Spending nearly a trillion dollars in borrowed cash isn’t bold. It’s foolish. And it only adds to a growing national debt that is the real albatross around our neck.
Let me get this straight: With the new stimulus bill signed by President Barack Obama this week, we’re borrowing more money so we can spend more money to generate more spending of money so that we’ll have more money to spend — when this started with spending money we didn’t have in the first place.
Forgive my ignorance, since I’m not a trained economist, but that sounds ridiculous to me. My skepticism is only bolstered by the fact that the Bush Administration’s similarly gigantic stimulus package did nothing to stimulate the economy.
With Obama’s stimulus plan, we’re talking about $787 billion (click here for a breakdown). His plan may be more liberal in where it directs money than Bush’s, but that doesn’t necessarily mean it has a better chance at actually doing anything to stimulate the economy.
There are significant differences between the two stimulus packages. The first was designed to insert cash into the economy through the corporate sector by tossing a bunch of borrowed money at the banks. The second is designed to insert cash into the economy through government by tossing a bunch of borrowed money at federal agencies, states and cities.
Both also gave a little bit of money directly to people through rebates and tax cuts. But only a little.
Certainly, the Obama stimulus plan is huge. It’s definite action, an attempt to do something to fix our sinking economy at a time when many economists and politicians would have us believe we already have one foot hanging over the cliff.
But is it the right kind of action?
A bold move in California
Consider the situation in California, where lawmakers were unable or unwilling, until this morning, to work a compromise that would close a $42 billion budget gap through budget cuts and tax increases. California, unlike the federal government, is legally required to balance its budget, so lawmakers’ three months of inaction led the state to the brink of insolvency. That forced Gov. Arnold Schwarzenegger to take bold action: He announced that he was prepared to lay off 10,000 state workers and cancel a number of public works projects originally deemed uncutable because stopping them would either waste money that has already been spent or would be detrimental to health, safety and welfare.
That was bold. Unfortunate, but bold.
Schwarzenegger shouldn’t have to unilaterally decide where to make cuts to fix California’s budget. It’s a good thing lawmakers in that state finally got their act together, because their willingness to finally OK painful budget cuts and tax increases today should avoid the layoffs Schwarzenegger planned.
But that state’s Legislature only acted when the situation became so dire that it had no other option. Lawmakers didn’t want to make the difficult choices to cut waste, cut valid programs and raise taxes.
Regardless of what they wanted to do, it’s what had to happen. It’s the current reality. Plenty of other states, including New Mexico, are in the process of making similarly painful cuts, and many are also considering tax hikes. They’re taking the right action, as Schwarzenegger was willing to do in California if lawmakers there didn’t act.
But where are the federal cuts? The federal government is bloated with waste. Part of the solution to this economic crisis has to be government cuts. Waste must go. Obama’s plan isn’t bold because it doesn’t address that reality or even recognize it.
Unfortunately, in these times, a tax increase should also be considered. Fewer people have the ability to pay taxes right now, so cutting government programs must come first, but a tax increase might be immediately necessary in some instances to make ends meet and later to help pay down the federal debt.
The real albatross
There are certainly some good provisions in Obama’s stimulus plan. Funding for alternative energy is important. Money that will go to fixing old schools and building new schools helps avert a crisis that was about to strike school districts across the nation. But money doesn’t grow on trees, even though that’s essentially the attitude the administration is displaying with its plan.
The funding will be available for the stimulus plan because we are the most powerful nation in the world and no one is going to stop us from spending money we don’t have. That makes it easy to spend.
But spending nearly a trillion dollars of money that doesn’t really exist isn’t bold. It’s foolish. And it only adds to a growing national debt that is the real albatross around our neck.
Bold would be surgically removing the fat in the federal government and also considering the possibility of raising taxes to pay for the stimulus and balance the federal budget. Few in Washington want to do that, just like lawmakers in California didn’t want to do it there. But it’s necessary. Don’t you have to stop digging before you can begin climbing out of a hole?
Schwarzenegger showed boldness with his willingness to make cuts in the only way he has the authority to unilaterally do. Bush needed to show similar boldness in his last months in office, and he failed. Obama, in his first major effort since becoming president, has also failed to enact the change we need, choosing to instead prop up our unsustainable borrow-and-spend economy. He still has time to act boldly, but until he does, I doubt that any stimulus plan is going to do much to turn this ship around.