Obama’s Stimulus Is Failing…

stimulus-vs-unemployment-may2

I know…it has been only a few months. But still, Obama’s stimulus plan is looking less and less attractive as time goes on.  A relatively new blogger, Innocent Bystanders, has nicely shown how the unemployment numbers are worse after the stimulus, than they were predicted if we had never passed the stimulus.  I have been making this very same argument for months, but he clearly has graphically shown this very nicely.

The White House came out today, and promised that 600,000 jobs would be created  (or saved, whatever that means) this  summer.  That is just great.  If they had the solution to the jobs crisis, it would have been nice to see it earlier, don’t you think?  Liberals, such as the Nation, have also looked at unemployment numbers with dismay.

This cannot be easily defended.  And the public is starting to notice.  Rasmussen now shows Republicans favoring Democrats by 6 points, on the ECONOMY!  It is the first time in over 2 years Republicans have led on the issue.  Republicans also now hold a six-point lead on the issue of government ethics and corruption, the second most important issue to all voters and the top issue among unaffiliated voters.   That doesn’t even begin to talk about foreign policy, where Republicans are widening their already existing leads.  And 46% of people now feel the stimulus plan should be nullified all together.

The White House is in full crisis mode.

First, Barack Obama came out for Pay-as-you-go (or PAYGO), which would require Congress to, well, pay as they go.  Of course, nice in theory; Nancy Pelosi promised the same thing before the 2006 election as well.  This is obviously closing the barn door after the horses have escaped, considering that Obama has spent upwards of $2 trillion already that has not been paid for by any stretch of the imagination.  And since we are already in a $2 trillion hole, how exactly does Obama propose to pay for his other goals, such as health care reform, environmental action, etc.?  Actually, Obama added the caveat that he would exclude health care.  What good is the rule if you are going to exclude everything from it?In other words, this is more empty rhetoric.  It has gotten so bad, the New York Times is trying to blame Bush for deficits that Obama is creating.  What nonsense.

Jared Bernstein, Obama’s key economic advisor, in the last few weeks has tried to defend the Obama projections.  Bernstein, who predicted that with the stimulus unemployment would be below 8% right now, says his predictions were off because he didn’t have the numbers from the 4th quarter of 2008.  Fine.  If that is the case, why should we believe any of his projections more than 3 months from now?  For example, he says Obama will create 300,000 jobs this summer…without ever providing one shred of evidence to how he came up with this number.  I think he pulled it out of thin air, IMHO.

This week, Timothy Geithner pointed to the return of TARP funds from 10 banks as a sign of the recovery.  What he doesn’t tell you is most of those financial institutions were forced to take TARP money…and would have survived with or without that money.  And if the recovery is in full swing, why is Geithner planning on spending the TARP money for other uses, instead of returning it to the national treasury, say, to pay of the massive debt we are running up?  Intellectually, you all know this is dishonest.

Democrats have asked for more and more time.  That is fair.  But explaining how their Stimulus bill caused the economy to beworse than the baseline that they themselves had predicted…well, that is very difficult indeed.  Even if you use the rationale that the initial baseline was Bush’s fault, who do you blame for the uptick?

Only one person comes to mind.

UPDATE: It gets even worse.  Arthur Laffer (of the Laffer Curve) has a nice chart showing our exploding money supply…which eventually will lead to huge inflation.  Lovely.

laffer-monetarybase

varvel-up

14 thoughts on “Obama’s Stimulus Is Failing…

  • June 8, 2009 at 2:14 pm
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    This is where our so called stimulus package is coming from. The Chinese will own us – if they don’t already.

    http://www.cnn.com/2009/POLITICS/05/31/china.geithner/index.html

    I quote in part: Earlier this year, Chinese officials had suggested they were uncomfortable with the Federal Reserve’s rapid expansion of its balance sheet. Premier Wen Jiabao said he was worried about his country’s holdings of vast amounts of U.S. debt and asked for a guarantee of safety for Chinese assets.

    If this doesn’t scare you it should.

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  • June 8, 2009 at 6:03 pm
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    HOW THE STIMULUS PLAN HAS BEEN WORKING ALREADY AND WHY IT IS BOUND TO GATHER PACE

    The stimulus plan in of itself has halted the dramatic plunge in business and consumer confidence with the very likely threat of an economic depression earlier in the year, and businesses and consumers taking a less weary and more upbeat attitude to the future. Maybe more than anything else this will be the most significant impact of the stimulus package in the long-run enabling a spectacular recovery from the real possibility of depression before its passage. Businesses and consumers have become more and more confident that spending from the stimulus in the upcoming months will provide a solid environment for economic activity thus encouraging investment, reducing the pace of job losses and encouraging consumer spending. In other words, the stimulus package has avoided “a cycle of economic downturn to depression” and is now about to engender “a cycle of economic upturn to recovery”.

    The stimulus package cash handouts and other social initiatives have played no minor part in lessening the burdens on individuals of the economic downturn and the consequent increase in the number of people unemployed thus palliating its effects with regards to mortgage, health coverage and consumer spending.

    The stimulus package has halted the lost of jobs in in the areas of education and other state level services and enabled States to avoid budget bankruptcy (caused by the fall in revenues due to the economic downturn) with the result of avoiding indirect job losses in the private sector as well.

    The stimulus package is bound to lead the way for new jobs creation to be followed suit by direct private sector investments with the consequence of increasing spending in the economy and accelerating economic recovery. It should be noted that jobs created by the stimulus will have a multiplier effect in the creation of jobs by private enterprises.

    Perhaps more fundamental for long-term economic recovery, given the areas of investment of the stimulus package (infrastructure, energy and green jobs, education. etc.), it is the type of government investment required for renewing long-term economic growth. As was the case with FDR’s New Deal in the 1930s and Eisenhower building of interstate highways and investment in the sciences in the 1950s, the stimulus package is bound to restructure the foundation of the US economy within which private enterprise will thrive.

    The fundamental element in the criticisms levied against the stimulus package that it will increase the US deficit is the total disregard by most critics of what would have happened without the stimulus with respect to avoiding the real threat of a depression, raising business and consumer confidence and restructuring the economy. Thus providing a good foundation for real growth in the long-run (boostered by the Stimulus and led by private enterprise) with economic growth by itself and healthcare reform allowing for deficit reduction in the long-run.

    While the Stimulus Package has often come under this one-sided criticism of increasing the US deficit, such an argument can only be credible to the extent that it elicits how the results mentioned above which have been obtained (and are to be obtained) by the Stimulus Package could have been attained otherwise. Most critics of the stimulus package seem to think that this economy which was at the very brink of collapse simply avoided a depression by some miracle and that by the same token recovery is bound to occur by magic. To the extent that their arguments fail to answer these fundamental facts about avoiding a depression and beginning a recovery, to that extent, such arguments can hardly be considered credible.

  • June 8, 2009 at 7:22 pm
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    The stimulus plan was not hailed by the business community at all. TARP, maybe…but not the stimulus plan. And after the stimulus plan was passed, that was when the market really started crashing, Feb and Mar. As for money in people’s pockets…I haven’t felt it, and most people haven’t really noticed it. And it has not helped consumer spending at all. The loss of jobs? You must be kidding. It has not halted all but the smallest amount of education and government jobs. Infrastructure? At some point it will do that…but so far, less than 1% has been spent, and most of that has not been on construction but on preplanning.

    Now, long term the stimulus may have an effect. But a stimulus, by definition, needs to stimulate the economy when it is at its lowest point, which is right now. Stimulating the economy next year, after the recovery has started, is too late. Additionally, the real question is whether doing nothing would have allowed for the exact same results; right now, that appears more factual than the claims you are making. It is your arguments, and Obama’s, that so far have no credibility. It is based all on hope, and none on facts.

  • June 9, 2009 at 4:16 am
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    Actually, the initial impact of the stimulus for private enterprise and consumers has been “anticipatory” in that it arrested a situation where business and consumer confidence was heading the economy to a depression. That is why the statistics point to the fact that business and consumer confidence stop plunging after the stimulus plan was passed and the stock market has been “going north” since then. It is the anticipation of the impact of the stimulus plan that has stabilized business and consumer confidence, heading off the real prospect of a depression. In other words, the stimulus package first impact was to act as the brakes for an economy that was heading off towards a depression disaster.

  • June 9, 2009 at 10:07 am
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    Really? The brakes have been applied? IF (I say if because I have yet to see any significant evidence that depression was imminent and otherwise unavoidable)that is true then why is this unemployment vehicle still moving, at an even higher rate than initially estimated? To follow your logic, all I have to do is “promise” to spend money and you will suddenly have the confidence to start producing your product at full pace again, even though my credit rating is in the tank and I have no idea as to where I am going to get the money to pay for it. I also think that “going north” is a bit of a stretch, more like east by northeast.

  • June 9, 2009 at 10:14 am
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    If so, why were Obama’s own prediction so way off? Why was he predicting 8.5% unemployment with NO stimulus…yet we are at 9.4%?

    There are two explanations. One, they were simply wrong. Or two, they are using completely erroneous analysis. Neither one makes me feel better.

    We have seen no slowing of unemployment, even as predicted by Obama himself. We have actually seen the economy take the exact trajectory that Obama predicted IF THERE HAD BEEN NO STIMULUS. Until that changes, Obama’s stimulus must be considered a failure. Only time will tell if the long term results are the same.

  • June 10, 2009 at 8:47 pm
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    http://www.rususa.com/money/finance.asp See link above for the effect of the stimulus plan on the stock market immediately after its passage in mid-February 2009: the NASDAQ, Dow Jones and S & P 500 have made a dramatic U-turn upward since March 2009.

    The reason for the high job losses is very simple. Those jobs were going to be lost anyway as business and consumer confidence entered a vicious cycle to depression following the failure of the financial system – these job losses arose out of lack of confidence in the financial system. Actually, the stimulus role at the onset more than any immediate spending in the economy itself has been to provide assurance to consumers and businesses that government will spend in the economy thereby upholding consumer and business confidence and avoiding the real prospect of a depression. So the stimulus first role has been “anticipatory” in forestalling a depression.

    Believe it or not, it is not out of the question that without the stimulus plan we might have been talking now about the loss of not 1.6 million jobs but 5 or 6 million jobs at the trend at which consumer and business confidence went on falling before its passage. See link on the rise of consumer confidence since the stimulus plan was passed in mid-February 2009.
    http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm

    Actually, the word “stimulus” here can be misleading in that it underemphasizes the effect of the stimulus in arresting a grave and downward spiral of the economy and rather draw focus mainly on creation of jobs which is the second and yet to fully come dimension of its impact.

    Let’s imagine that the stimulus plan was to be suspended now. What will happen is that the anticipation consumers and business had about its boosting effect on the economy will die out, and this of itself will create uncertainty and may well lead to a new downward spiral. The Stimulus has a double effect with respect to recovery and job creation. Perhaps the lesser acknowledged effect is the confidence created in the economy for private enterprise and consumer consumption. In fact, this indirect effect will be the strongest push for economic recovery and job creation. Then there is the direct effect of the Stimulus Package spending and its multiplier effect given the areas of expenditure (education, infrastructure, green jobs, etc.)

    While critics are pointing to the fact that unemployment is already at 9.4 percent compared to the prediction of 8.8 percent for 2010 made by the Administration, many forget that Economics like Meteorology or Earthquake Prediction for that matter is “no Physics or Maths”. What ultimately matters is the bigger picture and trends. Going by the job loss figures for March, April and May (652000, 504000 and 345000 respectively) the argument made by the administration definitely holds. In fact, the Fed, the Treasury as well as other institutions involved in the prediction of economic data tend to revise their figures quite often. What matters is the trend and bigger picture.

    The Stimulus is rather like a project but in this instance a massive and complex national project. A project can be broken down in two broad categories: design and execution. At the design stage (the first few months of the Stimulus), everything is being organised and put in place administratively with relatively little being carried out. The upcoming months will be the period when the massive spending and investments will be executed at an exponential rate. In fact, 1 billion dollar is already being allocated each day for Stimulus projects.

    In layman’s terms, the Stimulus is needed for the simple reason that with the failure of the financial system, businesses and consumers were less willing (uncertainty) and less able (banks failures and failure to provide credit) to produce and spend in the economy implying that companies sold less goods and services than usual and so the companies had to lay out workers who in turn bought less and so the cycle goes (and this might just as well have led to a depression).

    What the stimulus is meant to do, and is doing, is to incite and give businesses and consumers the confidence to keep on producing and spending respectively for the upcoming spending in the economy it is to generate exponentially. Initially by giving tax breaks, benefits, spending to maintain teaching and social services jobs and then spending on stimulus projects contracts given to companies which are then encouraged not to lay off workers. All these with the consequent multiplier effect in the economy.

    Companies and consumers effectively bought to this idea once the Stimulus bill was enacted and kept on producing and consuming respectively in anticipation that upcoming Stimulus spending will maintain a stable economic environment from which recovery is possible. Hence the reason why the stock market and consumer and business confidence started rising. This effort was accompanied by the bank bailout and efforts to provide credit to consumers and companies.

    It is effectively because the Stimulus Package is real, a commitment of 789 billion dollars by the US government for real economic projects, that consumers and businesses bought to the scheme and started acting in a positive manner in anticipation of its positive impact in the upcoming months (the Stimulus Package direct impact should enter in full force by the fourth quarter). In fact, many economists have even argued that the amount provided for the Stimulus should have been much more higher.

    As a final note, I’ll argue that irrespective of party creed, it will seem to me that the criticism levied against the Stimulus is much more of a “political vogue” (and has nothing to do with “realistic” economics) naïvely taken up by the media which tend to operate on the basis of “two sides to any story” (not a criticism though). The milestone which any such critical arguments has to overcome is to answer the question: how could a depression be avoided and a recovery started following the failure of the financial system?

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  • June 15, 2009 at 5:32 am
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    Again, IF it is as you say, and the jobs would have been lost anyway, why sell the “Stimulus” as if it were going to save them, thus knowing you are selling a lie and doomed to explain your failure? Having a person with bad credit and limited income promise to buy my product does not instill a lot of confidence in me, especially if that person can later tax me to pay for the goods purchased from me. Why doesn’t the government just hire half the people to dig holes and the other half to fill in the holes, because as you already know, there is no wealth generation in digging a hole. Spending money on government programs that do not generate money does not stimulate anything other than dependence on government. I do not believe it, there is no evidence anywhere by anyone saying that we would have lost 6 million jobs without the “stimulus”, nothing like making numbers up huh? We didn’t name it, they did, perhaps they should have called it the “Pull the Reserve” or “BRAKE then Accelerate”, why hang on semantics that mean nothing?

    “many forget that Economics like Meteorology or Earthquake Prediction for that matter is “no Physics or Maths” and “other institutions involved in the prediction of economic data tend to revise their figures quite often”. Are they using Physics or Math to determine those figures. Here is what I know, if the Administration says a Hurricane is heading to Florida, but the Weather Channel says it is heading for Carolina….I am packin my bags and headin for Miami.

    While I appreciate the “Laymans terms”, I am pretty sure our financial system did not “Fail”. Even if we had gone in to a depression (something you apparently believe whole heartedly) our financial system would not have failed (circa 1929). Straw man arguments are so tiresome, don’t you think?

  • June 15, 2009 at 5:35 am
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    Anyone seen my Magic 8-ball, I need to know what is going to happen in the market next?

  • July 2, 2009 at 12:42 pm
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    Republicans would have made the economy worse. The problem is that the elite liberals of the Democratic Party backed Obama instead of Hillary, and forced everybody else to do the same. She and Bill would have fixed the economy, and they would have reversed Bush’s unconstitutional policies. Obama lacks experience and has to rely on advisors, which is no substitute for runnign the country. As long as voters believe the LIE that it takes no experience or expertise to hold office we will have these problems. California is learning that the hard way with Arnold.

  • July 2, 2009 at 1:53 pm
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    According to Obama’s own numbers, he has made it worse. If he had left the Bush policies intact, he HIMSELF predicts unemployment would be better than it is under his plan.

    Now, you can say that Obama is wrong…but then, what other predictions that Obama is making are wrong as well?

    As for California…remember, Arnold has NO EXPERIENCE…he is the republican version of Obama incarnate…a pop idol becoming a politician.

  • July 7, 2009 at 12:46 pm
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    Nice bubbles, avoid the current discussion by bringing up something totally unprovable, partisan and irrelevant. While we are stating opinions, it is my opinion that it is people like you, people who are so blinded by party that you cannot see truth when it is right under your nose, that are the biggest problem.

    We cannot know if the Republicans would have made it worse, we cannot know for sure what Hillary in all her infinite wisdom gained by simply being married to Bill would have done. Obama and his team made a prediction to Congress and the American people. He gave us the numbers if they passed the stimulus and without the stimulus. Looking at the numbers now, we can not only say that the stimulus failed, we can say it actually made it worse, and as neoavatara pointed out, that is from Obama himself.

    Exactly what unconstitutional policy are you referring to regarding the economy that Bush implemented?

    As far as Arnold goes, yes, he has failed Kalifornea, but so has the California senate, they are just as culpable on the demise of that state so don’t go giving them (mostly Democrat) a free ride while giving the Republican all the blame.

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