The haggling between Democrats and Republicans is over, as President Barack Obama and House Speaker Nancy Pelosi’s nearly $800 billion “stimulus” program becomes law and the cash works its way into the economy. But the burning question is: Will it work? Will this “stimulus” bill stimulate the economy?
We have heard endlessly from pundits on both sides of the aisle, from folks who call themselves economists and from politicians of every stripe about the efficacy of this package. But what do business leaders think? What do people in the capital business think? And most important, what do the markets think?
As a person who deals with capital every day, who works with and funds entrepreneurs for a living, and who knows the nuts and bolts of job and wealth creation, I believe that this program is nothing less than a rip-off of U.S. taxpayers and will not work. Indeed, it looks like 25 years of government expansion jammed into one bill and sold as “stimulus.”
This stimulus package is short on incentives to get consumers spending again and long on social goals that won’t stimulate economic activity. It is totally unfocused and spreads a lot of money around on nickel-and-dime programs that will have little lasting impact on our economy.
As a capitalist and entrepreneur, I would have preferred to see a concentration of tax incentives aimed at the purchase of housing and autos, and tax cuts for small business and capital, rather than the current plan, which emphasizes bolstering federal and state welfare programs. The reality is that the millions of jobs President Obama’s “stimulus” supposedly creates are government jobs. But what happens when those jobs are completed? Is everyone laid off again? Does Obama pass another “stimulus” bill?
The theory is that the “stimulus” will bring back everyone’s confidence, and those of us who are in the business of creating jobs and wealth will be inspired to hire and grow. But why not take a poll of entrepreneurs and folks who make it their business to create jobs and ask them what would spur their confidence? Or better still, why not study the turnaround economies of Ireland, Spain, India, Brazil, Germany and the U.S. during previous recessions?
The study would clearly show that the only successful way to pull a country out of an economic recession is to put the money back into the hands of the people, not by the government taking $1 trillion out of the national economy and distributing it as it sees fit. It is contradictory to almost every historical precedent for economic growth. If you want to see small businesses grow, lower taxes and incentivize those businesses to hire. If you want to see capital flow into the markets, lower capital gains taxes – or even suspend them. And suspend them for a decade! That is the opinion of nearly every businessman and entrepreneur I know.
But what about the markets? How have they reacted to this nearly $800 billion “stimulus” bill? Stocks ended lower again last week, pushing the Dow Jones industrial average to its lowest close since last November. The Dow plunged nearly 300 points Tuesday, the day Obama signed the “stimulus” bill. Broader stock indicators also fell. The Standard & Poor’s 500 index fell, the Nasdaq composite index decreased, and The Russell 2000 index of smaller companies fell, too. Bond prices declined as well.
In short, the markets haven’t been stimulated by President Obama’s nearly $800 billion “stimulus” bill! They have continued to pull back, leery of a national government that wants to limit free-market growth while increasing regulation and taxes.
Like so many businessmen I know, I am sure this “stimulus” program will only delay the inevitable reckoning day for the vast majority of the people in the U.S. The core problem, and what put the U.S. into this regrettable situation, is the refusal by far too many Americans to live within our means, and far too may companies and institutions to do the same. This bill merely postpones the inevitable consequence of a nation living far beyond its means for far too long.
And that’s not even taking into account irresponsible government spending. The federal government alone is now borrowing at an annual rate of well over $2 trillion. State and local governments across the U.S. are engaged in their own borrowing sprees. This bill rewards the state and local governments for their poor fiscal stewardship, turning them into dependant client states to the federal mother ship of socialism.
Very simple math shows that regardless of how much we raise taxes in the future, there is no realistic way for the U.S. to ever pay off this debt. Hyperinflation is the only answer to fiscal and monetary policies currently being conducted.
The truth is that the president and Congress could have created economic stimulus by across-the-board tax cuts for all Americans and tax incentives for businesses to hire new workers and use their capital for new purchases – instead of hundreds of billions of dollars to bolster federal and state welfare programs. They chose to expand government and increase the people’s reliance on it, while the private sector, which pays the bill, is shrinking.
Former House Majority Leader Tom DeLay put it best when he said Obama’s program is “just welfare checks that are called tax cuts.” I couldn’t agree more.