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| Will the stimulus actually stimulate? Economists say no |
| 2009-02-13 |
| WASHINGTON — The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won't stimulate economic activity, according to a range of respected economists. "I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who's usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending. "It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits." House and Senate negotiators this week narrowed the differences between their competing stimulus plans. In so doing, they scrapped a large tax credit for buying automobiles that would've caused positive ripple effects across the manufacturing sector. They settled instead on letting purchasers of new vehicles deduct from their federal taxes the state and local sales taxes on the cars they bought. The exception to this is for buyers of plug-in hybrids, cars that run off a battery that can be charged at home or in the office. Buyers of these vehicles, available in very limited supply, could get a tax credit of up to $9,100. A Republican-backed proposal that would've provided a $15,000 tax credit to first-time homebuyers also was scaled back dramatically. Instead, the compromise provides first-time homebuyers a tax credit of up to $8,000, and it doesn't have to be repaid over the life of the mortgage. Incentives already in place offer buyers a $7,500 credit that must be repaid, so the bill is an improvement, but short of what many economists think is necessary. Another reason that some analysts frown on the stimulus is the social spending it includes on things such as the Head Start program for disadvantaged children and aid to NASA for climate-change research. Both may be worthy efforts, but they aren't aimed at delivering short-term boosts to economic activity. "All this is 25 years of government expansion jammed into one bill and sold as stimulus," said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group. The view wasn't much more supportive on the other side of the political spectrum. In a brief on the stimulus compromise, William Galston, a senior fellow at the center-left Brookings Institution and a former Clinton White House adviser, warned Thursday that a bank-rescue plan being finalized will make the $789 billion look like "pocket change." "While the stimulus bill is a necessary condition for economic stabilization and recovery, it is hardly sufficient," Galston wrote. "As the lesson of Japan in the 1990s shows, fiscal stimulus without financial rescue yields stagnation — at best." " . . . Serious observers believe that recovery cannot begin until we acknowledge that losses in the financial system amount to some trillions of dollars, rendering many institutions insolvent. The temptation will be to muddle along, hoping that these institutions can gradually regain strength without putting massive amounts of taxpayers' money at risk. If we go down that road, we are likely to end up with zombie banks whose balance sheets are riddled with near-worthless investments — banks that cannot lend to credit-worthy customers and who cannot trust one another," Galston wrote. With the economy in a tailspin, doing nothing isn't an option, however. "Something is better than nothing, and bigger was better than smaller in terms of the stimulus needed," said Chris Varvares, president of prominent forecaster Macroeconomic Advisers in St. Louis. "The economy needs a fiscal jolt." Even some proponents of a stimulus are disappointed, however. Harvard University economist Martin Feldstein, a former adviser to President Ronald Reagan, was an early supporter. He said that government is now the only engine left to spark economic activity, but he said that the compromise falls short of what's needed. "If the choice is between the current bill and an improved bill, I would say wait and improve the bill," Feldstein told CNBC on Wednesday after the compromise was announced. "I am disappointed with the structure of this bill." Like Yardeni and other analysts, Feldstein wanted more incentives for consumers to make big purchases that have ripple effects across the economy. When a car is purchased, it helps not only the carmaker, but its suppliers, the trucking companies and railroads that transport cars, the states that issue license plates and so on. Still, could this stimulus get the U.S. economy back on its feet? By itself, probably not. The stimulus plan, however, is supposed to work in tandem with new efforts by the Treasury and the Federal Reserve to rid banks of distressed assets that are poisoning their balance sheets, and with other federal efforts to halt mortgage delinquencies and foreclosures. Much will depend on the details of both federal attack plans, which the Obama administration promises are coming soon. There's also the problem of time. Much of the stimulus is to be spread over a two-year period or longer — and 2009 looks increasingly bleak. A Wall Street Journal survey of 52 mainstream economic forecasters published Thursday found that while most forecasters still think there could be slow growth by the second half of the year, that won't offset steeper-than-projected declines in the first half of 2009. That means this is essentially a lost year for the economy. Most scenarios envision the economy picking back up again next year. The president of the U.S. Chamber of Commerce, in a speech in Detroit Thursday, tried to put a brave face on the tough year ahead. Thomas Donohue acknowledged that big business didn't get in the stimulus bill some of the tax-relief measures it most wanted, but promised the Chamber's support. "The bottom line is that at the end of the day, we're going to support the legislation. Why? Because with the markets functioning so poorly, the government is the only game in town capable of jump-starting the economy," Donohue said. |
| Posted by:GolfBravoUSMC |
| #6 Forgot, Bank at a Credit Union, never at a Bank, keep very little in account use cash as much as possible. Keep credit cards either paid low or not at all, we have one in my wife's name for emergencies (None yet) Do not confuse credit cards with Check Cashing cards, very handy, I only write checks to pay bills far away. NEVER, NEVER SET UP A PAYMENT PLAN THAT AUTOMATICALLY PAYS SOMETHING ON A REGULAR BASIS Yep. I got burned that way, not again. |
| Posted by: Rednek Jim 2009-02-13 19:51 |
| #5 My Stimulus/Survival plan, 1. Whenever I go to the store I buy (Say) 2 cans instead of one, the other can goes into a pantry/survival food store 2. Likewise cash, an big manila envelope with "Emergency funds" printed on it gets half my cash. 3. No point in hording gas, when I did that my son found it and emptied it.keep the truck full and don't fill up until nearly empty. also keep a full 5 gallon can in the locked toolbox(doesn't use oil, so no reserves). Do carry water, also good for emergencies such as fires and when there's no water to drink That's about it. |
| Posted by: Rednek Jim 2009-02-13 19:43 |
| #4 (Along those same lines Besoeker...) My Stimulus Plan: Food Mortgage (for a house I can afford) Power Network (Internet, Phone, Cable) Clothing and Personals Water, Sewer, Garbage (for a clean house) Home Defense Budget (aka 'Guns and Ammo") |
| Posted by: CrazyFool 2009-02-13 12:48 |
| #3 My "stimulus plan." Victuals Gasoline Gas & Electric bills Trash Phones & Internet 2009 Hunting license |
| Posted by: Besoeker 2009-02-13 11:17 |
| #2 The segment of society most likely to spend the money, as said P.O. Investers say no as well. Every time they d!ck with the economy it resets my wait 6 months before investing because the gov is involved clock. Businesses (and shareholders especially it is their duty/responsibility), if they want to not be gov gimps, need to stop rearranging deck chairs and get involved against the GTA quick. |
| Posted by: swksvolFF 2009-02-13 10:56 |
| #1 Of course it will work. It will fill the DNC with lots and lots of pork bought support..... |
| Posted by: 49 Pan 2009-02-13 09:55 |