September 17, 2011

The stimulus is over

The unemployment rate seemingly peaked at over 10% under President Obama and has since slid back to 9.1%.  Was that the recovery?  No, it wasn't.  That was the net effect of combined actual and psychological impact created by the nearly $1 trillion stimulus clunker knows as ARRA.  That stimulus effect has run out and now we are starting to see the possibility of a double dip recession.  Except it's not really a double dip.

The massive and massively ineffective stimulus spending by Democrats served as nothing more than a time out on a big recession.  Actually, that's not true, it also served as a massive drain on the national wealth and a big spur on the national debt.  Nevertheless, the stimulus money was supposed to end the crisis, it was supposed to cap it at 8%.  Then it wasn't supposed to take effect immediately ("I didn't say change we can believe in tomorrow.") despite all the supposedly shovel ready projects the president touted;

That wasted stimulus money on cash for clunkers and bailouts and a hodgepodge of gimmicks and tricks was shovel ready.  The president was shoveling it out pretty hard.  And it did not work.  It only delayed the symptoms of the real problem.  While that was happening the president was busily exacerbating the problem with more regulation, more anti-business efforts and a drive for more taxation.  Not only has he been driving an unfriendly recovery environment, he's driving more uncertainty.  In other words any effect the stimulus might have had, however transitory, was being negated or dampened by the other efforts made by Obama and the Congressional Democrats.

Smoke and mirrors or simply a lack of understanding of how a country works - either could explain why and how things are being done - that and an ardent desire for re-election and a willingness to do or promise anything to make it happen.  That is of course except for the things that would really make a difference, like creating a business-friendly environment.

Democrats want to blame this potential double dip on the fight over the debt ceiling.  It never was about that.  Take a look at when unemployment rates really started dropping.  It wasn't with the advent of Obamacare or the crippling Dodd-Frank regulations.  The unemployment rate was at 9.7% in November 2010.  In December 2010 the president signed the extension of the Bush tax rates across all income levels.  By April 2011 it was down to 8.8% before it started climbing again.

The psychological impact of certainty of a somewhat business friendly tax structure created improvements.  The counter-weight to that was not the debt ceiling fight, which started in the summer months - but the end of the stimulus money.  How do we know this?  The rate started to run back up in May, before the debt ceiling fight really took off.

The recession was never really over.  The president provided the country a Tylenol to mask the pain for a while.  The Tylenol has worn off and now he wants to give the country another dose.  All that talk of "pass this jobs bill" is an attempt to look good and hope the effects kick in before the election next November.  There's his fierce urgency of now - his re-election bid.  He's pivoted to jobs for the umpteenth time but this time he means it because it's going to impact him personally.

So he has a new $447 stimulus package that is going to be half as pricey and as wholly ineffective as the last time he tried it.  Except this time there won't even be a Tylenol effect because it's too late.  Better yet, it's not going to pass, and his 2012 fall argument that he tried but the GOP got in his way will fail too because it is easily counter-argued with "Why try more of the same failed spending?"

If you don't believe my cynicism on this latest bill, take a look at what Peter Schiff (who predicted the 2008 economic meltdown) says about Obama's latest plan;
Although it was labeled and hyped as a "jobs plan," the new $447 billion initiative announced last night by President Obama is merely another government stimulus program in disguise. But semantics are of supreme importance in American politics...some could argue that word choice is the only thing that matters. As a result, despite the fact that this plan bears no substantive difference from previous stimulus bills, the President never once mentioned the word "stimulus" in his hour-long speech. But a rotten banana by any other name still stinks.  
 Like all previous stimuli, this round of borrowing and spending will act as an economic sedative rather than a stimulant. Running up the deficit in the short-run will not grow the economy, but will merely dig it into a deeper hole. A year from now there will be even more unemployed Americans than there are today, likely resulting in additional deficit financed stimulus that will again make the situation worse.
That's not exactly rainbows and unicorns.


  1. The unemployment rate seemingly peaked at over 10% under President Obama and has since slid back to 9.1%.

    The fact is with the number of people who have dropped off the rolls as to either looking for jobs or having used all of their unemployment benefits, the rate NEVER was below 10%!! As such, we not only were never out of the recession, but in fact were just driven deper into the abyss!

    Great post!!!

  2. A valid point Joe - the real unemployment rate using U6 is far worse than this shows. And none of the measurements are perfect but are an extrapolation based on statistical validity. There are plenty of things the number does not wholly portray.


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