A second stimulus package?!

Wednesday, July 8, 2009

Yes, it’s true. Without having spent the entire first stimulus package or having any evidence that what has been spent has had any real effect worth the trouble, the Obama Administration is considering a second package of perhaps as much as $300 to $400 billion.

Recovery from a serious downturn in the economy takes time. Downward phases of business cycles are part of a natural process through which the economy makes adjustments that were long overdue. It’s a process the government can tweak a bit, if they’re really good at it, and mess up if they’re not, but it’s not something it can control to the extent the Obama Administration has in mind. We need to let it happen, and do everything we can to protect the spending of consumers whose incomes have been adversely affected.

Unfortunately, impatience is the hallmark of the Obama Presidency. He couldn’t wait to run for President, and he can’t wait to check off his campaign’s list of objectives for an Obama government. Healthcare reform? Pass some legislation, regardless of whether or not it makes sense. Check. Recession? Throw a trillion or so at the problem. Who cares if we can afford it. Check! His superficial air of calm and control notwithstanding, he needs to spend more time thinking, and maybe less time making speeches, before wasting billions of dollars that can be deployed much more effectively, and spending us into oblivion in the process.

Let’s say I have a billion dollars to spend to help the economy recover. What’s the most effective use of those funds? What will have the most dramatic and most immediate impact on the economy? The simple answer is, give it to consumers whose incomes have been so depressed (or eliminated altogether) by the recession that they’re not even buying the essentials they need to support their families. These are the people, and there are unfortunately many millions of them, whose propensity to consume is 100%. They’re going to take every dollar you give them and spend it, immediately. They’re not going save any of it. They’re not even going to use any of it to pay down their credit cards and other debt except to make mortgage and car payments. And they are certainly not going to take months, maybe years to build something with it. They’re going to spend it. All of it. Right now.

In fact, before we consider a second round of spending money we don’t have on less effective stimulus programs, maybe Congress could redirect the balance of the first round that we haven’t spent to families who will put those dollars to work without further delay.

Suggested reading… “Occam’s Economics: A simple, back-of-the envelope plan to regenerate consumer spending – immedately.” which I posted Thursday morning, July 8.

-wf


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