Why The U.S. Economic Stimulus Plan Won't Have Much Effect

Armen Hareyan's picture

The President's economic stimulus package might be agreed upon today. In fact they have already reached a tentative agreement on the economic stimulus package.

But wait a minute… I can still hear that “giant sucking sound”, and it’s getting louder (oh, how I wish I could have found a clip on youtube of Ross Perot coining that wonderful phrase). What will the U.S. economic stimulus plan actually accomplish? Will it lower the U.S. trade deficit or increase it? Will it lower the unemployment rate? Will it have any effect on the crumbling real estate market? We believe that the proposed U.S. economic stimulus plan will not work. It is an attempt at a quick fix. It is an ill-conceived band-aid approach to what ails the U.S. economy, proposed by an administration that does not seem to grasp the root causes responsible for the American economy being in deep, deep trouble.

What the United States needs now is something along the lines of the Works Progress Administration (WPA), which put Americans to work and helped pull the country out of the Great Depression. The WPA existed between 1935 and 1943. A chicken in every pot, and two hybrid (or electric) cars in every garage wouldn’t be a bad idea either. (We’ve copyrighted that new twist on an old campaign phrase, so if Rudy, Hillary, Barack or John want to talk, you know how to reach us.) It’s quite likely that many of the government buildings and infrastructure projects in the American city or town where you live today were constructed by the WPA during that period. The WPA was one of President Franklin D. Roosevelt’s New Deal programs.

Taking the money the U.S. government is proposing to distribute as tax rebates, and putting it into a massive infrastructure improvement program would have several benefits, both immediate and long-lasting. It would…

- Provide long-term employment for millions of Americans

- Stimulate spending by reducing the unemployment rate, and giving the currently-employed higher incomes

- Repair or replace our crumbling infrastructure, particularly bridges

- Provide an infrastructure that will facilitate future economic growth

- Keep the money in America rather than giving the recipients of the rebate checks the ability to buy even more imported goods, a major reason we’re in this mess to begin with

Let’s say, for argument’s sake, that every taxpayer in the United States gets a check for $1,000 (although it looks like many, if not most Americans will receive far less). Let’s say that Americans will spend every one of those checks rather than putting the money in the bank. Where will that money go?

If you’re about to loose your home to foreclosure, chances are good that that rebate check wouldn’t even allow you to make a single mortgage payment. Even if it does, that’s just postponing the inevitable for a few more weeks.

Perhaps you will take that rebate check and go on a shopping spree at Wal-Mart, K-Mart or Target. Wal-Mart is already America’s largest retailer and largest employer, but bigger is always better. If Wal-Mart grows, that means more low wage jobs for Americans. It means more Americans with little or no healthcare coverage. It means paving over more open land for new parking lots and big-box stores. It means more tough times for the few American manufacturers left, who are already being squeezed by the way Wal-Mart deals with their vendors.

About the only place you can spend that rebate check where the majority of the products are made in USA is at the grocery store. Unfortunately, for most Americans, eating is not a discretionary activity, and the amount of money you spend at the grocery checkout is unlikely to be influenced to any measurable extent by your rebate check.

Ben Bernanke will probably tell you that buying goods is exactly what you should do with your new found windfall. But wait a minute. As I’ve pointed out in this blog, and what you already know, unless you’ve been in a coma for the past few years, is that the vast majority of consumer goods you’ll find on retailer’s shelves are imported, overwhelmingly from China. In fact, we think that China will be the real winner if Americans go on a shopping spree. If you doubt this, just wait a few months and look at how our trade deficit with China increases as a result of this plan. Go to the mall and try to find clothing, shoes, toys, hardware or housewares made in USA. You won’t.

How is buying foreign goods supposed to help the U.S. economy? The U.S. national debt is being increased substantially by the stimulus plan in the first place. Buying foreign goods will only increase the trade deficit. Few American jobs will be created by this plan. That’s because we manufacture few products here any more, with the notable exception of food products, and even those are increasingly being imported.

With the cost of heating your home and filling your gas tank becoming an unaffordable luxury for many Americans, perhaps all of us should use our rebate checks to buy fuel oil or gasoline. The oil producing countries would love that more than oil itself. The American oil companies would support that too. Despite the fact that the oil companies have been raking in record profits, you can never be too rich, or too thin. On second thought, I think we will just cash our rebate check and ask the teller to give it to us in one dollar bills only. Then we’ll take the cash home, and use it as kindling in our fireplace. That’s one way to stay warm this winter, and it should reduce our heating bill slightly. Is it illegal to burn money?

About the smartest use we think you could put that rebate check to would be as a down payment on a hybrid or other low-emission or zero-emission vehicle. That would reduce America’s dependency on foreign oil, while helping the environment at the same time. The only problem is that very few low-emission vehicles, and almost no zero-emission vehicles are being manufactured today. And chances are good that your next car will be a foreign make that might not even be assembled in America anyway. So much for stimulating employment.

The biggest reason that the economic stimulus plan will not have any significant or long-lasting effect on the U.S. economy, is that it does nothing to address the two underlying causes of our economic problems; loss of jobs (particularly loss of good paying jobs) and the U.S. trade deficit. Until those issues are addressed, the administration can throw all the money they want at the problem, but it won’t go away. The deepening economic recession will turn into a depression, as sure as Winter will be followed by Spring.

I just came across a posting on the AFL-CIO’s website outlining their views regarding what a U.S. economic stimulus plan should include. Unfortunately, it looks like a couple of their suggestions which were originally announced by the President as being part of the package, have been eliminated in the final draft. Although I have never belonged to a labor union, I was struck by how many of their ideas match my thinking on the subject.

Maybe those rebate checks should come with the stipulation that they are not to be spent on food, imported goods or foreign oil, gas-guzzling vehicles, and may not be burned.

- RoutingByRumor

Comments

Submitted by Anonymous (not verified) on
Don't blame the US economy problem for buying the goods from China. The trade deficit totally counted is about several billions. How about the trillions of dollars spent in Iraq? Would those money create jobs and stimulate economy if spent for the US internal development? Besides, no one forced US companies to import stuff from China. The only reason they do it is because they can make profit from it. That's how they can still keep their domestic employees.

Submitted by Anonymous (not verified) on
The items purchased any given day (beyond food) in the USA will provide economic benefit for many countries. Our economy is impacted on a global scale. Factories are not a predominant structure here in the US. The majority of companies have moved over seas that manufacture the goods purchased in the US. Without a stimulus package that focuses on employment and improvement of over-all conditions domestically, there will not be sufficient improvements seen in the near future. The rebates are a “drop in the bucket” for what Americans truly need. What about the families who will loose jobs? What about the people who will not have enough food to eat? The children, elderly, and many others are without sufficient ability to choose their fate (loss of jobs, current mortgage crisis, oil prices, and homelessness) Ignoring the problems does not make them go away. I agree with the need to reduce spending in Iraq. I believe as a nation, that some of the money spent in Iraq can be better served domestically in our current situation. What happened to a nation that is not divided, including the times of hardship? It is the “United” in USA that makes us as strong and unique as we have been. The efforts to secure situations in Iraq have been costly (lives and money). Financial security is needed here! I hope the current situation improves, but the likelihood many Americans will not suffer in some way from the lack of efforts to secure our future is not looking as bright as it could be. Of course, not everyone will suffer. But the people and the economy more than what is currently happening.

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