Tuesday, February 02, 2010

President Obama's Proposals for a Second Fiscal Stimulus

President Obama's budget for 2010-2011 proposes a US$200 billion fiscal stimulus focused mainly on small businesses.

Does the proposal stand up to scrutiny?

Well, if one considers that it will put the American government (and therefore the American citizen) deeper in national debt, it is of course not a good idea.

However, the fact that such a "second stimulus" package has been proposed acknowledges that the first stimulus has not worked.

As I had predicted, it has placed a "floor" under the crisis so that there is not a complete collapse, but it has not and it cannot sort out the mess, let alone provide a substantial basis for growth; meanwhile, the propoganda machinery is in full swing trying to pretend that real growth is taking place in China - when that bubble is pricked, it will be terrible; but let us return to the topic of this post.

My reading of the situation is that the US Government now recognises that the effectiveness of the earlier stimulis package is coming (or will soon come) to an end, and that is why this second stimulus is needed.

The problem is that President Obama and the US Congress are focusing on the buzzwords "job creation" and trying to get the 2nd package through on that basis.

Job creation is of course very good in itself in nearly all circumstances, provided it is the creation of *real* jobs and not merely make-believe jobs.

The problem is that the 2nd stimulus package is unlikely to lead to the creation of even make-believe jobs.

What the 2nd stimulus package will do (assuming that the President can get at least this proposal successfully through the labyrinth of government) is that the package will provide at least some further minimal stabilisation for the economy, and particularly for that very important part of the economy (small- to mid-size companies) which have already suffered so hugely and will come under even more pressure before there is any chance of this current crisis passing.

So the package is at least some minimal good news for the economy and for the small business sector.

The package is, however, bad news for the small-business sector as a whole, bad news for the economy, and bad news for President Obama.

Why bad news for the sector as a whole? Because it is not enough to prevent the sector going down, and because it will therefore politicise the sector: if there is not enough money to go around, someone (read: someone in political power, and therefore a political appointee) will have to decide who gets the money and who does not, with consequences that are clear to see (politicisation of the small business sector)...

Why bad news for the econmy as a whole? Because increasing the public debt sizably while not really sorting out the crisis means that its net contribution to sorting out the crisis will be pretty close to zero.

And finally, why bad for President Obama? Because he is already being perceived as an "empty suit", having ducked the opportunity for genuine global leadership with the issue of climate change, and having failed with the issue of healtcare reform, he has now nailed his flag to the mast of job creation - which is precisely what will not be delivered by a mere 200 billion.

Of the 8 million jobs which have been lost during this recession in the US alone, President Obama would have to "bring back" if not all 8 million, then at least 4 million, or even 3 million to claim any reasonable degree of credit.

The $200bn in the 2nd stimulus package should certainly staunch the losses, so that the rate of loss does not get any worse. It may even improve that, so that the further losses will not be steeper. Will the package actually "recover" any of the jobs? Perhaps. I certainly hope so. Will the package recover 8 million jobs, or 6 million jobs, or 4 million jobs, or even 3 million jobs? I seriously doubt it.

Most small companies which get any financing as a result of the 2nd package are going to do exactly what the big companies have done as a result of the 1st package: in order not to run into bankruptcy, they are going to bolster their credit position and their ability to trade; adding jobs will be their last priority.

I seriously hope that I am totally wrong and the President Obama's will be able to add not merely 3 million jobs, or 4 million jobs, but 8 million jobs, or even more.

But if any of that happens, it will happen not because my (rather superficial) analysis above is wrong. It will happen not because the 2nd stimulus package has been up to the job. It will happen only because of a divine miracle.

As a follower of Jesus the Lord, I pray for a divine miracle, which is the only thing that can save that many jobs.

I pray for a divine miracle which is the only thing that can prevent the slow slide into much worse economic, social and political trouble (which I have written about elsewhere).

And I pray for a divine miracle which is the only thing that will save Obama's term as President from becoming wholly ineffective and at least partly tragic.

Is there anything short of divine miracles which will be good for job creation, good for the small business sector, good for the economy as a whole, and good for President Obama?

Yes, the creation and implementation of global standards in health and safety, pensions and environmental standards for industry and commerce. That will mean the creation of a genuinely level playing field at least in these matters.

A fully level playing field may be too much to hope for, because that would also involve imposing fiscal and monetary guiidelines for admitting countries to the WTO - and that may be too much to hope for. But if at least the minimum can be achieved, there is some hope.

Failing even that minimum, it does not matter how many "stimulus packages" are produced out of the thin air, the US will continue to lose investments and lose jobs - at present, primarily to China. Sphere: Related Content

1 comment:

JD Mays said...

The best thing would be for the second fiscal stimulus to be a spectacular failure. Perhaps then this type of thinking will receive the long-lasting repudiation it deserves and we can start addressing the problems that led us to this point in the first place.
The first stimulus only delayed the inevitable collapse and possibly will make any future collapse even worse.