STIMULATION

During the last few months the issue that has dominated the news cycle is the state of the economy. One of the stories that has been central to this issue has been the proposed stimulus package. There are many different opinions as to what should or should not be in a stimulus bill. There are also those who believe that we do not need a stimulus bill. I will start by making a case for why we may need a stimulus bill.

The economy has turned for the worst in the last year. For the last part of the 20th century our economy has been built on the strength of the consumer. We can debate the merits of this system later (I for one am against it), but this is the system we find ourselves with. The problem with this economy is the strength of the American consumer has been diminished. Deregulation on Wall Street and average people living beyond their means were contributing factors in a falling housing market. This led to banks not being able to lend money, which lead to people not being able to buy stuff, which lead to companies firing people, which lead to people having less money to buy things and so forth.

If this were a normal cycling of the economy I would say the government should stay out of it and let the market forces lead to a recovery. I do not believe that is the case. I believe that the machinery that governs this economy is inadequate for this new century. I believe that there have been systemic problems with this economy that are now all beginning to manifest themselves. I am not saying capitalism doesn’t work, I am saying the forces that drive our economy and the things that we use to measure the success of our economy are inadequate. Since this recession is more then just the regular boom and bust cycles of the economy, the government must intervene in the short term.

Having said that, I think there are some rules we should consider when deciding what goes in a stimulus package. The first thing I look for is a program where the highest percentage of the dollars go back into the economy. I want to know that all the dollars the government dolls out will go directly back into the economy in the short term. The second thing I look for is the creation of jobs. What is meant by this is that the money spent by the government will result in a job being created that would not have been there if it weren’t for the stimulus money. Any dollars that would save a job that was to be eliminated should be considered stimulus. I want to know that the money in a stimulus bill will save a job that is going to be cut. A consideration (but not a requirement) is that the money spent should help us in the long term. The money MUST help the economy in the short term, but I don’t want to spend money on things where we can only benefit in the short term. A consideration for stimulus (not a requirement) should be for something that will help the economy in the long term.

There is also a lot of confusion in the media as to what a stimulus bill is and is not. The stimulus bill is NOT the omnibus bill. That is the bill from last year’s budget with tons of earmarks. The stimulus bill is not the TARP package or the bank bailout. That is the money that was used to bail out the banks. This bill is not auto industry bailout. That is the money given to the American car companies. The purpose of this bill is for the government to SPEND MONEY to increase demand to keep the economy from TOTAL COLLAPSE. So yes, this bill will have spending because that is what stimulus is. It is not investment. It is not budget control. The idea is to spend money to help jumpstart the economy in the short term to give us time to fix things in the long term.

As for the discussion about what should and should not be in the stimulus package, I will now list four things that I think are economically stimulative that opponents of the stimulus package are against.

Food stamps

Most republicans in congress FREAKED OUT when Obama included increasing the money for the food stamp program. In reality this is the most economically stimulative program possible. Let me first state that I am against welfare and generally against entitlements. I do however have the opinion that the best way to have short term stimulus is to give to the people at the bottom of the ladder. They have fewer options and will spend the money. If you give the money to the rich in a troubled economy they are more likely to save it; this is good in the long term (and for the rich people themselves), but in the short term it does nothing to help the current situation. If you give money to the food stamp program 100% of the money will be spent. This spending will increase demand. If you give people with nothing more money they will spend it because they have no choice. This is not good monetary practice, but in a consumer economy it will be simulative. Even if people buy drugs with their food stamps (and there is no evidence that suggests that this is the norm), the drug dealers will eventually trade them to someone who will SPEND THEM AND STIMULATE THE ECONOMY. All of the money put into the food stamp program will find its way back into the economy.


National Endowment for the Arts

One of the things I have heard a lot is “HOW IS GIVING MONEY TO THE BALLET DANCERS AND OPERA SINGERS GOING TO STIMULATE THE ECONOMY”. Any one who has worked in the arts in any capacity knows there is a lot more that goes into a production then just singing and dancing. There is a whole array of people behind every production. When money gets tight, most theaters are not going to fire their singers, dancers, and actors first. They are instead going to fire office workers, ticket sellers, secretaries and phone operators. Then they are going to fire the stage hands, the carpenters and craftsmen that build the sets, and the part time employees that run errands and do the "grunt work". Giving money to the arts will prevent these people from being fired in the short term. Since some of these people won’t loose their jobs, they will SPEND THEIR MONEY in other sectors of the economy.

The Census

The last census was done around the year 2000. The census may seem like a waste of money until you consider that to actually do a census you will need to hire a lot of part time workers to actually administer the census. You will need workers in all 50 states. You will need a wide variety of workers from average workers to go around and gather the data as well as skilled people that can organize and compute the data. A national census will create jobs in every state. There is an added long term benefit to a census. A big first step in cutting government spending is knowing exactly how many people are using what programs. An accurate census will give us the meaningful data we need to evaluate what programs are being used and which aren’t. The best way to stream line government spending is to KNOW what programs work and not to GUESS at what programs work.


Energy efficiency

A part of the stimulus package would give home owners money to make their homes more energy efficient. There is another part of the stimulus to make federal buildings more energy efficient. Many people site this as a waste of money and Washington allowing the tree hugging hippy left make economic policy. In reality there is nothing hippy about this. The manufacturing sector has suffered the most in this economy. There are a whole host of products made in America that can be used to make homes more energy efficient. If more people buy these things then more Americans will need to be hired to build them and INSTALL THEM. Most people aren’t going to put aluminum siding or new windows on their house. They are going to hire someone to do it. That is creating jobs in the short term in a blue collar sector that is very important to the future of this economy. The industrial sector of this country’s economy is shrinking rapidly. In addition, this part of the stimulus bill has two long term effects. The first is that the government and the individuals who take part in this incentive will have lower energy costs. These people will have more money in the long term then they would have had if not for this program. The government will also save on energy costs in the long run. The second is that it will create demand for manufacturing jobs in the future. If investors know there will be a market for green products there will be more investment in this sector, more demand for these jobs, and more Americans hired for these jobs.


Most of Obama’s critics have said that Obama is using these desperate economic times to push his HIPPY agenda. I don’t like some of the stimulus bill. Frankly there are too many tax cuts and not enough infrastructure spending. The idea that the government has to sit powerless and let the economy crumble is silly. I also do not think that if the government tries to stimulate the economy that it will lead to communism. There are numerous examples where government can help stem the ebb and flow of the markets. One of the principles of Keynesian economics is that the government in many cases is one of the largest producers and consumers of goods. The government’s policies can help shape the economy WITHOUT BEING COMMUNIST. We can give money to the people on the lower rung of the ladder WITHOUT BEING SOCIALIST. I don’t like that we now have to use good money to get us out of a situation that many of us saw coming. It sucks that this has been messed up for the last 80 years and my generation has to be the one to fix it. I don’t know if this stimulus will have a desired effect, but doing nothing would be catastrophic.

As always I'd love to hear what people think about the stimulus bill, especially what parts you are for and against.