Stop the Calls for Consumer Spending Stimulus Packages

October 15, 2008 by  
Filed under Economics, Spending

Stimulus Talk – The Sequel 

The politicians are at it again.  Apparently forgetting the complete failure of this past summer’s “stimulus” program, our fearless leaders are determined to put even more of our tax dollars in the hands of even more consumers, so that they can promptly spend it.  Economic genius Nancy Pelosi and her friends have designed a new middle class “stimulus” plan to do just that.  This is populist craziness because it ignores the economic data showing that excessive consumer spending is what got us into this mess to begin with.

Consumers Have Excellent Spending Skills – No More Practice is Needed 

According to this report from Fortune, consumer spending represented 71% of our national gross domestic product in 2005 and 2006.  This is compared to less than 65% of GDP in 1980 and a 25-year average of 68%.  That’s an enormous increase.  It signifies that U.S. consumers have been drunk with spending.  Recession or not, they need to sober up.  In fact, U.S. consumers need to go into intense spending rehab, because most of that increased spending was financed with credit, not cash.  Giving these same consumers more money to spend is like giving a drink to a drunk.  It should not be done.  Now is the time for all of them to learn a new skill:  saving. 

The Tax Cut Option?  (I Can’t Believe I’m Writing This) 

If the economists are correct that we are (or shortly will be) in a recession, additional measures may be needed to counteract contraction of economic activity.  Fans of supply-side economics (remember the Reagan years?) will argue that more tax cuts are needed.  Mr. ToughMoneyLove just hates to oppose tax cuts in any situation but I have to concede that it’s really too late for tax cuts to work.  Moreover, a tax cut is just another way of putting more spending power in the hands of consumers who don’t need to be spending.  We do not need to increase the flow of shiny new SUV’s, plasma televisions, or trips to Disneyworld.   Realistically, even if the tax cut option would work, it is a non-starter in a Democrat-controlled Congress .

The Increased Government Spending Option?  (I’m Shocked to be Writing This) 

What option is left?  The other big fiscal policy weapon that the government has is increased government spending.  Wait a minute.  Did Mr. ToughMoneyLove really put that option on the table?  Reluctantly, I have.  But only if the increase in government spending is narrowly focused.  The government already spends way too much.  Everyone knows this.  The deficit this year will set a new record. 

What the government needs to do to stimulate the economy out of a deep recession is make a massive cash infusion into energy research and development and related infrastructure.  This means billions spent on:

            solar power research and solar panel farms 

            windpower farms 

            shale oil extraction technology and facilities 

            battery technology for electric vehicles 

            clean coal extraction and processing facilities 

            nuclear power plants 

The United States has achieved much economic status and power over the years through development and implementation of innovative technologies.  Our military is so powerful because we have been the leader in war fighting technology.  Technology development is one area of commerce where we collectively still own significant resources that can be immediately put to use.  

But now the war needs to be fought on a different front.  It is not only a war to save us from economic collapse but to achieve energy independence.  It is a war against OPEC, big oil, and the likes of Hugo Chavez.  We need new energy technology and we need to implement it now. 

I acknowledge that I am not saying anything new here.  What is new is that Mr. ToughMoneyLove – a true fiscal conservative – is pushing for increased government spending at a time like this.  But from a macroeconomic perspective, focused spending on energy technology should help all of us in the near term without pushing for massive increases in consumer spending.  And, if we can use that increased government spending to finally achieve freedom from the energy dictators and monopolists around the world, it will put smiles on the faces of all conservatives.  

The final benefit of using massive energy spending as a fiscal stimulus?  Legislators on both sides of the aisle can support it.  The Democrats will like it because it is spending (which they like to do anyway) and because it is for “green technology”, which is a phrase they really like.  If the Republicans can view such a program as part of a war against oil-producing governments who are pushing us around, then they can support it as well.  (Like me, they will hold their nose while doing it.) 

(I probably should admit here that I have a personal bias toward massive increases in spending on energy technology.  My day job as a patent attorney will benefit from such spending because the government should be patenting all of the new technology.  That way we can make other countries pay us for using it.) 

Can you support it? 

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3 Responses to “Stop the Calls for Consumer Spending Stimulus Packages”
  1. Sean says:

    I agree. We can fight two bubbles for the price of one.

  2. goldenrail says:

    Ok, I had to come back a bit to find this post, but it seemed the most relevant place to put this comment. That new technology you’re talking about charging other countries to use – China’s already asking for us to give it to them free.

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