I’ve been pretty critical of the stimulus plan.
The economy is in the tank, no question. That, at least, I don’t dispute. But the economy is in the tank because a whole boatload of people made very, very bad decisions. It wasn’t just “fat cats” on Wall Street making bad decisions, it was financial planners in Poduka and loan managers in Los Angeles. Congressmen and women (both Democrat and Republican) share the blame with the voters that elected them. Then there are the families that defaulted on their debts, the companies that invested too heavily in real estate and the investors around the worldthat bought into the credit default swap swamp. There’s plenty of blame to go around.
A lot of people lost money and many, many more will lose much more. A lot of people are much worse off than they were before. That’s what it means when we say “the economy sucks.” We mean, “a lot of people have lost a bunch of money.” And that’s all we mean. We’ve lost a bunch of money. We’ve overextended our debt and we can’t pay our bills.
The “stimulus” plan works on the idea that we really haven’t lost a bunch of money. The stimulus plan (and the bailout, and TARP, and the other bailout, oh… and the other bailout) amounts to no more than a “Maybe the money is under the couch?” kind of approach to the financial crisis. Current policy (Obushama policy) amounts to pretending that what is valueless has value, that devaluation of the dollar and deficit spending are like, totally different from inflation, and that debt can be counted as capital.
The big idea behind the stimulus plan is that so long as we spend $90 million on this project and $40 million on that project and $7 bejillion on those politically connected projects, and so long as we mail out more checks to more people and borrow more and more money from China (because owing money to communist dictatorships is SUCH a good idea), then everything will be peachy and we’ll find the money under the couch and we won’t have any more recessions any more and daddy will solve all our problems…. It’s adolescent bullshit.
The economy sucks. We lost a bunch of money. It’s not under the couch; it’s gone. Moving a bunch of other money around isn’t going to make anything better.
Oh, the plan will make some people better off. There are always winners in any government policy. But there are also always losers. And if there’s a bedrock principle of politics, it’s that the winners are always very loud and highly visible and the losers are quiet and invisible. The thing is, there’s always more losers than winners. In most cases, the losers are our kids; they get to pay off our debt.
The “stimulus” plan will “stimulate” the people it’s meant to stimulate: the politically connected. That’s all it will do because that’s all it can do.
So, we should do nothing?
Nothing… just let banks fail and let people lose their homes?
But… that’s a catastrophe!
Well… no. See, the banks have already failed. The bailout doesn’t keep the bank from failing, it just lets the bank avoid the consequences of its failure. When a business fails, the capital that the business held is released and the market allocates that capital to new ventures. Some of those ventures succeed. Some fail. That’s how the market works. When we bail out a failed business we keep the capital from being reallocated. That means that the capital stays in a spot where it’s not being used as well as it could be. That means that we don’t make as much money as we otherwise could.
As for people’s homes. the same thing applies. When a home is foreclosed, the house is put on the market where it’s sold to another family. A family that might actually pay its bills!
We see the loss of the bank and all of the jobs at the bank, but we don’t see the business that would have been created had the bank been allowed to close, and we don’t see all the new jobs that would have been created.
We see the family that loses it’s home, but we don’t see the family that didn’t get a home.
We see the politically connected interests that will slop up the stimulus pork. We don’t see the millions who will inherit crippling taxes, growing deficits and an economy that grows at a slower rate. (More on the seen and the unseen here.)
Wait… an “economy that grows at a slower rate” that’s all? That’s what you’re up in arms about? “a slower rate?”
Yes!!!!!! Absolutely!!!! Economic growth is the THE GREATEST THING in the HISTORY OF MANKIND.
Economic growth lifts people out of poverty faster and more assuredly than charity, aid, or education. Economic growth saves more lives than any hospital, doctor, or government health program can ever hope to match. Economic growth makes us all rich, allows all of us to live longer, live better, and have more fun. In short, economic growth freakin’ rocks!
From the Concise Encyclopedia of Economics:
In the modern version of an old legend, an investment banker asks to be paid by placing one penny on the first square of a chessboard, two pennies on the second square, four on the third, etc. If the banker had asked that only the white squares be used, the initial penny would have doubled in value thirty-one times, leaving $21.5 million on the last square. Using both the black and the white squares would have made the penny grow to $92 million billion.
People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication, we systematically underestimate how quickly things grow. As a result, we often lose sight of how important the average rate of growth is for an economy. For an investment banker, the choice between a payment that doubles with every square on the chessboard and one that doubles with every other square is more important than any other part of the contract. Who cares whether the payment is in pennies, pounds, or pesos? For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns.
The massive increase in deficit spending, the corresponding increase in taxes (debt = taxes), and the increase in percentage of GDP that the government consumes, all work to slow economic growth and slowing economic growth means consigning more and more people to poverty.
Wealth is good. The sole object of sane public policy is to make as many people as wealthy as posible; to unleash the power of compound interest and increase the rate of economic growth.
Or we could borrow from our children and try to push our mistakes under the rug. That’s what Bush/Obama/Pelosi/McCain want to do. They and their cohorts will contnue to sacrifice the future in a futile attempt to ignore the present. They’ll continue to do it so long as we let them.