Five Quick Thoughts on the New and Improved, This-Time-We-Really-Mean-It Stimulus Bill

It’s a big day for bailouts, and there’s too much happening for us to look at any of it in depth.  But here are five quick thoughts.

First, I guess the Republicans deserve some credit for opposing this one.  But geez, where were they before?  Actually, let’s take a moment and answer that seemingly rhetorical question.  In early 2008, before most people knew the economy was tanking, they were in favor of a stimulus.  In late 2008, when the tanking was obvious to everyone, they were briefly against the TARP, but when some more pork got thrown into the deal a bunch of them crossed over and supported it.  Now, after even more tanking, they are suddenly against spending any money at all.  They’ve got the right answer here, but they’ve stumbled upon it pretty haphazardly.  It’s hardly a compelling case for intelligent stewardship, and I am sympathetic with those who find the naked partisanship of their recent pretense of fiscal discipline repelling.  If they really believed in fiscal discipline, we wouldn’t be in this mess.

Second, the fact that Democrats now accept tax cuts tells us something significant, namely that tax cuts no longer promote capital formation.  Back in the old days, when Americans saved and government lived more or less within its means, cutting taxes meant that government spent less and people saved more.  Both those effects were good for the economy because they made capital available for productive investment, and productive investment produced jobs.  But now, Americans don’t save, so putting more money into their pockets is just an indirect way of giving it to Wal-Mart.  And government doesn’t rein in its spending when tax receipts go down; it just borrows more, which actually discourages productive investment by setting up the government as a competing bidder for those funds.  So congratulations to the Democrats for all the tax cuts in the bill.  It’s the logical follow-up to the Republicans’ conversion to free-spending during the Bush years, and it makes both parties officially wrong-headed on both of the things they used to fight over.  Who says we haven’t had more bipartisanship in this administration?

Third, the 2009 deficit, even without this stimulus, is projected to be $1.2 trillion.  Passing the stimulus will put it a lot closer to $2 trillion, even if we literally can’t spend all the money in that bill fast enough to put it in the 2009 deficit.  And then there are the entitlement liabilities that we keep off-budget.  I’m sure Republican candidates will try to use multi-trillion-dollar deficits to their advantage in the 2010 elections, but it is well to remember that the $1.2 trillion base from which we’re starting, along with much of the entitlement problem, is from the eight years of the Bush administration, mostly with a Republican Congress.  In my view, deficits of this size ought to be used in 2010 by all challengers against all incumbents, regardless of party.  If we don’t wind up with at least 400 freshmen in the House after the 2010 elections, we really need to have our heads examined.

Fourth, it seems to me we are unquestionably in the middle of a Lay’s potato chip problem with these rolling bailouts:  No one can eat just one.  I think that as recently as October, and possibly as recently as today, it would be credible for the government to say that it will not do anything to “save” or “rescue” or “restore” the bubble economy of 2007.  The fire sale would commence, our social safety net would kick in, and prices, wages, and employment would all find a new and sustainable equilibrium.  What is not credible is for the government to say that it will do one stimulus, but no more; one TARP, but no more; and that means that the economic course on which we have embarked is one of radical uncertainty in which the distinction between equity investing and gambling is vanishingly small.  And for those who still think all we need to do is consume, I would point out that the same goes for big-ticket purchases like cars and autos.  If you go buy a house today, then whether that works out for you depends not just on the actions of countless other anonymous buyers and sellers, but also — and perhaps primarily — on what a relatively small number of people in Washington will decide they need to do to “fix” the economy over the next 2 or 4 or 8 years.  Unless you’re psychic, you’re gambling.

no-banker-left-behindFifth, the details of the next bank bailout are apparently being pushed off until tomorrow, but there’s no reason to delay buying your “NO BANKER LEFT BEHIND” car magnet.  You know you’ll want it, so order it now.  (The site that offers them leans strongly to the left, so now that the left wants to give money to bankers you never know when this sticker might disappear.)


9 Responses to “Five Quick Thoughts on the New and Improved, This-Time-We-Really-Mean-It Stimulus Bill”

  1. Susan Conniff Says:

    Bravo on these points. What a mess. I jotted down a few more quick thoughts on my newspaper this morning. Things that have occurred to me that don’t seem to get much airtime.

    First: The situation we’re in has been a long time coming. The economy was fragile just prior to Sept. 11 01 and then it became patriotic to spend spend spend, both at the consumer and government levels. This managed to prop us up for another 7 years and worsen the situation we were already in. So I’m not convinced that more government spending and more consumer credit are the way to go. As Mark points out, aren’t we just indirectly sending more dollars to WalMart?

    Second: Painful as it is, maybe a permanent contraction is what we need. Two weeks ago, my husband and I finally purchased our first flat-screen TV after waiting for prices to hit rock bottom just prior to the Super Bowl. The salesman couldn’t wait to offer us 12 months of financing and my husband, normally not confrontational, just looked at him and said “are you kidding? isn’t that what got us all into the mess we’re in?”

    Third: We are in this for a long time. The baby boomers are near retirement, they have saved little, and what they have saved is now worth little. Can’t wait for this BBRRP. (Baby Boomer Retirement Recovery Plan.)

    We’re not doing ourselves any favors by propping up a system that’s been broken for a very long time.

  2. Timothy Peach Says:

    The further we go down the rabbit hole, the clearer it becomes that all of this stuff rests on nothing. It’s turtles the whole way down.

    The whole economic system is based on (usually tacit) agreement on value assignment. When the government comes in, starts printing money like crazy, guarantees everything, and starts buying everything it feels like, we begin to see the curtain pulled back. The whole thing is utterly arbitrary, and no one knows how to do the calculation.

    What is a dollar worth? What is anything worth? What does the real US balance sheet look like? Do we have tens of trillions in “psychic balance sheet” we can tap into, or are we on the verge of becoming Zimbabwe?

    Nobody knows. And that’s because there’s no calculation that can be made. It’s not that we simply have inadequate data to put into the formula — it’s that there is actually NO formula.

    Leveraged systems are breakable, because they depend on willful suspense of disbelief. Fear and talking heads managed to crack the illusion. What’s incredibly funny to me is that now we think we’ve gotten past the farce to the “reality” of current conditions. But it’s just a different version of the same BS. The fear end of the the fear and greed continuum.

    What is a house worth? Is worth what someone will pay for it! And what will they pay for it? Some amount of money! And what is that worth? Nobody knows. Nobody will ever know.

    What we’re learning now is that the most important part of our crazy economic system is in our heads. If we believed things were getting better, they would. If we think they’re getting worse, they will. This dynamic is indicative of a system that rests on nothing but our willingness to play the game.

    This is why people decide to just get “off the grid”. They don’t want to play any more.

  3. Mark Grannis Says:

    Tim makes a great point. I’m going long on turtles.

    Susan, nice to hear from your most reasonable of minds.

  4. Mark Esswein Says:

    Spoon Boy: Do not try to bend the spoon; that’s impossible. Instead, only try to realize the truth.

    Neo: What truth?

    Spoon Boy: There is no spoon.

    Neo: There is no spoon?

    Spoon Boy: Then you will see, it is not the spoon that bends, it is only yourself.

  5. George Peacock Says:

    I am long shovels and guns.

    And speaking of guns, remember that debt doesn’t kill people. People kill people.

    In a roundabout, Proustian way, I think Tim is correct. But I also think his “none of this is grounded” rhetoric means that whenever [NWBR] has a free moment, our IM dialogue boxes will read “[NWBR] is typing” and we will all start wiping the sand from our eyes because there are goods (spoons) and there are, and will continue to be, prices for those goods. Goods and prices are now floating and are being blown by the fickle wind of government agents who had to act once the little boy pointed out that the Emperor had no gold.

  6. Timothy Peach Says:

    Yeah, Ken’s turtle is several spots down the turtle pile from ours….. it’s a big, great-looking turtle, that’s for sure.

  7. George Peacock Says:

    And Susan, George Soros believes that this is not a housing bubble but a credit bubble that started 20 years ago — so you’re in good company re: when this started.

    And if M. Grannis is right in his assessment, then your husband should have jumped on the credit offer and paid this year’s low deflationary price with next year’s inflated/debased dollars — though M. Grannis may waiver on the timing of the inflation-to-come. Ironically, though debt brought us to this brink, in the upcoming financial world, to paraphrase Gordon Gekko, “Debt is good” — as long as it’s fixed and long term.

    I would still be grateful if anyone out there can suggest why Japan remained in stagflation for so long rather than experiencing the inflation I would have guessed as a function of their “infrastructure spending” (i.e., printing press). I know that they had a culture of personal savings (which we don’t) and they were able to get buy on fairly strong exports (which we don’t as much — thus the trade deficits). Is that why they muddled and we’ll “inflate”?

  8. Timothy Peach Says:

    Japan didn’t have stagflation. They had deflation. What they experienced was a long-term depression, in truth.

    The reason why this happened is that they allowed their banks to pretend they were solvent for a long time. This created a deflationary cycle they couldn’t bust out of. They kept interest rates low for a long, long time, but it never resulted in stimulating the economy because their banks were zombified.

    Only recently did they generate some GDP growth, because they benefitted from the deployment of leverage elsewhere in the world, and they did finally make some progress cleaning up their banks.

    The lesson for the US is to get to reality on bank assets — take the pain, and move on. Unfortunately, as we’ve discussed here, there is no reality to get to. It’s time to give up and move to Idaho.

    Who’s with me?

  9. [Name Withheld by Request] Says:

    And we can learn from the turtle that slow and steady (e.g., accumulation of gold) wins the race… :-)

    (And I refuse to imagine things getting so bad that I’d want to go to Idaho…)

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