Dan

Calabrese

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January 27, 2009

Obama’s Methamphetamine Stimulus

President Obama hopes his fast-approaching-$1 trillion stimulus package will act like a defibrillator, shocking the economy back to robust health.

What he’s going to get will function more like methamphetamine.

People who use meth struggle to deal with reality. They poison themselves with a substance that has no business being in their body, and which ultimately tears them to shreds, but is successful for short periods of time at shielding the person from dealing with the true state of affairs that is his or her sorry life.

The U.S. economy is like that. It is in a recession for some good reasons. Interest rates were kept artificially low for too long. Home values were artificially high until the only people who could convert that “value” into actual cash – home buyers – ran out of capacity to continue doing so by buying overpriced homes. Financial institutions couldn’t collect payments on mortgage loans they had made – often based on the aforementioned “value.”

Consumers who pushed their credit to the max to buy crap could do so no longer because the providers of credit quite rationally pulled back. Gigantic companies who spent beyond their means for years to buy labor peace burned through their cash reserves, and could persuade neither the credit markets nor the product-buying markets to subsidize their largesse any longer.

Oh yeah, and we doubled the national debt in eight years, which does a lot (and nothing good) for the confidence of those who make up the markets.

The economy is in recession because it has fundamental structural problems that need to be worked out. A lot of people lost their jobs because they didn’t provide their employers with enough value to justify the pay they were receiving. A lot of companies lost contracts because the products or services being provided weren’t worth what their customers were paying.

Economies can grow too fast. Rational, productive economic activity fuels healthy, sustainable growth. Irrational economic activity can fuel economic growth as well, but it’s not sustainable. It happened in the late ‘90s when people invested lots of capital in dot.com companies, which could do a lot of things, but making a profit wasn’t one of them. The dot.coms spent money on technology, people, consultants, advertising – it was economic activity! Stimulus, you might say. But when they failed to turn it into sustainable profit, it all dried up and the economic activity it had spurred was no more.

This is what you get when you pin your hopes for economic stimulus on spending financed by unsustainable sources, such as investment funds from investors who will get no return, home equity loans on overinflated homes or government spending from a government that’s already out of money – and has to either borrow or crank up the printing presses to fund your “stimulus.”

One particularly absurd Obama proposal is to put money in the hands of lower-income people, via payroll tax “rebates,” so they will turn around and spend the extra money. Even if this group did spend the money (and they’d be better off saving it), it would not represent a serious solution to any structural economic problem.

All this is designed to protect us from dealing with the reality that we should be in a recession, and that we can’t reasonably hope for sustained economic growth to resume until we work out these problems.

House Republicans are offering some far more rational measures, including permanent reductions of the nation’s two lowest tax rates; a permanent tax deduction for small businesses equal to 20 percent of their income; and an end to levying federal taxes against unemployment benefits. None of this will end the recession quickly, but that shouldn’t be the goal. The goal should be to put more sensible economic policies in place and keep them in place permanently.

Trying to “stimulate” the economy back to growth, rather than giving it time to work out these problems, is like pumping your body full of meth. Meth stimulates all kinds of physical sensations that mask your pain and consternation, but it doesn’t solve any of your problems, and brings on a whole host of new ones.

Recessions can be weathered. You can and should react to them by correcting irrational economic policies that may have helped bring them about. But $1 trillion in deficit spending, by a nation already facing $10 trillion in debt and $58 trillion in unfunded entitlement obligations, is every bit as insane as pumping your body full of methamphetamine.

If you think the economy looks bad now, wait until it shows up on one of those Faces of Meth sites. That’s where this sort of “stimulus” is going to lead us.

© 2009 North Star Writers Group. May not be republished without permission.

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