I’m insulted. Seriously. And that usually takes some work. You may be surprised to hear me say it, but it’s President Bush who deserves much of the blame.
The issue at hand is the economy, and what a volatile and vibrant topic it is. From the government bailing out the bad investments of individuals in the sub-prime mortgage crisis to calls for the government to “fix” the troublesome price of gas, I suppose I’m not too surprised that the federal government has taken it upon itself to “save” the failing economy.
President Bush, with great support from many Democrats in Congress – which in itself should raise suspicion – called for an “Economic Stimulus Package” where the government would pump money into the hands of the people to fend off a recession.
The theory behind such a proposal is this: the economy isn’t doing well, but if the populace gets an injection of income, they will go out and spend that money. Everyone spending this money will increase aggregate demand, which in turn will benefit the suppliers, who can in turn hire more workers. This upward spiral will pull the economy of the country up.
There are many potential flaws within the assumption (like that the populace will actually spend the money right away rather than saving it), but there is one glaring and disturbing part of the plan: the fact that it’s based on a potential recession.
This stimulus package is being set up not because the economy is in a recession, but because it could be. In January, columnist George Will reported that 57% of Americans thought the country was already in a recession. Well, 57% of Americans don’t know who the Secretary of the Treasury is, but that doesn’t mean that there isn’t one. In today’s pandering-politics, it is often much more important what the people think than what is actually true. For two examples, look at Iraq and global warming.
For those who haven’t taken an economics class in sometime, the actual definition of a recession is two consecutive quarters of economic contraction – or in today’s PC-happy world, negative growth (sure we may be negative, but we’re positively negative!).
This doesn’t mean that if the growth in one quarter was 5%, and then the next two quarters were respectively 3% and 2% that a recession has hit. In that situation, there has been a decline in the change of growth, but not in growth itself. This is a major distinction that I fear is lost in 30-second clips and re-election campaigns.
In terms of our country’s performance (which, unlike Michelle Obama, I have been proud of in the last 25 years), it would be much more prudent to check out the data from the Bureau of Economic Analysis which reports such figures rather than getting opinions about what people think. In doing so, we can quickly find out that the aggregate growth of GDP (granted an often heavily flawed measurement system) for all four quarters of 2007 were 0.6%, 3.8%, 4.9%, and 0.6% respectively. This equates to a 2.2% growth rate for the year.
This means, that in the last two quarters, the economy grew 4.9% and then 0.6%. I realize I am no longer a Computer Science major, but I still remember what a negative sign looks like, and I don’t see one. There is no recession. There hasn’t even been one period of negative growth.
In short, we are stimulating something that does not even begin to need stimulation. What precedent are we setting if we allow the federal government to intervene heavily every time the economy has the potential to not be quite as good as it was?
What makes this situation so insulting is that President Bush and Congress are patting themselves on the back and expect you to pat them on the back too for the wonderful ways in which they are supposedly helping you out. What they are really doing is spending money that they don’t have, meaning they are increasing our debt – and our future tax burden – by throwing money at a problem that doesn’t really exist.
Economist Russell Roberts equates the action of the federal government to “taking a bucket of water from the deep end of a pool and dumping it into the shallow end.”
Unfortunately, Roberts leaves something out. In order to get this stimulus money, we have to first borrow it from somewhere – China, Saudi Arabia etc. – and then pay interest on it for quite some time. So really what Roberts’ metaphor should be is taking a bucket of water from the deep end of the pool, dumping part of it out, and then putting the rest into the shallow end.
2008 has already proven to be a fascinating year of politics. This economic stimulus package is just one part of the trend of more and more Americans wanting government to help them out instead of having to help themselves.
Hopefully, the fascination that will ensue will be that of politicians willing to risk re-election in exchange for cool-headed logic.
A first good step would be to rescind this package and save the country from even greater debt and an even more overbearing federal government. I’m not holding my breath.