Thursday, May 28, 2009

No Faith in the Great Healer

As I started eating my healthy, home-cooked lunch today at my desk (Hooray, Mrs Citizen Zane!), I took a look at Yahoo and came upon this article where President Obama is starting to claim some credit for the economy looking like its finally hit rock bottom and headed toward recovery.

Whew, the Great Man has pulled us back from the brink! Good for Him. Actually, I think that the President is in an enviable position right now. If anything happens to go right in the world, he can grab all of the credit. Anything that turns out poorly...well, that was a President Bush mistake. Imagine having that situation at your job? If you were an investment banker, you could lose a billion dollars on sub-prime mortgage backed securities and still get an 8 figure bonus while pointing to the guy who held your position the year before. Hmmm, I've heard that story actually.... I imagine about 25 years from now, some Democrat president of the future will still be blaming Bush for not reforming a bankrupt Social Security system or something along those lines. Hopefully, Dick Cheney is still ticking so we can get some comedy relief out of his inevitable response.

Anyway, forgive my skepticism about the economy being "rescued" by the government, but I just don't see how all of this out of control spending is going to lead to a lasting economic recovery. I am a regular reader of Bill Fleckenstein on, who I have found to be remarkably insightful about the markets and macroeconomic environment. Recently, he posted some material from Jeremy Grantham, where the author predicts a VL shaped recovery, "in which the stimulus causes a fairly quick but superficial recovery, followed by a second decline, followed in turn by a long, drawn-out period of sub-normal growth."

Why subnormal growth? Because government stimulus doesn't magically appear out of nowhere and enrich us all. It comes from taking wealth from citizens and companies and using it to pay for government projects and programs. Maybe I should take that back...the current plan seems to be to print more money...but I regress. Anyway, what happens is that the real producers and innovators are pushed aside by the government, which picks its champions based on political agenda, not on merit. When the government takes a bigger bite out of my boss's earnings, he has less opportunity to hire another worker to generate even larger income. He may go to the bank for a loan, but the government needs to borrow and is sucking up money that would otherwise be available to lend. Is this making sense? I stumbled across this article that articulates much better than I...

The bottom line is that all of this government stimulus does not produce steady economic growth because it is not sustainable. Creating a bunch of new government jobs will juice things for as long as the stimulus keeps those jobs going - and then it will be gone. I like the idea of the government stimulating the economy with long-term investment projects in PRODUCTIVE activities that will generate benefits later, such as the power grid, bridges, roads, etc (sounds like somebody's campaign promises). The current administrations plan to invest in energy is also excellent in principle, but I fear that we will get carried away in the search for green alternatives that have dubious prospects and ignore nuclear and fossil fuels which we know work. Let's be honest here and not liberal dreamers, we still need those fuels to carry us for the foreseeable future.

If I thought that the stimulus money was actually going toward legitimate investment projects to be filled by open bids from private firms, this blog would not exist. Unfortunately, I am pretty dang sure that only a small percentage of our money will be well spent. The vast majority will be slop for the hogs who keep the Democrats in power. The resulting debt of course will be shouldered by you, me, our children, their children, and anyone with the audacity of hope for self-made success - Citizen Zane

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