Tuesday, July 7, 2009

More "Stimulus" Absurdities

An economic advisor to Obama advocates a second stimulus. http://www.bloomberg.com/apps/news?pid=20601068&sid=ajQbZ.WrAVwQ

A Gallup poll shows that 60% of people earning $90K or more are planning to save their money in the days ahead and 50% of people earning $36K to $90K are also going to save. It is less for people with incomes earning under $36K but, frankly, they are not in a position to save given the relatively low income. http://www.gallup.com/poll/121418/Upper-Income-Consumers-Inclined-Trim-Debt.aspx

So what's the relationship between these two seemingly disconnected news stories? The Obama economists believe that if they can pump enough debt financed money into the economy, people will consume again. Apparently, liberals love consumerism now. Since people are saving rather than buying this is having a negative impact on businesses who respond by laying off their workers.

Increased savings is part of a normal contraction that needs to occur in this country. Americans have way too much debt. There is no magic formula in a second "stimulus" that will finally end American's new found spending habits and spur them to buy stuff. Rather, this will likely end up with little effect. From an economic perspective, it will only serve to actually decrease total national saving and increase overall debt because any private saving that will add to the capital stock will be more than offset by the negative savings occuring by government via the massive debt. This is a long-term problem economically.

This is yet another example where patience on the part of our leaders is called for. Instead we have them arguing for action and for policies that defy common sense for anybody outside of left-wing academic economists who are not the mainstream even in their own profession. I suppose president Obama has not yet decided to go through with it. Let's hope that he doesn't. You can probably guess that I am not hopeful about the man's judgment and basic leadership instincts. My guess is that when the next unemployment numbers come out in early August, he will go forward with another trillion dollar government spending pork bill.

Men who seek to change the world often do so in ways they didn't intend. Let's hope, for the good of this country, that he learns moderation and a sense of proportion at some point during his presidency.

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