Posts Tagged 'stimulus'

Playing God and Taking Shortcuts…

This financial crisis is more than what it appears.

It is symptomatic of a society that sometime over the last 30 years lost its way by seeking not the road less traveled, but instead the quickest route.

It is the culmination of a mindset that increasingly became interested in pursuing immediate gratification at any cost.

Look around you. In every area of modern life, the shortcut has become the rule, not the exception.

In sports, we substituted medicine for athleticism as steroids offered the quickest path to success (And I cheered as Mark McGwire belted homer after homer chasing down Maris’ record).

In entertainment, we substituted notoriety for talent as reality television offered the quickest path to fame (And I lapped it up as Richard Hatch ‘survived’ an island and dozens of out-of-control women wooed Flavor Flav).

In war, we substituted power for strategy as shock and awe offered the quickest path to victory (And I couldn’t pull my eyes away as CNN aired its little war video game, the pinball-like sights and sounds of buildings being destroyed and people getting killed).

In friendship, we substituted technology for intimacy as tweets and status updates offered the quickest path to communication (And I blog away, making facile analogies as dreams of writing the Great American Novel slip away).

It goes on and on and on.

We wanted it big, we wanted it all, we wanted it now.

Cheating, if not encouraged, was at least ignored. Just pay no attention to that man behind the curtain.

So is it really any surprise that in business, too, we fell prey to the same phenomenon? In hindsight, it almost seems inevitable that we indulged in this financial alchemy, pursuing policies and practices to make the quick buck while conveniently ignoring the potential long-term negative consequences of our actions.  The no-doc loans, the credit default swaps, the collateralized debt obligations belong in the same metaphorical bucket as the anabolic steroid, Omarosa and gastric bypass surgery.

The funny thing is, the issue isn’t due to a loss of work ethic. Most of the bankers who concocted these weapons of mass destruction worked insanely hard at their jobs, just as our medically enhanced athletes put in long hours at the gym, just as our most vacuous reality stars went to incredible lengths to promote themselves (and just as I am spending way too much time trying to fine-tune this post).

And I’m not about to suggest that this eagerness to seek the shortcut is an entirely new development. People have of course always found ways to cheat or exploit the system – it’s just that in the past, the tools were more rudimentary and thus less dangerous (e.g. the spitball and the corked bat just can’t wreak the same havoc as the human growth hormone).

We became too smart and too powerful for our own good. We acquired knowledge and technology, but not the wisdom to use them productively, or to realize that sometimes we should refrain from using them at all.

And unfortunately, our primary solutions to this crisis so far – the stimulus plans, the bailouts, the monetary injections – offer more of the same. We are still seeking the quick, easy way out. Wanting it all, and wanting it now. Not willing to deal with the consequences of our actions.

Which of course makes perfect sense. In a world where man ultimately controls so little, including the time and manner in which he will depart it, how can we be surprised when he believes he has figured out a better way of accomplishing a goal and overplays his hand.

We have gotten what we deserved.

We have somehow lost our way.

We better find it back.

The Buzz for 2/17/09: (Obama’s New New Deal?)

So Obama signed the American Recovery and Reinvestment Act of 2009 into law in Denver this afternoon. I’ve heard several pundits calling the $787 billion stimulus package the beginning of Obama’s New Deal. In today’s dagbuzz, I discuss why that comparison is foolish, and why we probably couldn’t even afford a new New Deal even if we desperately needed one.

I know Obama isn’t done with today’s bill. Homeowner and banking rescue plans are in the works and coming soon, but everything I’ve heard so far suggests that what the administration is trying to accomplish falls far short of the broad scope and scale of FDR’s New Deal plan.

The reason for our somewhat modest response may be partly that as bad as things are today, they’re not nearly as bad as they were when FDR took office (total shutdown of banking system, 25% unemployment), or maybe partly because of Obama’s more tenuous political situation (FDR got Congress to grant every single one of his ‘First 100 Days’ requests), but I worry that it’s mostly because we couldn’t begin to afford such a series of initiatives without totally jeopardizing the country’s long-term economic health and standing.

Image: Obama poised to sign stimulus into law      (AP)

Obama poised to sign stimulus into law (AP)

Questions: Stimulate Me

OK, so Obama’s tough talking apparently worked.

The administration got three moderate Republican senators to agree to support the stimulus package and prevent a filibuster. In return, some $100 billion in spending from the package was removed while some Republican proposals for tax cuts and credits were adopted (most notably a $15,000 credit for homebuyers).

Of course, the compromise has pissed off some politicians on the left, but likely not enough to jeopardize a Yea vote.  The bill will pass the Senate soon, and then move to a committee where the House and Senate will negotiate on the final bill.

I just spent about an hour or so scanning through the revised stimulus bill, all 736 pages, and there’s plenty of good news (assuming you like the idea of the government spending $827 billion to try and stimulate the economy).

Despite the compromises, this is still clearly a Democratic bill. While there is certainly a fair amount of money going to the military and national security, the biggest sums are reserved for the areas that most liberals care about – education, health care, environment and green technology development, public housing and the homeless, public transit and other infrastructure.

For me, the good news is that the bill is pretty explicit about how the government will track the effectiveness of the money being spent, including the creation of a consumer-facing Web site that will have great detail on every dollar (aside from potential national security issues).

This is all hugely important because if I were someone without scruples, I’d be reading through this bill and just thinking about all the ways I could get my share of what could easily become a fraud-ridden boondoggle.

So what’s the questions part of this column, you ask?

Well, I am going to list below two (or more) of the programs or projects that are currently slated to receive more than $1 billion in government money, and I want you to tell me which one you think is more important and why? Any you’d get rid of?? (This is not a comprehensive list of the billion-dollar initiatives, and there were literally dozens more falling just short of ten figures).

1) $1.2 billion for aviation security vs. $1.2 billion for youth activities (incl. summer employment, state grants) vs $1.5 bln for state and local law enforcement?

2) $9 billion for federal building funds (including $6 bln to make them green) vs $9 billion for broadband expansion initiatives vs $8.4 bln for public transit?

3) $1 billion for dislocated worker training vs $1 billion for Head Start?

4) $1,35 billion for the National institute of Health vs. $1.2 billion for research at the National Science Foundation?

5) $13.5 billion for special education programs vs $13.869 in student financial assistance vs. $13.0 bln for elementary and Secondary Act of 1965 (incl. school improvement)?

6) $17.5 billion for CDC screening and immunization vs. $14.398 for renewable energy development?

7) $2 billion for advanced battery grants (incl. vehicles) vs. $2 billion for high-speed rail corridor program?

8)$2.25 billion for redevelopment of abandoned/foreclosed housing vs. $1.5 bln for homeless prevention?

9) $4.5 bln for electricity delivery and energy reliability vs $5.5 for surface transportation (i.e. highway/bridges) vs. $5 billion for health information technology investments?

10) $1 bln for nuclear weapons program vs. $1 bln for prisons?

The Daily Buzz (An Experiment in Multimedia)

Ok, so I am totally going to risk extreme personal embarrassment by doing this, but I decided to experiment with a little video rundown of some of the day’s top stories as indicated by Yahoo Buzz!, which is a Digg-like service at http://buzz.yahoo.com. I basically put on my Unabomber/Deadman outfit, recap the top articles that interested me, and throw in a little commentary for good measure.

As you will quickly see, it is totally off-the-cuff with no script so frankly, it’s not that professional (Alas, I do have another job that pays the bills so I have to throw it up there, warts and all). But I have to admit, it was fun to do so if people like watching it, I may keep doing it. Be happy to take any of your suggestions for improvement (I know the glare of the sunglasses is distracting, but I’m not yet ready to totally drop my anonymity yet).

Here are the stories I run down: (The video is underneath)

Obama calls stimulus bill delay ‘inexcusable’ (AP)

Simpson Gets Into Bizarre Crying Fit At Concert

Christian Bale Apologizes for F-Word Filled Tirade

Christian Bale Apologizes for F-Word Filled Tirade

USA Swimming Suspends Phelps for Three Months

USA Swimming Suspends Phelps for Three Months

Stimulus vs. Spending and the need for Recessions

Over on dagblog, one of our writers DF posted an interesting post on the latest drama in our economic crisis called ‘Macroeconomics 101: Spending versus Stimulus, or ‘How I learned to stop worrying and love recession.” It basically discussed how silly some of the recent political commentary has been, particularly the claim by many Republican lawmakers that Obama’s stimulus package was full of programs that would do little to stimulate the economy. This is my response. I encourage everyone to read DF’s original post as there is also a fair amount of continued dialogue in the comment section.

So DF did a stellar job of getting to the heart of our economic crisis and the current debate over Obama’s planned stimulus package and spelling it out simply and effectively. I do, however, have some issues with his thesis.

Unlike DF, I believe there IS a difference between stimulus and pure spending, although where and how you draw that line is admittedly a subjective process. Stimulus is government spending that then encourages corporations and/or individuals to spend money of their own as well. Government spending by itself will certainly add to GDP, but without a stimulative component, it will have very little notable impact (the Consumer ‘C’ in GDP is almost 2/3ds of the total in the US) and certainly will be unlikely to reverse a recession.

Now you can have a legitimate debate about what types of policies are more stimulative than others, and that’s where things get subjective (for instance, giving people money, or tax refunds, would seem by its nature to be stimulative but that stimulus package last year ended up being nothing more than an ineffective short-term stopgap with most of the money going to shore up corroded balance sheets – not the worst thing in the world but not very stimulative).

And where I really disagree with you is that you seem to think government is in a better position to spend than consumers or corporations. With consumers, maybe you could argue the point, given how badly household balance sheets have gotten, but aside from the financial industry, corporate balance sheets are actually in very good health and they could probably invest a lot more capital in the system if they had confidence (and arguably lower tax rates).

Of course, any significant corporate investment also requires a free flowing credit system, which has been dramatically impaired because of our financial crisis. Resolving our toxic asset problem is at least as important as the passage of any stimulus package because not only would it allow credit to flow again (although hopefully in a more rational manner) it would also restore a bit of the confidence that is a necessary prerequisite for any lasting spending by consumers OR corporations.

But getting back to the government and its ability to help us spend our way out of this mess …. they’re in the worst shape of anybody to do the work! Obviously, the government CAN spend the money since they control the printing press, but that won’t mean it’s a good idea. At $1.2 trillion dollars (prior to any stimulus plan being passed), this year’s U.S. deficit alone equates to over $4000 per person in this country, and that exceeds the average credit card household debt of $3,235 (which you can easily argue is too high as well).

Increasing the deficit will only place a bigger burden on this country’s future generations – at some point, guess what, the Chinese and other foreign governments will stop wanting our debt because they’ll wake up and notice the crappy state of the balance sheet, and at that point, you will see and feel pain like you’ve never experienced.

If we are spending money on things that are needed, like long-decaying infrastructure or intriguing alternative energy technologies, then perhaps the additional onus on the country’s balance sheet will make sense. But I am very skeptical that we’ll be able to spend $800 billion without seeing much of it going to waste.

I guess when you get down to it, I have a problem with your main thesis

First, we all have to agree that a recession is what I’ve stated it is above and that this is an undesirable condition in which we all have a vested interest of avoiding.

Recessions are necessary parts of the free market business cycle. Sure, we’d love to avoid or shorten them, but it’s my belief that without them you can’t have the good times. The key in my opinion is to pursue policies and regulations that limit the extremes on both sides of the cycles, but unfortunately, we threw ourselves one big consumption and credit orgy over the past decade, and we must pay the piper.

We need to be very careful we don’t throw good money after bad, and make the problem even worse by sapping oomph from any eventual recovery or setting us up for a bigger, more painful fall later.

What goes up, must go down …

I believe in balance. In yin and yang. I believe in cycles. In symmetry. I believe big wild parties end with big, nasty hangovers. I believe that what goes up, must come down.

Unfortunately, our government does not agree.

I have railed time and time again on this blog about the scattershot and shortsighted nature of our economic response so far to the current financial crisis. In short, and with few exceptions, said strategy has consisted of spending as much money as possible to bailout and stimulate every sick, depressed segment of our economy, with a particular focus on those segments that cater to the rich and connected.

The policies of the incoming Obama team will only accelerate this process, albeit with a more tilted and welcomed focus on some of the not-as-rich-or-connected folks. There is talk of a new $1 trillion stimulus package being created early in the Obama presidency.

The Fed is fully aboard the stimulus party as well, yesterday slashing the fed funds target rate to basically zero and committing to buying mortgage assets to ensure long-term borrowing rates move lower in an attempt to stabilize and boost the housing market. There is even talk that the government will FIX interest rates at a certain level to ensure they accomplish that goal, though for now it appears the mortgage market is responding to the unprecedented stimuli.

Look, no one likes to see suffering. People out of work, going bankrupt. Home prices falling. Factories closing. Cities failing. It’s nasty, nasty stuff. For politicians, it tends to lead their own unemployment. And for economists, it’s a scary scenario as well, because it almost always results in deflation, a pernicious problem that tends to have long, strong roots once it sets in.

But did the Fed or government do anything when times were so good, when the price of housing was soaring to the moon and consumers were levering up to the hilt and taking on dangerous levels of debt???? Aside from nominal increases in interest rates, I don’t remember any concerted effort, and certainly nothing approaching the desperation we’ve seen recently, to try and tame the animal spirits and gently guide the economy into a soft landing.

In my opinion, you can’t have it both ways. You can’t have bubbles without crash landings. We have stemmed the worst of the credit crunch and liquidity crisis – interest rates have fallen, banks are lending a bit again (at least to each other). It is now time to let the market work its way through this mess and find its equilibrium level. Yes, it will likely overshoot on the downside, just like it did on the way up. Yes, it may take longer to find that equilibrium level than we’d like. But you gotta take the yin with the yang.

I’m not saying we should sit on our hands and watch helplessly as the economy craters. By all means, spend money to reinvest in our roads and infrastructure; on new technologies, including alternative energy; on education, including the retraining of displaced workers; on strengthening the country’s safety net to ensure that those hit hardest from the economic collateral damage don’t suffer unduly.

But realize that all this profligacy will have consequences down the road. We are already staring down the barrel of the worst demographic situation in decades – as the baby boomer generation is getting ready to retire en masse, placing a huge burden on this country’s resources as they move from being net producers to net consumers.

When times were better and tax revenues were flush, our government did nothing to reduce our budget deficit in any meaningful way or address long-term systemic issues threatening the economic health of our nation, like Social Security and Medicare. Yet it now has no problem dramatically increasing our country’s burdens and obligations in order to try and avoid the bad end of the business cycle.

The only thing all this spending will do is take away the oomph from any subsequent recovery. We’ll see a weaker dollar, higher inflation, bigger deficits, and higher taxes down the road. At least some, and maybe a lot of this money will be misplaced, leading to bubbles and wasted investments in other unforeseen areas.

But frankly, the prospect that most of this stimulus will be wasted, a misguided attempt to set an artificial floor on the economy, is actually not the worst-case scenario (though it is the most likely). My biggest concern is that the stimulus works too well and our animal spirits are revived before they’ve had a sufficient chance to reset. If that happens, we’d only be setting ourselves up for a bigger, more painful crash down the road.


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