The Stimulus Plan
Let me see if I understand this. The U.S. Treasury is going to borrow $150 Billion from the Chinese and other T-Bill buyers and mail checks for that total amount to anyone earning less than $75,000 a year. But because the IRS is too busy dealing with tax returns, the earliest the money could arrive in your mailbox is June. At that point consumers are going to do one of two things with the $600 check. Either use it to pay down their maxed out credit card or go out and spend it on some cheap Chinese manufactured goods at WalMart.
Assuming that Roubini and other smart economists are right, by June unemployment will be one of the biggest problems facing the nation. But in this plan, not a single American job will have been created, though some Chinese jobs will probably have been saved. You will say: What about those WalMart clerks jobs? I will say: WalMart did not get to be the low price leader by expanding employment in a downturn.
Imagine on the other hand if the government said it was creating immediately an Alternative Energy Investment Fund that would be sent to the states in the form of per capita Block Grants (i.e. California got more money than Rhode Island) that would need to be matched by local public/private partnerships to create businesses around alternative energy creation. Then we would have created $300 billion in job creating businesses that would have had a real effect long after the $600 checks have been sent to China.
I don’t see this helping in the short term, in part because it tries to do two (worthy) things at once – offset recession and encourage alternative energy. But it will take states longer to set up programs than it will for the IRS to mail out checks.
What about first doing something more immediate – extend/increase unemployment benefits, and give unrestricted block grants to states. The states will use them to maintain programs they would have cut due to the drop in property taxes. Then implement the AEIF.
Eadwacer-My point was that by the time the $600 check arrives, it will be too late. As Bruce Bartlett has proven, by the time a stimulus check arrives, its always too late.
http://www.nytimes.com/2008/01/23/opinion/23bartlett.html
If you are going to borrow some more money anyway, why not invest it? I do think you are right in the notion of extending unemployment benefits.
Less than one weeks’ pay is going to save the economy?
Probably not.
The important part is, it looks like they are doing something to solve the problem. Plus, I bet they are counting on people putting that $600 on their credit cards now with the intent to “pay it off” when the checks arrive. That probably won’t happen though… so people will just go into more debt.
The proposed plan is the *only* thing this administration knows! 2008′s recession will be handled just like 2005′s Katrina.
Sorry to be such a downer…
Everyone remembers the last refund checks we got from the government, right? That really had a tremendous effect… I would posit that the investment of $600 is the last thing on the minds of most average Americans. I am slightly more positive that some would use the money to pay off (a small portion) of the collective credit card debt we have. However, most Americans (sadly, I believe) will find ways to spend that money, rather than reducing debt, and certainly not actually investing it. It is difficult to consider investment when one is in a fairly deep hole to begin with. If I am to understand our collective situation at all, it appears to me to be rather dire. We have a negative savings rate as a country, and an administration that believes there is no such thing as a deficit. Why *NOT* saddle our grandchildren and their children with silly amounts of debt? This ridiculous notion could be coupled with a (non-supported) assertion that the average American views the American Empire as wholly distinct and separate from all other Empires in history, denying themselves the one key truth that is the common thread to *ALL* empires… They *END*.
So how do I sign up for one of those solar buildings? That would make a great workshop…mega Joules of solar power from the south, natural light from east, north, and west…gorgeous building… Yeah, I could get used to that…
I’m sending that to my pals at the Roberto Venn School of Lutherie who are about to build a new school in Tempe, AZ…
Where is that?
I second Rick Turner’s request: please tell us more about that photo! (And I wouldn’t mind one of those buildings for myself if you have any to spare …)
I just found it on Google Images searching for Solar power
Rather than a pitiful $600.00 to spend on Chinese-made junk at Walmart, what I’d like to see is all that money put into putting plain old solar hot water heaters on every South facing roof that could handle them. The savings in natural gas and electricity in BTUs per day in the US would pay back very quickly and just keep paying.
The first place I lived in Topanga Canyon was a small guest house, and our hot water came from the main house which had a funky but decent solar hot water system installed in 1985, six years before we lived there. We never, ever ran out of hot water, even when it had been raining for ten days, and the roads were closed by mudslides, and there had been no clear sunshine for days. Hot water, glorious showers, clean clothes, dishes washed…and not a dime spent on the energy to achieve it all.
This is old technology, folks; there are no breakthroughs needed, no investment in R&D, no studies or white papers required…and maybe that’s the problem…it would be just too easy and not very sexy or intellectually challenging to do this.
Every BTU saved by not heating water is available for some other purpose whether it’s to help keep the price of gasoline down or charge the batteries in the plug-in hybrid car I hope to own some day. Economically, what counts is energy, not the specifics of whether it comes from oil, coal, natural gas, or solar. Then there is delivery…through wires, gas pipes, or at the pump. A BTU saved from one source or delivery method frees up that BTU for all of us and any of us. We’re paying not for gasoline, we’re really paying for units of energy. Save it here, use it there. There is so much we could do in this direction…so much that is simple, well proved, and pretty easy to do.
I say make those tax rebates contingent upon spending the dough for energy conservation for every home in America. For home owners the money would have to be spent on insulation, storm windows, solar installations, etc.
For renters the money could go to the landlords for the same purposes, and perhaps there could be a renter’s credit to be applied. The renters would get a chit to be turned in as legal payment on rent, and the landlords could only cash in the chits by participating in a certified energy conservation program.
This would pay back fast; it would raise awareness that we can do something about the energy crisis now; and it would pay back long term as well.
Stimulating the economy by borrowing money from the Chinese so we can spend it on their junk is just stupid. We’ve been selling out selves down the toilet for products that wind up as landfill too long.
I think I must be the only economist in America who thinks that what our ecoinomy needs is more saving and less consumption. The so-called stimulus package is going in the opposite direction.
Bruce, if you are, then you’re the only economist with whom I’d care to share a meal and a conversation.
I remember the day my parents paid off their mortgage… Seemed so quaint. Seems like such a good idea now.
Bruce,
What is your take on the monolines? (Eg Fitch downgrade of Ambac) Just an irrational reaction based on misguided application of mark-to-market rules to securities held to maturity? Or a potential trigger for a massive wave of further downgrades and write-downs? Or both? Or something else entirely?
I wonder if all the attention (and money!) devoted to the stimulus package wouldn’t be better directed at shoring up this part of our financial system before it starts smashing a lot of balance sheets and intensifying the economic slowdown.
I sure hope Paulson (Treasury’s Paulson, not Greenspan’s Paulson …) is giving some thought to this instead of just haggling with Congressmen about porcine stimulus.
Reminds me…Interesting article in this months’ Harper’s magazine on the next bubble to form in the economy – that of alternative energy.
I would still support your suggestion above the proposed payout disbursement.
There will be scams galore in the alternative energy field. Bubbles and bust. Bait and switch. The specter of nuclear as a “clean alternative”. The desire for the establishment to stuff hydrogen down our throats…because it can be more or less centrally controlled and distributed. The bogus ethanol from corn razzle-dazzle that keeps the Archer Daniels Midlands types going because they get fab corporate welfare checks. The alternative energy scene will be the wild, wild west of this century.
And out of it will finally come things like the power grid being nationalized so that it is little different from the InterState Highway system…a conduit for power that can be produced at any node whether that be the Grand Coulee Dam or a rooftop solar collector. There will be plug-in hybrid cars good for 100 miles on batteries alone before the flexi-fuel engine has to kick in. We’ll see solar hot water heaters on every South facing roof. We’ll have photo-voltaic arrays “at the office” to charge our car batteries.
This stuff isn’t science fiction…it’s simply inevitable. The problem is that much of the power generation has to become de-centralized, and that’s a real issue for the capitalists who understand centralized economic power just as surely as they resist centralized people power. Monopolies are great for business…if you own the business. Regulation is terrible as it reduces profits.
So alternative energy is an interesting one to parse. Look under the rocks. Look behind the curtain. Understand that one of the biggest problems is that it is by nature rather populist. Alternative energy wants to be relatively low density and dispersed. That makes it dangerous to the powers that be who are control freaks. If you can collect enough “free” energy on your own roof to supply much of your own needs, you’ve just stuck it to the man as surely as Patty Hearst showing up with a sub-machine gun in a bank near you. The reaction to alternative energy will be kind of like Ed Davis’s cops burning out the SLA. Can you say “over-reaction”? Hey, not that the SLA had anything right themselves!
One of the “interesting” factoids of alternative energy is that Arco was once a leader in the development of photo-voltaic panels. They stupidly bugged out at just the wrong time.
The problem is that the “oil” companies don’t understand that they’re not in the oil business; they’re in the energy business (no matter names like “Duke Energy”). They’re literally trying to squeeze rocks (and microwave them) to maintain a status quo instead of boldly seeing new sources of energy and new methods of delivering the means to get it…even if that means giving up the specific delivery system.
Energy in the future “wants” to be decentralized. There’s even money to be made helping that happen.
I think we are coming to some sort of agreement here. What is needed is long term infrastructure repair and creation (digital). This will create millions of new jobs. The government part of this will be to seed local public private partnerships with as little centralized bureaucracy as possible. My friend Doug Newhouse recently sent me Bill Gross’s post “Better Late than Never”. I will write on that in the morning.
I think some of these ideas are still debatable but what continues to shock me is the utter lack of leadership from the current administration. I’m not sure how to understand that in the middle of two weeks where the Fed is probably going to cut a point or more, the president declares is his state of the union address that the economy is strong and growing stronger, thereby completely missing an opportunity to explain the situation to the American people and reassure them or ask for their cooperation. I think it’s a serious miscalculation on their part to judge this situation as not critical enough to address it in cautionary tones. Am I wrong?
Greg- It’s one of the five stages of grieving. Its called denial.
All the explanation you need for the Bush administration was on display in one 20 second segment of “Fahrenheit 9/11″ (an otherwise somewhat disappointing film). In that clip, Bush addresses a black tie dinner with the words: “This is an impressive crowd, the haves and the have mores. Some people call you the elite. I call you my base.”
Reducing taxes on wealthy people is the only agenda Bush ever had. It’s the only thing he has been completely consistent about for the past 7 long years. Iraq was about getting reelected so he could tackle (read: kill) Social Security and complete the process of “putting Reagan on the dime,” (read: returning to the Gilded Age),
Sure this is a bit on the reductive side, but clarity is achieved through simplicity. I’m happy to add footnotes on this or that other issue, but for me this is the essential core.
STS- I don’t think its reductive at all. It is the reality of neoconservative economics which have long since passed the “sell by” date
http://www.pushpullbar.com/forums/showthread.php?t=1666&page=2
For those interested in the solar building, I think this is it.
I think that the stimulus package have helped a lot in restoring the economy. right now we can see some improvements in the economy. right now we can see some improvements in the eco;~.