One of President Obama's accomplishments during his first 100 days was the passage of a $787 billion stimulus plan. I think the idea of economic stimulus makes sense when an economy is in the middle of a deflationary spiral. As I posted, that's when a drop in demand leads to excess productive capacity, causing companies to cut prices and fire workers, which in turn lowers demand as more workers -- whose consumer spending accounts for 70% of GDP growth -- have less to spend.
So far, only about 10% of the stimulus money has been doled out and it's not having much effect in counteracting this deflationary spiral. How so? First quarter GDP plunged 6.1% -- compared to a 6.3% decline in 2008's fourth quarter -- and the preliminary numbers are usually adjusted downward. The unemployment rate is expected to hit 8.9% in April from 8.5% in March.
Two prominent observers offer a mixed verdict on the $787 stimulus plan. Warren Buffett sees no sign of bounce in housing or retailing, but Paul Volcker sees an economy that is bottoming out and not in need of a second stimulus package. Since money started going out during the second week in March only 9.5% or $74.9 billion of the $787 billion has been paid out.
And it's hard to see how the money spent so far will stimulate the economy. For example, during the last week of April $15.4 billion of the $787 billion was distributed of which $14 billion (91%) went to the Department of Health and Human Services (HHS), which in turn passed that cash on to the states to pay for Medicaid. It's hard to see how those Medicaid payments will create new jobs though.
I'd rather see money going to programs like the Chinese government's stimulus plan which, in part, gave $2.9 billion for a 13% purchase price subsidy on Liquid Crystal Display (LCD) TVs for its rural citizens -- which as I discussed on MarketPlace this week -- boosted demand enough to force Corning (NYSE: GLW) to hire back 100 of the North Carolina LCD plant workers it had laid off. To be fair, the U.S. stimulus package has the potential to achieve similar benefits.
But so far, it looks like the only stimulus plan that's creating U.S. jobs right now is Chinese. And when you consider that China owned $744 billion worth of U.S. Treasury debt (topping all other countries at 23.5% of the total as of February 2009), it suggests that we have an opportunity to do an even better job of becoming economically self-sufficient.
So I'd give Obama an incomplete on his stimulus package -- but at the rate that the money has been going out it looks like it won't be completely spent for another 18 months. Nevertheless, I am hoping that the early stimulus spending will start to create U.S. jobs soon.
Finally, to show how that hope is turning into reality, I'd advise Obama to spend time each week talking about the new jobs that the stimulus spending creates.
Peter Cohan is president of Peter S. Cohan & Associates. He also
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Reader Comments (Page 1 of 1)
5-03-2009 @ 1:12PM
JCH said...
We are comparing with something that never happened, an America with no TARP and no stimulus.
I think TARP and the stimulus have had far greater success than most realize. Without them, we would have 20 to 40% unemployment and unbridled panic.
5-03-2009 @ 2:33PM
rab9 said...
What are you going to do when the money runs out? How many jobs can you create when you can't borrow any more from the Chinese. How long will it be before we can't borrow any more money and welfare, AFDC, Social Security, Medicaid, Medicare and all the other social programs don't have any money. What happens then...It will make the riots of 1968 look like childs play. The inner cities will be looted and torched and anarchy will rein.
5-03-2009 @ 2:36PM
Mathew said...
The problem with the stimulus is that a decent percentage is just tax cuts which historically have little stimulative effect (they have a negative ROI in some instances where the money is just saved). Obama's biggest mistake was expecting the GOP to be reasonable and have a fair debate. He came out of the gate with too much tax cuts and they didn't have a bargaining chip.
Additionally it is unfair to judge the first quarter of GDP when, as the article stated, the first money was spent in mid-March when there wouldn't be much time for the "multiplier effect" to occur. The infrastructure spending isn't going to start moving quickly for the next couple of months. So it won't be until the 3rd or 4th quarter where the impact can really be expected to boost the economy.
5-03-2009 @ 3:24PM
Bandit1716 said...
We have sure as hell spent a lot of money we didn't have to close factorys and lay workers off.
5-03-2009 @ 8:28PM
Bkanket Dave said...
Thanks alot, NOT.
Like Pres Obama is not on TV enough, too much, already.
He complained about tax breaks to Corporations ... so he just gives them the money? More than they pay in?
If he had given that money to the tax payers ... enough cars would have been sold that the Car Companies, Corporations, would not need stimulus. People could have avoided foreclosures. The economy would be booming.
B/c if there is one thing that Americans have in common with their Govt .... it is knowing how to spend money!
I do not have any idea, besides a couple of weeks of groceries, at best, that $250 will do. I am sure that is not enough to make a genuine difference in most lives.
Pres Obama has said that he does not believe in trickle down economics ... then why give the money to the wealthy, although poorly managed, Corporations? They are going to go bankrupt anyway.
Just throwing money away.
If Pres Obama is as smart as they say ... he will find a way to blame Pelosi. After all ... he can only blame Pres Bush so long.
If Pres Obama wants respect from those who oppose him ... I have 2 suggestions.
1) Accept what you have been given, what you wanted, as your own.
2) Tell that junkyard dog Pelosi to sit down and be quiet.
Blessings.
5-03-2009 @ 9:11PM
ij70 said...
It is too bad that Stimulus Package is not actually a stimulus package, just a name.
5-04-2009 @ 12:19AM
Mike said...
The only thing that HR.1 "stimulated" was government. House Democrats sold us a lemon, a bill that Congress had to rush through without even being given the chance to read. Thank you Nancy Pelosi.
5-04-2009 @ 12:37AM
jd said...
Bush/Obama, Obama/Bush...an idiot by any other name still reeks of arrogant stupidity. TARP is a massive failure as evidenced by the continuous "plugging of the holes" in the sinking ship that is the American economy. How much more should we allocate to GM, Chrysler, Citiwhatever, BOA, AIG, Fannie, Freddie, etc.? How much more are we going to promise in tax cuts to the "hard working Americans earning less than $250,000"? When are the really hard-working Americans earning more than $250,000 going to be appreciated as the economic engine of the United States? Just tell me that, Mr. Cohan.
5-04-2009 @ 2:01AM
ij70 said...
@ jd
Mr. Cohan can not tell you those things because he is not a politician. He works for a living :-)
5-04-2009 @ 3:15AM
Jennifer Schaus said...
Regardless if you agree or not with Obama's Stimulus Plan, the funding will trickle down to fed/state/local gov'ts & be awarded partially through contracts & grants. How can businesses capture some of these dollars? Those with the advantage are the current govt contractors, and specifically those that are GSA Schedule holders. For more info on how to win govt contracts, see http://www.PublicSpend.com/Blog
Jennifer Schaus
Washington, DC
Govt Contracts Consultant
http://www.JenniferSchaus.com
5-06-2009 @ 6:39AM
Imee said...
Great facts and statistics. I don't fully support Obama but I do believe he's making the good change he promised for the nation, although it's not as quick and snappy as a lot of people think.
IMEE
http://www.grants-online.com/