If you are like me, you must be totally confused. The more I have tried to understand what is going on with the economy, what these "stimulus" bills, "bail outs", and "toxic asset relief programs" are meant to achieve and what they realistically will achieve, the less I have understood the whole thing. Although I wake up every morning to the Business News Network, read the blogs, and listen to the "cable chatter", there is still no clarity. I have no idea whether the steps which are being taken by various governments will work, and have lost complete faith in the experts.
My principal frustration stems from the fact that there are such diametrically opposed views out there concerning the wisdom of the existing strategies and what should be done next. If most of the experts could at least agree on the diagnosis and the treatment for our ailing economies, then I think the rest of us would be able to just suck it up and tough it out. As long as we knew we were on the right track, we would be patient. That does not appear to be the case, however, and the experts are driving me crazy.
Let me illustrate my point by reviewing some of the commentary that appeared on the internet on Thursday, February 12, the day the House and Senate agreed on a compromise bill. Most of this commentary comes from the Realclearpolitics.com web site, which is one of my favorites, since it contains a mix of editorials, blogs, and commentary representing a wide spectrum of opinion.
Conservative opinion is definitely against the current stimulus proposals and bail-out packages. An article by Michael Franc of the Heritage Foundation, for example, sums up the Foundation's view of the current stimulus bill provisions. According to the Heritage Foundation, these provisions "would undo the 1996 welfare reforms, explode entitlement spending by a cool quarter trillion dollars, lay the groundwork for the federal government's takeover of our health care system, double Uncle Sams already overbearing role in education, require taxpayers to pick up the bail tab for potentially dangerous felons, allow unemployed Wall Street executives to qualify for Medicaid, and reignite the fires of trade protectionism, thereby risking a global trade war." Ouch! Very ugly. We don't want that, do we?
George Will, who I always regarded as a pretty sensible commentator, has called this whole process "Runaway Stimulus". He laments the speed at which all of this is getting done, noting that "if $789 billion is spent ineffectively or destructively, government does not get to say "oops" and take a mulligan". He points out that according to Gary Wolfram the size of the stimulus - $789 billion - "is just slightly less than all the U.S. currency in circulation, and is larger than the entire federal budget was until 1983". I wonder - that can't be good, can it?
Peter Wehner, from Commentary magazine, argues that by giving the authority to write the stimulus package to Nancy Pelosi and the House Democrats, President Obama got exactly what one would expect - "a massive spending bill, laden with wasteful and unnecessary programs which have almost nothing to do with stimulating the economy." "This legislation is, in the eyes of many, a monstrosity". Not exactly a ringing endorsement from this commentator.
Andrew Leonard, while complimenting Obama on getting his plan through, agrees that we don't know "whether the plan will work. It may be too small, or too weighted toward tax cuts, or too stuffed with non-stimulative pork". "We really don't know what's going to happen. Even more fun: No actual economist would have designed a stimulus plan along the lines of the crazy mish-mash we've ended up with." Now, that's a confidence builder! Shouldn't someone know what will happen when you spend a trillion dollars?
There are those who think the stimulus bill is a good idea. Charles Ballard, for example, criticizes "the gaggle" of economists who think spending is not the answer - that is "an outrageous claim" argues Ballard. Ballard submits that spending will work, although he does concede that some of the spending in the stimulus bill is questionable.
Jonathan Chait goes even further. He argues that the government should spend like crazy; even "wasteful spending" is great. "If President Obama's stimulus package fails to prevent a depression - and I'm not saying it will - it will be because he didn't waste enough money". "The point of stimulus spending is simply to spend money - on something useful if possible, wasteful if necessary." Chait's only criticism is that Obama "never explained the theoretical basis for his plan. Even moderate journalists and members of Congress don't understand it." Comforting thought - the people voting to spend $800 billion do not understand the basis of their vote.
A Wall Steet Journal story, written by Kelly Evans and Phil Izzo notes that a survey of economists "expressed disappointment with how the package is shaping up. Comments on the package's influence this year say it is "too late", "provides little boost", is "trivial", "too big", "too small", and "a colossal waste of money". Great - they are a big help to us ordinary mortals.
My own personal strategy, which even I admit sounds incredibly stupid and would not recommend, has been to refuse to open up my monthly portfolio statements, since last September. What I don't know can't hurt me - right?
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Lewis, "if most of the experts could at least agree on a diagnosis and a treatment ... we would be patient," you say.
ReplyDeleteWell, I'm no economist, aand I'm far less of a news junkie than you. But it seems to mea that most experts do agree, that, in the face of constricted credit, the appropriate treatment is for the government to stimulate spending, both by reducing interest rates, which encourages borrowing and spending, and by direct spending itself, on infrastructure and various programs. Isn't that the clear consensus? The current economic turmoil is unprecedented, but I don't think the diagnosis and prescription are as chaotic as you suggest.
More specificity would be nice, but I think Obama faces a legitimate trade-off between specificity and speed.
Also, of course, every government policy can have winners and losers, and there's room for debate over how much of the $800 billion should go to big corporations, and what strings should be attached.
Ron C
Thanks Ron. Unfortunately the Wall Street Journal story which I referenced tries to present a balanced view from economists, who are not politically motivated. "Too late", "too big", "too small" - no consensus there. In addition, the question is not whether spending stimulates, but how much, what type, and when? Does this $800 billion do the trick? Is it all stimulative ( eg hundreds of millions to convert to digital TV)? Will it present bigger problems in the long run? Did it work when Japan tried it? Do trade protectionist measures stimulate local economies? As they say, "the devils in the details".. And there is no consensus there for sure.
ReplyDeleteLew
I guess we agree. The general natures of the diagnosis and treatment are clear. The precise formulation, dosage and predictable result are guesswork.
ReplyDeleteBut with an unprecedented crisis, and an inexact economic science, how could it be otherwise?
I can live with the degree of uncertainty. What disappoints me, however, is that I've seen slight analysis of how different aspects of stimulation likely would burden and benefit different classes or groups of people.
For example, does protectionism really benefit unionized, employed U. S. workers -- or is it short-sighted even for them, as it will punish U. S. consumers?
Ron C
Readers might want to look at an editorial, which was brought to my attention by my colleague, Moin Yahya, entitled "Historic' Stimulus Is Egregious Waste'". It was published in the Investor's Business Daily and can be found at http://www.ibdeditorials.com/IBDArticles.aspx?id=319334273223204.
ReplyDeleteIt quotes Harvard economist Robert Barro to the effect that the legislation is "probably the worst bill that has been put forward since the 1930's". Barro does not mince words: "I think it's garbage". Billions are spent for non-stimulative projects ( $2 billion to ACORN, eg) and the debt servicing on the $789 billion itself is another $744 billion.
This editorial is worth reading.