January 21, 2009

Obama’s “Stimulation”

Narrating Barack Hussein Obama?s procession towards the Capitol, NBC?s Brian Williams said solemnly, ?And before us is a man who knows he?ll have to spend close to a trillion dollars to get the economy going again.? (I paraphrase, of course, but Williams said something very much like this.)

Well, since how to best “get the economy going again? is sure be the biggest political issue over the next 6 months to a year, it?s worth asking whether such a thing is actually possible in the way that Obama is planning to go about it.

For the sake of argument, let?s put aside any philosophical quibbles we might have with economic intervention and imagine that in the Obamian Era, bureaucrats have become wonderfully efficient and wise souls who never misallocate or waste money entrusted to them (or put another way, try let?s try to pretend that we?ve never set foot in the DMV or met in person one of the dimly lit bulbs who work for the government.)

A great deal of the stimulus package?s 800 billion, or whatever the number will eventually be, will actually go to paying off the debt burdens of states like California?and that?s hardly ?stimulating.? A lot more will be used for things like weather-proofing government buildings and re-painting bridges, which might give low-skilled labor some stuff to do (and let them cash a ?public works? check instead of getting welfare or unemployment insurance), but again, it?s hard to imagine any of this actually lifting the nation our stagnation. Some more money will be allocated to the kinds of ultra long-term projects that liberals have always been pushing for, like ?investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.? Who knows what this actually is? 

It?s only after all this mullah has gone out the door that money will be spent in a way that could conceivably stimulate us in the here and now.

Now, crazy people like me think that the only way we can ?get the economy going again? is for American manufacturing to gradually re-orientate itself towards exporting goods abroad, so that we can start to work our way out of our major trade and account imbalances. (One way to get the ball rolling would be to massively cut government, as well as slash corporate and income taxes and suspend (hopefully indefinitely) most regulation.)

Obama has other plans. He wants to ?put money in the pockets of the American people,? so, presumably, they can return to the malls and re-ignite an economy that?s two-thirds consumption. He could, of course, do this by simply having Bernanke print more money and then dump it onto the lumpenmasses from helicopters?that would get Americans shopping again!  But I think even Obama might have a qualm or two with such a proposal. Instead, Obama wants to ?re-start the flow of credit,? that is, get all these banks lending again so that Americans can do some more ?debt-financed consumption? and perhaps take out another home-equity loan on their McMansions or what not. 

This strikes me as a horrible idea in itself, but again, let?s just say, for the sake of argument, that this is what we think is in the best interest of the country.

What?s perhaps most mind-boggling about the credit crunch is that despite the 700 billion (or however much it is) of free money we?ve already thrown at the banks (aka ?re-capitalization?), we haven?t even made a dint in the total losses they accrued since the mortgage meltdown?which Nouriel Roubini predicts to be somewhere on the order of 3.6 trillion!

Put simply, the banks are hopelessly bankrupt. And even if half of the Obama stimulus package is spent on re-capitalization?making the total financial bailout sum 1.1 trillion?we won?t be getting anywhere close to bringing them back to solvency. If the object actually is to ?sure up our financial institutions,? and not to allow them to crash, then outright nationalization?which Gordon Brown is clearly moving towards in the UK?would seem to be the only realistic option?and perhaps the most likely outcome.

A trillion more here, a trillion more there, soon we?ll be talking about real money.

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