A Fearful America

The Labor Department announced that the unemployment rate rose to 9.6% as the economy lost 54,000 jobs in August.

Normally at this time in a recovery, unemployment is declining and GDP is growing quickly.

What happened? Businesses and investors have become very cautious about making new investments, whether in the form of spending capital on new factories or increasing expenses to expand operations or develop new products lines. With tax increases looming, the further socialization of the healthcare industry underway, an unprecedented monetary policy that stokes the fears of future inflation, the assault on the financial services industry through new legislation and its demonization by politicians and the media continuing, non-defense government spending running at unprecedented levels, the increase in the minimum wage pricing some workers out of jobs, and previously negotiated free trade agreements stalling in Congress, businesses and investors have many good reasons to be nervous about the future.

One manifestation of this fear is the mountain of cash that American companies are keeping on their balance sheets, at over $2 trillion in aggregate. In more optimistic times (i.e., during other recoveries from recession), companies would be rushing to invest that money, or return it to their shareholders to invest, which would be the most effective stimulus plan of all.

But that requires a confidence in the future that is lacking. Another "change" that we can thank Barack Obama for.

Your Dollars at Work

The Wall Street Journal reports that the Energy Department has spent only $2.1 billion of its $37 billion in "stimulus" funds.

If it is that hard to spend the money quickly, how about returning the rest to the Treasury and reducing the deficit by $35 billion? Moreover, with the economy showing signs of recovery, what is the rationale for spending this money, which apparently is so difficult to spend anyway?

This is just more evidence that the money is really about paying for various pet causes of the left, with "stimulus" as the excuse for getting it passed.

Productivity Growth

The Wall Street Journal reports that productivity has been soaring the past three quarters, averaging 7.3% growth. That is almost three times the 2.5% annual productivity growth the U.S. economy experienced from 2000-2008.

In short, employers are able to squeeze more production from fewer employees. This is a typical pattern during a recession as employers look to cut costs in the face of economic challenges.

To date, the increase in productivity has been greater than during a comparable period in the last recession in 2001 (see this data from the Bureau of Labor Statistics). This may be evidence that businesses are reacting to the risks they face due to Obama's policies on healthcare, global warming, taxes, and control and regulation of the financial and auto sectors.

If the future looks uncertain, it is easier and safer for a business to hunker down, cut costs, and conserve cash than invest for growth.

Such is the real nature of Obama's efforts to stimulate the economy.

Real Economics

This Wall Street Journal article on the negative impact of political uncertainty on small business activity illustrates the "anti-stimulus" actions that Barack Obama and the Democratic-controlled Congress have taken. Healthcare and global warming legislation suggest that businesses costs may increase in unpredictable ways, while the risk of increasing taxes takes money and incentives for businesses to grow.

On February 1, I laid out my own suggestions in this column for a proper plan to promote economic growth: cutting taxes, barriers to trade, and regulations without PR and legal assaults on businessmen. Instead, Obama and the Democrats have pursued the exact opposite strategy, inducing fear and uncertainty among the very businesses and people we need to feel confident to expand their activities and grow the economy.

The Anti-Stimulus

Johnson & Johnson announced layoffs of 8,200 people. This is just the latest announced job cuts in the pharmaceutical industry, where Pfizer (19,500 job cuts), Merck (15,930), and Eli Lilly (5,500) have recently announced job cuts.

Job reductions are unfortunately a normal part of companies and the economy more broadly reacting to changes in business conditions.

But one such changing condition is the assault being waged by the Obama administration and Democrats on the health care industry through its proposed health care legislation. If profits are tougher to come by, companies will cut jobs and costs to help offset their losses.

J&J went out of its way to say that its job cuts were not related to pending healthcare legislation, and while that may be true, it is certainly possible that they feel the need to say that as the company looks to garner favor with the government.

Think of it as a form of "anti-stimulus", with Obama trying to create public sector and make-work jobs with his "stimulus" bill while high quality private sector jobs in the pharmaceutical industry are lost.

The Pigs at the Trough Continue to Feed

Just when you thought the Obama administration might be running into bailout fatigue, think again.

The latest plan is to spend $35 billion to support lending to lower income people to buy homes.

The government has spent so much money on a myriad of bailouts, "stimulus" efforts, and increases on regular-way government spending, another $35 billion doesn't produce outrage.

But it should, as we perpetuate the policies that brought on the financial crisis: Federal Reserve created super-low interest rates and government subsidies for home buying. And all paid by people who work hard and pay taxes.

How to Harm the Economy and Our International Relations

The "buy American" provision in the $787 billion "stimulus" bill is raising trade frictions and harming businesses, as described in the Wall Street Journal.

This is just one concrete example of how the "stimulus" bill actually harms the economy, and is harming America's relations with other countries.

Do you think this what Obama meant by "resetting" our relationships in foreign affairs?

The Great Depression of 2008-09?

With Ben Bernake saying that recession is "very likely over", it is time to take stock of the politically-inspired fear mongering that has surrounded this recession.

The Federal Reserve pursued policies in 2008-2009 completely contradictory to those pursued during 1929-1933. In 1929-1933, the Federal Reserve reduced the supply of money, creating a huge deflation and destroying the financial system. In contrast during in the past 18 months, the Fed has flooded the economy with money, with a predictable result: the recession would end led by monetary policy.

But the Democrats saw political gold in creating the impression that the economy was in terrible shape, and with a compliant press, succeeded. It was a critical element to Obama's victory last November and to passing the "stimulus" bill, whose effects have barely registered and for which most of its spending has yet to take place.

Monetary policy, along with government led subsidies for housing, got us into the financial crisis and recession. Now it is getting us out of the recession. Obama deserves no credit for this since he wasn't the architect of monetary policy - that is the Fed's job, which is an entity independent of the executive branch.

Instead, Obama's spending extravaganza, raising taxes, nationalizing the auto industry, proposing radical changes to the healthcare industry, opposing free trade pacts, and promoting cap-and-trade all serve to increase uncertainty in the economy and slow recovery and growth going forward.

The Line of Pigs at the Trough Takes at Least Ten Years to Feed

The Obama administration published its estimates for the total government deficit for the next ten years: a staggering $9 trillion, an increase of $2 trillion over previous estimates earlier this year.

Since the "stimulus" bill passed earlier this year added $787 billion to the deficit, over $8 trillion of the deficit has nothing to do with the "stimulus" bill. Moreover, the administration assumes any healthcare legislation won't increase the deficit, which is absurd.

All of this indicates the monumental profligacy of Obama and the Democrats, as they fund their leftist agenda with a spending burden that will be a drag on our future growth and prosperity.

Economic Destruction

Barack Obama is literally pursuing policies that cause economic destruction.

The president touts his clunker-for-cash program, that gives up to $4,500 to consumers who trade in an old, gas guzzling car in return for a more fuel efficient one.

Obama thinks the effort is a great success, because of how quickly the $1 billion program is running low on funds as car buyers race to capture the $4,500 subsidy.

Of course people are using the program - it is a big subsidy to buy a car. This isn't success. Any good or service will experience increased demand if the government subsidizes it, particularly if the subsidy expires soon.

As example, if Obama wants to stimulate the depressed restaurant sector, he could provide vouchers which pay part of a meal. Same for struggling airlines and retailers.

Moreover, another impact is that some car buyers probably deferred their purchase during the time the program was debated in Congress and pending its start - which shifts purchases between months.

It is disturbing that Obama and the Democrats are surprised at the subsidy's impact. It confirms that their knowledge of economics is limited. And it also provides more evidence that they don't know what they're doing, since they shouldn't be surprised at the result.

Moreover, the program literally entails a destruction of wealth. The cars turned in have their engines destroyed, meaning either the car is destroyed or a new engine is installed at significant cost. It may be a shocking conclusion, but the destruction of assets does not help the economy.

Real Stimulus

The WSJ article on the building of a new military vehicle illustrates that defense spending is "stimulus" spending too, according to those who believe government spending "stimulates" the economy.

As I discussed earlier (see here), one of the few categories of spending that didn't increase in Obama's "stimulus" plan was defense spending - despite the wear and tear our military equipment has incurred in the wars in Iraq and Afghanistan, and despite the fact that the military has long-range plans to acquire weapons that could be accelerated in an economic downturn to provide jobs today without increasing government spending over a longer-term budget cycle.

And the fact that such spending didn't increase, gives the lie as to what the Democrats' plan was all about - spending money on Democratic constituents and priorities.

Joe Biden's Whopper

Joe Biden routinely says outrageous things, often to the embarrassment of Barack Obama.

Biden recently said that the Obama administration underestimated the extent of the recession, and by doing so, undersized the "stimulus" plan.

Although it is tempting to think Biden spoke carelessly, as he often does, in this case I suspect this might be a trial balloon, to test the notion of a second "stimulus" bill.

But on substantive grounds, Biden's comment is astounding. When is $787 billion in "stimulus", and nearly $2 trillion in deficits, anything other than massive "stimulus" in the eyes of those who believe such actions stimulate the economy?

Recall that the recessions in the 1980-1982 period had higher unemployment than today, but the government had no "stimulus" plans passed, other than the real stimulus of Ronald Reagan's tax cuts later in that period.

And it is true that this wasted government spending is not that helpful, and is often hurtful, to economic recovery. But that argues for different steps, such as cutting tax rates and passing free trade bills, to promote economic growth.

It also suggest that the Obama administration realized the "stimulus" bill was more about satisfying Democrats' desire to pay off constituents than stimulus, since they didn't believe the economy would do all that badly.

Where's the Stimulus?

The Commerce Department recently reported that the personal savings rate jumped to 6.9% in May, up from 5.6% in April. Analysts have attributed the increase partly to government payments to senior citizens under Obama's "stimulus" plan.

But if people save the "stimulus" money they get, it isn't doing what the advocates of such "stimulus" spending hope for - which is for consumers to spend the additional income.

Instead, if people save the money, they are offsetting the borrowing by the government to pay for the "stimulus", negating its impact.

But it's no big deal; it isn't as if we just spent $787 billion on the "stimulus" plan.

Change in Plans

As of May 22, the government had spent only 5% of the $787 billion in "stimulus" money.

This is consistent with the fact that the "stimulus" bill passed in February had a relatively small portion of the money spent this year, and large amounts spent over the next 5-10 years. Whatever the merits of such spending in general, and I'm pretty dubious of it as are many economists including some of Obama's advisors in their work before joining the administration, there is no "stimulus" benefit unless it is spent immediately.

Federal Reserve Chairman Ben Bernanke called on the government to reduce its staggering $2 billion budget deficit, due to the risk of higher interest rates choking off economic growth.

So here's an idea: cancel the rest of the "stimulus" plan and save $750 billion.

It will calm markets that the deficit will come under control which will reduce inflation fears and lower interest rates, and since so much of the money is to be spent in out years rather than this year anyway, it won't retard the recovery.

Democrats Outsource Jobs

When the Obama administration and Congress approved the "stimulus" bill in February, the plan included new limits on the ability of TARP recipients to hire foreign workers who need H-1B visas.

The idea was to force the tarped firms to hire more American employees.

But the firms had already made numerous offers to hire foreign college and MBA students who attend U.S. schools, and since rescinding offers is both unethical and bad for one's reputation, the firms have come up with a solution.

They are moving the new hires to overseas offices.

Aside from deflating the pursuit of the American dream for such talented people, look at the result: the Democrats are sending high-paying jobs overseas which further erodes our domestic financial services industry. And those employees will now spend their money in foreign economies, rather than providing much-needed business to, and jobs with, American firms.

Nice work by the Democrats in outsourcing all of these jobs.

Mr. 7%

After the $787 billion "stimulus" plan passed, the Wall Street Journal reported that government investigators estimate that 7% of government contracting is wasted due to fraud.

Interesting how that story came out AFTER the bill was passed.

That's suggests up to $55 billion may be squandered.

And people are worried about the AIG bonuses? This is taxpayer fraud on a vast scale that dwarfs any bonus payments someone may not like.

The difference, of course, is that many of the activists who protest such bonuses benefit from government spending and don't mind, or hope to benefit from, the government spending - waste and all.

Prisons and Stimulus: Perfect Together

The recent murder of four Oakland, CA police officers by a man wanted for violating his parole highlights a problem that is likely to grow with increased Democratic control of government.

The left has been fighting for years to reduce the prison population in the U.S. by various means, including arguing that prisons are overcrowded. One "success" of such efforts has resulted in a panel of federal judges tentatively ordering California to release 50,000 prisoners, over one-third of the total, due to concerns over-crowding has led to a lower quality of medical care.

One of the key factors that has reduced crime in America in the past 15 years has been the greater number of criminals behind bars. If a criminal is in jail, he isn't committing crimes against the broader population. It's simple: release criminals, increase crime.

So here is a solution: build more prisons. The government should do that anyway, good times or bad, to enable it to carry out its fundamental job of protecting us.

But with all of this "stimulus" money sloshing around, such construction activity would be a form of "stimulus" that would be useful, by keeping criminals behind bars.

Funny how that kind of spending didn't get increased, to my knowledge.

Along with the lack of increased military spending (see here), the lack of additional spending on prisons to prevent criminals from being released early illustrates perfectly that the Democrats "stimulus" plan is really about funding its pet social and welfare causes.

The proper role of government is to protect citizens from criminals and foreign threats. The Democrats are defaulting on their responsibility to do just that, while focusing on wealth redistribution and "saving" the environment.

Stimulus Spending that Makes Sense

The Democrats' "stimulus" bill that recently passed was noticeably short on added spending in one area where the extra spending could be effective and not increase deficits over the next five years: military spending, particularly arms procurement.

The military plans to purchase weapons systems over time, so a sensible stimulus plan would have been to accelerate weapons purchases that would occur anyway. This would expand defense contractor' employment today, at the cost of such employment several years from now when presumably the economy is recovering.

Moreover, the spending would be on goods that we were planning to buy anyway, as compared to squandering our tax dollars on politically attractive projects or spending for spending's sake.

There is no stronger evidence of the "stimulus" bill being a vehicle to spend money on Democrats' pet projects, causes, and constituencies than this.

Do as the Europeans Do?

In America, the left often uses policies that predominate in Europe as an argument for their introduction or expansion in the U.S.: national health care, labor regulations, and the death penalty top the list.

But when it comes to "stimulus" spending, Europe has taken a much tougher line than the Democrats' spend-till-we-drop approach. The leading European nations have announced "stimulus" plans that are a much smaller percentage of GDP that America's.

Don't hold your breath for our left to suggest we mimic Europe in this regard. In fact, the Obama administration is pushing Europe to spend more, but those nations are resisting such entreaties out of a concern that spending sprees won't do much good but will increase their debt burdens.

Pork Has its Privileges

The Senate voted 62-35 to pass the pork laden, $410 billion spending bill.

Unfortunately, eight Republicans voted in favor of the bill (see who the eight are here); without their support, the bill wouldn't have received the 60 votes necessary to pass. In addition to billions for earmarks, this latest money grab represents an 8.7% increase in discretionary spending over last year - at a time of no inflation.

The spending spree continues, and while most Republicans are doing good work in opposing it, this bill and the "stimulus" plan wouldn't have passed with some Republican support.

Being a Democrat-lite won't help the Republican party regain political support.