Monday, September 06, 2010

Burying America’s Future One “Shovel Ready” Stimulus Plan at a Time

With the administration slated to announce another $50 billion “shovel ready” stimulus plan today, Einstein’s oft quoted definition of insanity (doing the same thing over and over again and expecting a different result) seems more relevant than ever.

No… more infrastructure stimulus will not do the trick for our ailing economy but its proposal boldly demonstrates the incompetence of the current administration and the elites in Washington DC, continually focusing their attention on short-term gimmicks rather than formulating a real, confidence building, long term economic strategy.

Pumping money into “make-work” infrastructure projects may buy a little time for some construction workers and rebuild a few bridges, tunnels, airstrips and roadways but this “reinvestment” will simply play out against an overarching backdrop of eroding economic circumstances.

Today’s Keynesian boondoggles are simply formulated for short term “shock value” (and political calculation) and pay little attention to achieving any lasting economic vitality or regard for the unintended consequences that are nearly always the net result.

Case in point, the first-time “homebuyers” tax credit is reported to have cost about $24 billion but has been shown to have created no lasting improvement in new and existing home sales.

Worse yet, home prices nationwide are starting to erode again as the short-term boost from artificial stimulus gives way to the true anemic “organic” trends.

Over the course of the next year it is altogether likely that we will see home prices fall far enough to make most of the government’s “stimulated” home sales look like glaring financial mistakes as first-time “homeowners” sink “underwater” (owing more on a home than the home is worth) along with home values.

The government’s sham housing policy simply incentivized more Americans to become debtors, a particularly bad and ill-conceived policy during such fragile and uncertain economic times, and will likely drive additional foreclosures in the near future.

With results like this, it’s not surprising that the “summer of recovery” was a miserable flop but it is simply astonishing to see that stimulus gimmicks and “make-work” scams continue to be the de-facto “plans” offered by the administration and elites in Washington DC.