping tax rates low for both corporations and at the individual level (yes, those evil $250k+ people are often small businesses that create real jobs). We need to let the free market determine how much education is useful, not keep people in school until their 30’s. We need entitlement programs that won’t bankrupt the country.
By borrowing a bunch of money to waste on government projects, we are just emulating Japans moves in the mid 90’s…and look where it got them.