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Friday, January 16, 2009

Another Quick Thought on the Spending Bill

I have reviewed the Democrat proposal more closely and have tried to find a silver lining. But I can't call this a Stimulus Bill and be honest, so I will call it a Spending Bill. There are a few reasons this bill is more detrimental than beneficial.

First and most importantly, there is very little incentive in here that would promote economic growth (a small amount of accelerated depreciation for equipment purchases, but given the overall cost of capital today, businesses are not going to spend simply because of this provision - in other words, very little incentive.) There is virtually no incentive to purchase stocks or other financial investments. In fact, because of the proposed mortgage cramdowns, people are more incentivized to sell any financial stocks they currently own.

Much of this bill are simply 1-time welfare payments that will help continue to provide poor people with more money. This does virtually nothing for economic growth. The bill actually promotes future local/state deficit spending by granting large earmarks for education, which will likely be used to increase salaries. It's great for teachers and bureaucrats, but it will also increase the ongoing budget requirements of state and local governments, which without more federal help, they will not be able to meet.

There is some Keynesian infrastructure spending (ie. new roads) which will provide a very modest boost. So for $850B we get a package of excrement that we could of had for less than 1/10th of the price. If anything, passing this proposal means significantly LOWER economic growth over the next five years. But the government bureaucrats win, as their role in the U.S. economy continues to get larger.