On the Stimulus

Apparently on the so-called stimulus bill all that remains is for Mr Obama to sign it. It remains to see if he will put the bill for public examination for five days before signing as he promised in his campaign. The democrats controlling Congress certainly didn’t give much time for reflection after it was assembled in order to vote. I doubt it was humanly possible for anyone to even skim through it before a vote needed to be cast.

Government stimulus in times of economic recession is widely touted as the best way to recover. However this flies in the face of historical records. In wake of the Great depression the economy didn’t really recover until post-war, at which point there was a decades long (or more) boom. What drove that boom? Not “stimulus” spending but that boom was the result of an almost decades long war in which the economy and manufacturing capabilities were stretched to the limit to keep up with wartime production requirements. Two other notable hard efforts at stimulus to spur recovery include Napoleon’s (in)famous digging and filling in of ditches to spur employment. Japan throughout the 1990s it turns out strove hard to “build infrastructure” and piled up debt in an attempt to ward of recession. Both efforts failed. Apparently the important difference this time, is that those doing the spending are “really smart.” Whatever that means. However it would be really nice if those people who support the stimulus would inform what is different about this stimulus package from all those other failed attempts. How is this time different?

Mr Steele made the argument that the government has never created any jobs. While this statement was not artfully made or well defended it is in essence, with some small provisions, correct. The government has created jobs, but at the cost of extracting from the private sector funds which could (and likely would) create more jobs. The net effect of government is to remove or reduce jobs. Government jobs come in two basic varieties. Those which increase regulation and stifle the economy and jobs which actually produce services or goods which could be more efficiently done by the private sector. Now it must be said that some of those jobs must be done in the public sector, even though it would be less efficient and that some regulation is required.

How does the stimulus ultimately work. The costs of tax collection are quite high. This inefficient collection mechanism must extract from the people and private corporations funds, which it then with much celebrated wastes applies by and large ineffectively (for those who argue that point, name 2 large projects that the government does well … ever). The IRS likes to celebrate and tout the low costs of their collection agency. However, they ignore the very high costs of accounting and regulation that are born not by the IRS but by their clients of record keeping and expertise that must be maintained in order to comply with their byzantine rules. I think it is a good estimate that for every $1 the IRS collects an additional dollar (by corporations) is spent maintaining compliance with their laws. The cost is slightly lower for individuals but then the value of an individuals time to keep those records is not a number which is easily assignable. The point is the money collected, ultimately, to pay for the stimulus comes at a much higher cost than the money actually spent on those stimulus projects.

Secondly, in order to work, like the post-war America the stimulus has both stretch production capabilities and capacities to new levels, so that in its wake the benefits of increased capability is available to create wealth and prosperity. I see no evidence at all that this stimulus package is going to do anything at all to increase aggregate production capacities or capability.

So in a time of a credit crises, America will borrow very large amounts in order to fix the credit crises using stimulus mechanisms which have failed more often than they succeeded. Mr Obama has been warning that the recovery from this economic situation will be long and hard. I think he’s just gone a long way toward guaranteeing that will be the case.

Filed under: Politics • You Cry Out

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