Why the Stimulus is a Bad Idea

I may just be a simpleton from "fly over country" who sees this stimulus as an utter waste of money. Only about $100 billion is for true infrastructure. You might as well as throw the rest in the fire along with the TARP money. That’s trillions of dollars we will never see any benefit from and that my children will have to pay for now. Why is no one asking how this largesse will be paid for? They simply take it on face value that we need to rush headlong into unwisely spending nearly a trillion dollars. The same crap was pulled with TARP and the Patriot Act and look at where it got us. I am tired of the fear mongering. I thought that would be over when President Bush left office. However, President Obama obviously took a page out of Bush’s playbook and is using fear to get this travesty of a spending bill passed.

What will creating a massive spending government spending bubble actually do? The way I see it, once the money is spent the jobs go away. Government spending as a means to create jobs is not sustainable from my perspective, especially when you have to borrow that money in the first place. How does the stimulus provide long-term sustainable job growth, if at all? That is not change I can believe in.

A good number of jobs were created under during the Clinton Administration because there was innovation in the form of the internet boom. Innovation leads to positive job growth. Under the Bush Administration there were far fewer jobs created because there was no innovation behind the government’s deficit spending. The majority of the stimulus is deficit spending. Little in the stimulus package is geared towards innovation. Sure there is a portion directed to renewable energy and increasing broadband accessibility, but the vast majority of the $800+ billion package is directed to short-term jobs with absolutely no innovation.

The whole idea of getting back to where we were is ridiculous. It was all artificial in the first place. Just when we are finally coming to our senses after decades of spending like sailors in a whore house and now everyone wants to once again spend money no one has. Have we learned nothing? How can that possibly be a good idea when we have so much debt in the first place and we are nowhere close to addressing the long-term fiscal problems associated with social programs such as Medicare?

My gut tells me that this is a bad idea and we will regret it. I look at it and I shake my head because it seems common sense has left the building. You can quote all the economists you want, cite all the job creation numbers from one president to another, and compare it to Sweden or Japan, but ask yourself if you can truly make those apple to apple comparisons. Something tells me that the situation we are in is far worse, much deeper, and far more complex than any of those other situations. Throwing money at it is not necessarily the answer to every problem. Taking a step back and coming up with the right response is always better than merely responding quickly.

We need to feel some true pain. And an unemployment rate of 7.6% is not true pain (yes, those without a job would disagree, but let’s be realistic and look at historic jobless rates and we must also consider ourselves fortunate when looking at the state of the rest of world). All we are doing is providing temporary pain relief but not looking at the symptoms. We want to give aspirin when we may have to amputate a leg.

Please keep in mind I am no economist, I am just a simple civil/environmental engineer who has not knowingly cheated on his taxes so obviously I am not qualified to have made any of the comments above.

Photo by my daughter. Winter weather in Iowa.

The Convenient NAFTA Scapegoat

All too often trade agreements like the (NAFTA) are used to explain the job losses in manufacturing. It is politically convenient to blame one thing (i.e., NAFTA) when there are really many issues at play. I hear Hillary Clinton and Barrack Obama bemoan free trade agreements on the campaign trail.

There is still manufacturing here, it is just not at the same scale as we have seen in the past. I see many small manufacturing companies in the most unlikely places throughout the Midwest. I have worked in towns like Pella, Iowa which hosts companies like Pella and Vermeer. I have worked in towns like Columbus, Nebraska which hosts companies like BD Medical, Behlen, Flexcon, and Vishay. Among the larger manufactures in these towns there are typically numerous smaller ones.

While there has been a decline in United States manufacturing, these declines cannot be solely attributed to NAFTA and other free trade agreements. Detroit and the Big Three auto manufacturers have been hit hard, but there have been plants built in other areas of the United States by Subaru, Toyota, Honda, and BMW. The Big Three are in decline, not because of trade agreements like NAFTA, but because they have been stubborn when it comes to their products, not embracing quality that leads to consumer loyalty, and have been burdened by the union system among other things. When looking at a decline in manufacturing jobs you also have to consider productivity gains and the continued automation of manufacturing. If a company is going to survive, grow and provide more jobs it needs to cut costs.

Let's be honest about wages, health care costs and corporate taxes. The standard of living continues to go up and with it the cost of living. Cost of living and inflation pressures wages to go up which makes it more expensive to make things. Health care costs are increasingly a larger share of doing business in the United States, but companies in other countries do not necessarily have to shoulder this burden because they are in a country with a nationalized health care system. Finally, the United States has the highest corporate tax rate in the world. A company wants to make money and not break even or lose money. They need to make money to also invest a portion of that money back into their company to develop new products to keep competing, keep making money, and keep employing. The higher the taxes the less profit and can go to innovation and the less motivation to grow your business. If that company cannot do those things there is no incentive to keep their doors open. Companies under such pressures will close doors, cut back, or simply leave for somewhere that provides a more conducive environment to do their business. First and foremost, a company is there to make money and not be a government job service program.

Free trade agreements break down the barriers erected by tariffs. And trade often goes both ways. Before complaining about something try and look at the total picture and not just a one sided politically influenced view. The majority of issues are not black and white, but rather gray through and through.

Photo by KCThinker, Roman ruins in the middle of town.