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.

Paul Krugman on Stimulus

Here is some interesting listening from Wednesday’s On Point with Tom Ashbrook featuring economist Mark Zandi, WSJ reporter Sudeep Reddy, a couple of political junkies and finally Paul Krugman.

The portion of the segment that I found most interesting starts at about 30:30 where, in response to a pretty comical caller from Essex Massacusetts, Krugman suggests that there is no difference between job creation that comes as a result of private industry spending versus government spending.

“Under what possible argument can you say that if businesses go out and spend a bunch of money, that will create jobs but if government goes out and spends a lot of money that does not create jobs?… putting the money to use is what we want to be doing.”

Clearly Krugman believes that capital and resources can be just as relevantly (and possibly as efficiently) allocated by the command and mandate of the elites in Washington as by the dynamism of competitive markets.

In a sense he is stating his belief that the private and public sectors are effectively interchangeable. If the private markets don’t want to reinvest and spur on production then the government can simply step in and fill the void.

I suppose this is just the typical thought process of a Keynesian but still hearing it voiced so simply seemed to me to be a bit revealing.

If government can really create jobs that are just as relevant as private sector jobs, why have a private sector at all? Why not just have bureaucrats allocate all the jobs? Who needs CEOs and boards of directors and shareholders with all their private profit motive? Why not just put politicians in charge of the whole shebang?

Krugman has obviously not truly thought this one through.