Stimulus or succubus?

I thought I hated TARP. I really hate this stimulus bill. I do myself violence by calling it by the name attached to it – stimulus. Stimulate what -- is the big question. The economy? How so? A great deal of it is not even supposed to take effect until next year and it’s only February. The bigger question is whether spending unheard sums of money is going to help at all, or hurt deeply. If you haven’t heard or read the statement of Henry Morgenthau, FDR’s treasury secretary during the New Deal era, to a congressional committee in 1939, here it is:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"

When I railed against TARP we were told we had to do it because it was an emergency. If this isn’t done, the whole system would fail. I’m not being metaphorical. Not only did the politicians say so, but I personally had people explain it to me as if all mature adults knew better. As we know, it turned out that the money wasn't even spent on what we were told was necessary.

Watch the recent congressional hearings. The congressmen and women who voted for TARP are livid at what happened with the money. The ones who voted against it are livid, but at least get to say – I told you so. That's because they don’t know what happened to a great deal of the money other than it went to big banks that won’t tell us what they did with it.

Maybe I’m overstating it. We know a little. The hundreds of billions of dollars were given to a small numbers of banks in order to allow them to lend. Except, they didn’t start lending and still haven't. In other words, they took the money under false premises; there was no danger of the economy completely failing at the time, and patience and care could have been taken AT LEAST to put safeguards into place before the money was distributed. Yet we continue with under the same theory.

We know that the banks have spent some of the money on lavish entertainment and bonuses, but on what else? We just don’t know, even though the CEOs have testified before congress just this past week. It seems that some, maybe all of the banks are simply treating it as an unearned revenue stream, a gift from the American people which we paid for by borrowing the money and will pay back for possibly the life of everyone existing in America today. To be fair, some banks and executives are playing fair and even deferring compensation until the U.S. is paid back, but many are not. I have no confidence that the government has employees smart are enough to rule out the banks doing what they like. I think Madoff proved that for us.

Now congress has voted finally passed the stimulus bill last Friday. Yet, probably not one single member of the senate or the house has read it. Don't tell me that's not true. I watched the hearings. The Republicans (who have passed plenty of bills no one read when they were in power)screamed they needed time to read it and the Democrats (who have complained about not having time to read bills when they were not in power) screamed back that there was no time to read it.

Chuck Schumer is not my favorite politician. Repeatedly during these last debates, he scolded the Republicans and emphasized the need to pass this bill immediately. Yet, when George Bush was pushing the first TARP, Schumer had wisely said – what’s the rush? Can’t we take our time and authorize a little money at a time?

It interests me that while the Democratic leaders were saying there was no time to read it over the week end and voted Friday, President Obama hasn't even signed it days later. Why couldn't the congress have been given 48 hours to read it (which was the original promise) and he (with his staff also having time to read) could have signed it the same day. Obviously, 48 hours to read, would not have made any difference. This will quickly be forgotten in a short time as the new battle arises. This is one of the many problems with the control of the congress being in the hands of two partisan ideological entities. It doesn't matter who is in power; they take full advantage and continuously hurt the country.

Despite it all job loss goes unabated and credit remains largely frozen. Nothing congress or either administration has tried has worked. Here is the real question. Which of Mark Twain’s statements best applies –

Suppose you were an idiot. And then suppose you were a congressman. But I repeat myself.

Or -

There is only one indigent criminal class in America – Congress.

Is congress doing this because they are just trying to rape the nation for the benefit of their own constituents or friends, or, because they are idiots. Hmmm. Above my pay grade, I’m afraid and who cares? It’s just a horrible idea.

I admit to being Chicken Little, screaming the sky is falling. I feel pretty good about that position because I’ve felt that way for about a year and a half and so far, so bad. I’m a little concerned that the professionals who should have been saying this were very few, and among the missing includes Bush's treasury secretary, Hank Paulsen. In an effort to spare you one of my several page long rants, check out my earlier rant where I explain why the famous economist, F. A. Hayek, is spinning in his grave (11/13/08).

Life is so complex that we have decided that common sense no longer applies and cling only to myths. Perhaps because it all just too much for us to understand, when it doesn’t make sense, we think its because its too hard for us to understand.

Take the government investments in large banks under TARP. Everyone candidly speaks of the investments as taxpayer money. That means that unlike most investments, which we choose, we as an entire people have against our will invested in risky enterprises. I love it when a congressperson asks the executives they are chastising - when this money will be repaid - or, even when the executives say the taxpayers will make a profit on the investments. Is any taxpayer so foolish as to think, even if the government is repaid, we will ever see that money again? If so, you have slipped into our dimension from another.

Why is it hard to understand that the eight or nine HUNDRED BILLION (on top of the first seven HUNDRED BILLION and not including interest and ongoing projects) being spent must either be created out of whole cloth or borrowed. Either way, we must pay it back for the rest of our lives. Isn’t this like digging a hole to get out of a hole? Forget inflation, forget international debt to countries competing with us – WE HAVE TO PAY IT BACK.

Why should anyone complain that some people borrowed money for houses that they couldn’t afford to pay it back when now, that is government policy?

Sometimes, I am told, by supporters of the stimulus, that no one thinks this will actually stimulate the economy, but it will give confidence to the American people, who want the bill. Do they? There are a few polls out there with different results but the last I saw, it was under 40% for it.

This particular debate is one instance where the right is right and the left is wrong. I’ve been watching the House of Representatives and Senate hearings for days, going back and forth, some of them angry, some of them resigned, all of them sure that there side is right.

Here’s what I’d like to stop hearing.

- No one is happy about this, but we have to do it. No you don’t.
- It is either this or nothing – Completely untrue.
- We have to do this immediately. Sure, like TARP and Iraq.
- We’ve bent over backwards for your side. Really – both sides?
- You left us out of the process. Same as you did when you were in power.

We also know what both sides will say if it fails.

- We inherited this problem from you.
- Maybe, but you made it worse.
- Well, you ran up huge deficits and said they didn’t matter.
- Sure, but never anywhere near this much.
- It's your fault (pointing both ways).

These are fairly easy predictions.

Just for fun, how much is a trillion. Sometimes when you see these calculations online they are grossly exaggerated, but I’ve worked these out myself and I'm pretty sure of their rough accuracy.

How much is a trillion pounds? Take the Great Pyramid in Giza, Egypt. As far as I can tell (by looking at the internet), it weighs roughly five million nine hundred thousand tons. That’s tons, which is hard to conceive because we can’t lift a ton. It translates to eleven billion eight hundred million pounds. Obviously, this is already an inconceivable weight. So how many Great Pyramids do we need to build to get to one trillion pounds. Not ten such pyramids, or twenty or thirty or . . . skip ahead . . . sixty, seventy - no - eighty – roughly eighty five such pyramids. And that’s just one trillion pounds. We are actually spending many trillionsssssss of dollars on stimulus.

Take one foot blocks and start piling them on top of each other to see how close to the sun you can get with a trillion of them. Actually, you would not only can get all ninety three million miles to the sun (at its closest) before you get to the end, but you can then turn around and come all ninety three million miles back, and still have over eighteen billion blocks to go, enabling us to go back and forth to the moon fourteen or fifteen times. And again, that’s just one trillion feet. We are actually spending trillionsssssss of dollars.

One more. How about a trillion seconds in the past? Go back past George Washington, past da Vinci, past the Norman Invasion, past King Arthur, past Caesar, past Herodotus, Homer and Agamemnon, past Hammurabi, past the pyramids and past Uruk’s Gilgamesh, and keep going, going, going, seemingly forever until you get to roughly thirty one thousand seven hundred years ago. And did I mention that this is only one trillion seconds? We are actually spending trillionsssssss here.

Why do I keep saying we are spending trillionsssss? Well, take TARP I and II. That’s seven hundred billion. Add the stimulus bill, another almost eight hundred billion. That’s 1.5 trillion just there. Then take the federal reserve, our national bank, and the FDIC, the agency that guarantees our bank accounts. According to a recent article in Bloomberg News, these agencies “have lent or spent almost $3 trillion over the past two years and pledged up to $5.7 trillion more?" Throw in, for the hell of it, another 168 billion in 2008 tax cuts, etc. and soon you are up to nearly TEN TRILLION DOLLARS.

And that is without servicing the debt (many hundreds of billions if not trillions itself) or figuring out how much some of these programs will cost that continue for years. When has the government last underestimated the cost of anything?

Now, keep in mind, our entire national debt from inception to date is all ready at an all time high - nearly eleven trillion dollars. Those on the left correctly criticized the right wing for creating this debt in the last few years (with their help, especially the last two, shhhh). Now, they want to double it in a matter of only a few years, and most of it in the last few months.

Does this sound possible? Sure, there are conspiracy theorists who might believe that those few true dedicated socialists around, who want the government to own all the banks, control all the medicine, all the jobs and so on, are conspiring to use this economic down turn to spend so much that there is nothing to do but go at least European style socialist. But, you have to remember that back in the 80s some thought that Reagan and gang wanted to spend so much money (albeit a tiny fraction of what we are doing now) so that we would have to completely cut all spending and become reactionary fiscal conservatives.

Shouldn’t insane spending cause one or the other - either socialism or an end to social spending, but not both? Apparently, people believe one or the other because of their political philosophy. Here's a silly thought. Can't we all just agree that insane spending causes insane consequences.

We haven’t even discussed the unintended consequences of this huge change in government policy (entering the free market) and unparalleled spending. Naturally, no one can know what they will be, which is the problem with central planning. But, take the $8000 tax credit for first time home buyers, which is part of the stimulus bill, just as an example. Wasn't one of the causes of our financial woes our encouraging people who couldn’t afford to buy houses to do so (big hint, yes)? Will this just create another generation of buyers who can’t afford their mortgages in a few years? What will it do to the rental market? Will it increase new home building to a degree that the existing home market is crushed further? Or, visa versa.

As a fun prediction to really make your day – I don’t know how the markets will react to this. People expected a bump in the market when TARP passed and it went down. Same when Obama was sworn in. But, I am sticking with my prediction that eventually – a few days, a week, a month, who knows, it is going to go down between 5-7000. It is already below 8000.

Economists are historians who try and predict the future. They have all the success of those who try and pick stocks or horses. We all politely act as if it is a science. It would be like a "history scientist" predicting who will be president in 2012 or 2016. Actually, it's even harder because there are more than a few possibilities.

Naturally, you would be right to say it is easy to criticize and much harder to come up with a solution. So, here are some ideas. Since most of the money isn’t going to be spent right away, why did we have to vote on all of it right away? You are not making the public more confident by a trillion dollar plus bill. We are worried about loss of manufacturing jobs – how about dropping the capital gains tax on manufacturing investment dramatically. See what happens over the course of a year. How about trying a closely defined group of infrastructure and R & D jobs right now? How about, instead of throwing money at education, which doesn’t work, free the states to try educational programs they like best without fear of losing government funds and see what happens. Really, could they do worse. Maybe next year, everyone will say – Idaho has this reading problem nailed or something like that.

There are probably lots of good ideas out there, many of which I admit I don’t even understand. For example, a number of finance minded people have suggested doing away with something called mark to market accounting (look it up – I don’t have the knowledge to simplify it). A cousin of mine suggests doing that, plus reducing the reserves banks need to keep for a short while, and last, allowing bad banks on a one time basis to spin off their bad mortgages which the government will buy and eventually sell for whatever they are worth in two years. At least these are ideas that won’t cost enormous amounts of money and rely on market economy to straighten itself out.

I am not predicting the end of the United States, at least as a world power, although in the course of time, things inconceivable become obvious in retrospect. The problems with our country, perhaps all countries not struggling with crushing geological problems or invasion, always, are cultural. The deep need for constant comforting and luxury are so thoroughly entwined in our own system that a great shock may be necessary for us to recover the values that helped make the country what it was and still can be. From a people who expected our government to do little to help us, we now believe they need to do a great deal. Some day perhaps, it will be almost everything. And some will like that.

Of course, with respect to all of the above I hope I’m completely, irretrievably, and inarguably wrong.

Political update for February, 2009 - Obama to the rescue?

I've been waiting until the passions of the election cooled down to review it or to comment on the president. Time, as usual, doesn't wait, and now I'm behind. Just a brief comment here on the stimulus bill.

I had the luxury to sit in my living room and watch the Senate debate, which, if you have a choice between the Senate and the House, is the much better selection, for interesting discussion and sometimes, more decorum. This is because of its rules, that is, not only the possibility of a filibuster halting any legislation, but, also, because the majority cannot control the legislation to the extent it does.

When Obama won the election my belief was that the Republicans were marginalized to the degree that it was not between President Obama and the Republicans in Congress, it was between the President on one side and Harry Reid and Nancy Pelosi on the other. More so, it's Obama versus Pelosi, because she is politically more aggressive and possibly stronger than her Senate counterpart, plus, the house originates spending bills.

I was happy to see Tom Delay go, and although the way it was done -- through an apparently phony prosecution in Texas (he's never been prosecuted), that is just the kind of thing he would enjoy doing to his adversary. Now, Nancy Pelosi has said pretty much the same thing that Delay said - we win, we rule - get out of our way. Fortunately, it doesn't work that way, at least when there aren't 60 votes in the Senate for one party, and the Obama administration is paying the price. I don't know if rumors that Rahm Emanuel is pointing fingers at Nancy Pelosi for the failure of the stimulus bill to be pushed through is true, but I like it. Obama versus Pelosi.

Because I voted for McCain for two main reasons -- one, I believed he would greater resist spending, and, two, because I didn't want a one party government, which was the biggest problem the Bush administration had for six years. One party government leads to overreaching, arrogance and fueling your opposition.

Sadly, I have to admit, that if McCain took office, they would probably be debating the same type of bill and his vaunted claim to eradicating pork from bills would probably be left in that sad pile of unfulfilled presidential promises that grows ever larger every four years. Usually the first go is the promise for better ethics and the second is for an end to bickering. That has already proved true in this administration.

In the Senate yesterday, Democratic California Senator, Barbara Boxer, asked to put a question to the Senator from South Carolina, Lindsey Graham, who politely agreed. She immediately accused him of theatrics because he had held the bill in her hand and brandished it, and asked if he ever did that with respect to a Bush bill. He took offense, reclaimed his time and insisted that he was second to none in opposing his own party. Were I able to whisper in his ear, I would have told him to say to her that there was an element of theatrics in all speeches, if you want anyone to listen, but he had not seen in a while anything as theatrical as the question she just asked. Many of my complaints about our partisan warriors is not the accusations they make about the other party, but their refusals to acknowledge that their own party does the same thing. An example - I don't remember her complaining when Democratic Illinois Senator, Dick Durbin not only brandished the bill, he actually ripped one page out of it. Nothing wrong with that, but it is nothing but theatrics.

Here's the giggles - Senator Durbin made the point that all of the Republican complaints could be contained in one page of this several hundred page bill. That's probably not literally true, but, somewhat true. If the Republicans got their way, we would probably not have a record bill of 900 billion, but, 800 billion. Big deal. Were I a Republican congressman, I would have just said, if it is so small, just give it to us and we'll vote for your bill. More likely, the Republicans are just sore that it is Democratic pork instead of Republican pork.

I joyfully cling to my cynicism about our economy. This is a reckoning. Growth is crucial in modern economies, but growth by our phony bologna bubbles (one, which I benefitted from by selling my home before a total collapse) is building houses on sand, and this is what happens. We don't need more bubbles - whether they are created by a market or a government, they are going to burst.

Some respect to John McCain, who is back at work in the Senate. He accepted his loss and went back to work; gone are the silly theatrics of campaigning, the pandering of his heroic story and sneering at the opposition for much the same absurd reasons they sneered at him. His amendment, to stop spending after two quarters of growth was pretty reasonable as is his call for spending and tax cuts that actually might stimulate the economy. Democrats don't seem interested. As another Republican Senator commented, so much for this being a stimulus bill.

I have no problem with a stimulus bill that uses tax (preferably not borrowed) money where it creates jobs and deals with real problems. We know from the New Deal that spending alone probably doesn't work. I do have a problem with giveaways to some groups of people, whether they are banks or homeowners or particular industries which already have a market, while other suffering people and industries get to pay taxes but not receive from it. I know of no reason that people who didn't take loans they couldn't pay back should have to watch this go on while they can't pay their own bills. Not that any of these are easy.

All that being said, even a good stimulus bill is a little like the effect of eating "right" or not smoking on your health. They have their effect, even an important effect, but I believe the "hidden hand" which is so beneficial in our system, and sometimes so destructive, is far more powerful than any cure. We all know that economies are cyclical and that there must be some recession even as there is growth. We are in an era when we foolishly believe we can have a greater effect on things out of our control. Sometimes our fiddling just makes things worse.

Note to Obama. It's not so easy when you are in office, is it? He seems to be following the same play book as Bush. We have to do this NOW. No more debate. Not my fault. I just got here - and you are a partisan. This is not exactly calm and reassuring and it's not really fair in this case. I note that the Republicans were already cynical about big spending and the Democrats for it, when Bush was in office. This is really about basic governing philosphy. Admittedly, it gets mushy, as, arguably, the Democrats have a better record of restricting spending than the Republicans for the last three decades despite their philosophies, at least if you compare the deficit to the gross domestic product and don't allow for other factors. But, perhaps that's for another post some day.

Right now, despite Obama's urgency and trying to get the feel of the bully pulpit, I'd counsel more patience. You know, haste makes waste, even if you are in government.