Economic Stimulus is Really Just Voter Titillation

This week we get to hear another snake oil sales pitch from our Mountebank-in-Chief George W. Bush with his State of the Union address. This time he’s not selling war, fear of terrorism or abstinence. No, this time Mr. Bush is selling television sets.

Apparently the economy is “strong” but now needs an adrenaline shot to help shore up its long term sustainability, or so say administration officials. Hank Paulson, Secretary of Treasury, made the rounds on today’s talk shows to drum up support for our economic growth and the importance of consumer spending and the need for quick passage of Bush’s stimulus legislation. Paulson’s the same guy who called the sub-prime mortgage meltdown “largely contained” last August just before the feces hit the fan, so his economic chops are suspect at best.

My view is that this economy is structurally damaged and a mere spending stimulus is inadequate and counter-productive. I'm no economist, but I see consumer prices skyrocketing while our assets such as housing and retirement accounts are deteriorating. The US dollar, the currency that most of our paychecks are denominated in, has lost 30% of its value in the past few years. Something is broken and the fissure will not be resolved by more consumer spending and, in fact, it seems that without fiscal restraint (ie, quit shoveling money into Iraq for starters), the US economy will collapse and may bring the rest of the world with it.

The US Gross Domestic product is fully 70% due to consumer spending. If the GDP is faltering, the quickest way to make that number look good is to boost spending by a couple tenths of a percent. In George Bush's world, that equates to about 50 million flat-screen televisions.

The problem with this stimulus package, as hawked by the president and deliriously supported by the Democratic congress, is several-fold. First, it is done with borrowed capital. If I told my wife we should re-mortgage the house to buy a 50-inch plasma set, she would freeze our checking account and call my brother to have me committed. In 2001, Bush brokered a similar rebate scheme in order to stimulate a recessionary economy; the difference is that in 2001 we were flush with cash and the “rebate” was truly a refund on over-taxes that had been collected during the boom times.

While many economists seven years ago thought more of the surplus should have gone to re-building infrastructure and paying down the national debt, the idea of “rebate” was not altogether abhorrent in light of a recession. Today, no such budget surplus exists and the “rebate” will be coming from the largesse of the Chinese government and other sovereign banks that are willing to lend us money.

Secondly, the stimulus package that has been marketed is vastly reliant on increasing consumer spending, which already makes up a disproportionate percentage of our GDP, having grown from 66% to over 70% in the last six years. I remember Mr. Bush extolling the virtues of spending our last nickel on Disney products after the 9-11 tragedy. It seems every tough spot calls for a shopping spree.

Third, we have real needs in this country that have not been addressed due to militaristic priorities shoveling our borrowed capital into the Iraqi rat hole. Highways and bridges here are in disrepair and this definitely comes under the purview of the federal government. A Keynesian stimulus that eschews consumer spending and improves our infrastructure and adds broadband to rural areas seems more appropriate, and would lay better groundwork for sustainable future economic growth. New Asian televisions does not. I know the argument is that a Keynesian stimulus is not as immediate as tax rebates, and the appeal to the so-called conservatives is that rebates to tax payers allow the free market determine priorities instead of some behemothic central government. Following that line of irrationality, we would just put every highway engineering project up for local referendum.

Fourth, the rebates aren’t fair. We are ignoring those that have paid the most into the tax system and mailing checks to those who have not. Not that a $600 check is very significant to a couple making over $200,000, but the fact remains the stimulus package smacks of class warfare and pandering. Why would you give a tax rebate check to someone who a) has not paid much tax, and/or b) has no proven ability to properly allocate capital in the first place?

The reason that family of four is living in a single-wide and qualifies for a $2000 “rebate” is because they likely have little ability to understand personal finance from the start, so in what universe would giving them a check make sense? Give them heating oil allowance, or an educational grant, or increase their food stamps… but a check? Please.

Unlike 2001, this is an election year, which means we have a perfect storm that will certainly deplete our Treasury. Every candidate for every office from US President to Paducah County dogcatcher will be rallying for camera time espousing the propriety of cutting checks to everybody… we'll just pay it back later-- with interest.

Maybe George can include a Quick-Pick lottery ticket in each envelope, too.