Obama Pitches His Stimulus Plan – An Assessment

February 10, 2009 by  
Filed under Economics

I tend not to watch Presidential press conferences because they too often are just left-over campaign speeches that have been condensed and re-packaged.    Nevertheless, I forced myself to watch President Obama’s press conference last night because it was his first as President but more important, it was his last and best opportunity to sell his stimulus plan to the American people.  This is my assessment of that attempt.

First, I was pleasantly surprised with the President’s grasp of the the economic issues and his ability to articulate them.  It is apparent that he was well-schooled by his economic advisers.  In particular, he brought up concerns that the U.S. would experience (economically) a “lost decade” as Japan did in the 1990’s.  This is something I wrote about in my discussion of Harry Dent and the demographic slide.  Unfortunately, if the demographic slide theory is correct, nothing that Obama does will prevent it.  That would be bad.

Second, I observed that that the employment objectives for the stimulus plan continue to evolve.  A month ago it was to “create” three million jobs.  Two weeks ago, it changed to create or “save” three million jobs.  Last night, the target became save or create “four million” jobs.   When one of the reporters asked the President to tell us what particular economic “metric” the American people should watch to determine if the plan was working, I waited hopefully for some clear and precise response.  Alas, it was not to come.  Instead, President Obama repeated the “save or create” line.  Someone please explain to me how we are going to measure how many jobs are “saved” by this or any other stimulus plan?

Third, I hope the President will not persist in his references to inheriting an economic disaster following eight years of failed policies.  I agree that President Bush and the Republican-controlled Congress were miserable failures on the economic front.  However, people seem to forget that the Democrats controlled the agendas in the House and Senate for the last two years.  Congress spends our money, remember Senator Obama?  I didn’t observe in those last two years any abatement of the borrow and spend tsunami from the first six years.

Fourth, please don’t tell us that we need to spend federal money re-building elementary schools and the like.  The President gave us the poignant tale of his visit to a run-down school in South Carolina that was built in 1850.  Those poor kids need a new school and we are supposed to buy it for them.  No.  What this tells me is that there are a bunch of cheapskates in some burg in South Carolina who have repeatedly (as in for 159 years) turned down requests to increase their property taxes and/or sales taxes to build a new school.  Now they want to pass the buck to the rest of the country.  Sorry – I’m not buying it.  Local schools are local problems and now is not the time to abandon that principle to curry favor with intransigent local politicians.

That’s my assessment in a nutshell.  However, I can’t end this without commenting on Helen Thomas, the former UPI White House correspondent who was allowed to sit in the front row again and ask a question.  Would someone please put this woman in the assisted-living center and leave her there?  Bless her heart, I know she is 89 years old but how about retirement?  I have never liked Helen Thomas.  Towards the end of her career (the part when she could utter an intelligible sentence) she proved herself to be the most partisan “journalist” in the history of the White House press corps.  Last night she strained to get out words that we could understand then started mumbling and rambling in some feeble attempt to ask a follow up, while the President was still trying to answer the first question.  Enough is enough.  Put a sock in it Helen.

Sorry, I had to get that out.  Now, what are your thoughts about the President’s pitch for his plan?

Image credit:  Kriss Szkurlatowski


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22 Responses to “Obama Pitches His Stimulus Plan – An Assessment”
  1. Ahead of the curve? says:

    Yes, I had the same reaction as you to the South Carolina school. My community in 2006 passed a huge bond issue to upgrade the schools and there’s been a lot of overdue construction and maintenance going on. However…..I live in the wealthy liberal paradise of Boulder, CO. We are happy to pay lots of extra sales taxes and so forth for open space, etc. etc. But what about poor communities? It’s not quite so easy, and you start getting significant local disparities in schools. Where is this South Carolina school? Is it in a historically poor black area? Is it so bad for the Feds to try to give a hand-up to schools that are in less privileged areas? God forbid we “spread the wealth” around, but evening things out a bit more seems to be a worthwhile thing.

  2. My Journey says:

    Ahead of the curve,

    I’ll never forget sitting in Con Law II, in a sea of liberals, including a professor who I thought disliked me because of my conservative/liberatarian views (he actually told me later on he liked me but hated starting fights in class lol) – when race and education came up as part of the con law cases surrounding affirmative action. This EXACT issue was raised.

    My response was simple, I would happily EVEN out the property taxes. Your wealthy county shouldn’t subsidize the poor county next door if they aren’t going to make any sacrifices themselves!

    Want to spread the wealth? Then lower your rates while raising theirs and THEN share.

    If you are paying 10K/yr and they are paying 1K where is the economic incentive to share? But, if we were to lower your taxes to 7K and then raise theirs to 4K you have the same 11K of tax revenue and now you are sharing

    End Rant.

  3. Andrea says:

    We have great schools in Douglas County (other side of Denver from Ahead of the Curve) and that’s why we chose to live here. But My Journey, if the people in the poor districts can’t pay $4k, what would you suggest? Screw ’em? Build the wall around your wealthy county and let the poor people fend for themselves? That’ll work out well.

    But back to the issue – I thought he did well, although (as usual) he was a bit longwinded. At least he didn’t smirk and wink and talk to the reporters who asked questions like they were stupid irritants to the King.

    Regardless of the issues involved with municipalities with crumbling infrastructure who perhaps spent their money in ways that you or I would totally disagree with in our infinite wisdom and understanding of the various issues facing every single town in the United States, I think it’s better that we spend some money on bridges and roads and schools and teach people some actual trades rather than send it off to the banks.

  4. Curve: Almost all states have granted themselves the power to take over school districts that do not perform. If that is the case in SC, the state should act, not kick the job up to the federal government. If counties and states do not control their own school systems, why do we even have state government?

    Journey: A lawsuit was filed some years ago in our state, mandating equity in school funding. The problem is we have way too many counties which creates tremendous inefficiencies in providing educational services. If you mention this to the counties, the local yokel politicians throw a fit. They want state money but insist on keeping the power.

    Andrea: Our state spends lots of money on bridges, roads and schools. We pay for it as we go because our Constitution requires a balanced budget. Then you have spendaholic governments in places like NY and Calif that are demanding that money be sent from our state to theirs. As I have said before, if you want my tax dollars to fix local spending problems, let me vote in those local elections.

  5. kitty says:

    @Ahead of the curve, @Andrea – forgetting the issue of local vs government for the moment, it’s not the issue if a particular project is worthwhile, but if it’s going to stimulate the economy and create jobs. This is what the bill is supposed to be about – to stimulate the economy NOW. Not in future, not 3 years from now, not when kids grow up – NOW. How is building a new school stimulates the economy now? How many jobs it creates?

    There are a number of worthwhile projects that can be done or need to be done, and there are probably a lot of schools in the US in need of repairs, but there is a limited amount of money. The economy is in a free fall, a lot of people are unemployed and a whole more people are going to be unemployed soon. Nobody is hiring, so there is little chance that any of these laid off will find a job anytime soon. Unemployed people don’t pay taxes.

    The economy is a more pressing concern, and stimulating the economy is the supposed purpose of this bill, not doing every needed project in every state and increasing our deficit with no real chance to get tax-paying people to work.

    This is the main problem with the bill – there is very little in it with any chance to create jobs or do anything for the economy.

    @TML: “Third, I hope the President will not persist in his references to inheriting an economic disaster following eight years of failed policies. ”
    So do I. Every time anybody mentions tax cuts – for those busunesses that actually employ people, for example – they keep saying how these policies already failed. As if it’s the tax cuts had any relation at all to the housing crisis. Every democrat in congress now seem to be forgetting how Reagan tax cuts got us out from 20% inflation and stagnation.

    I am neither republican nor libertarian. I am completely open-minded, and I sincerely hope that I am wrong, that I am missing something, and that this plan will stimulate the economy.

  6. MasterPo says:

    Journey is right. But it should also apply to income taxes. EVERYONE should pay something in no matter what your income. “Skin in the game”. Otherwise when you have people who pay no tax at all into the system they have no incentive to care about lowering taxes on those who do. In fact, they probably would be dead set *against* any tax cuts because that would likely reduce the government subsidies to them!

    ps- Please stop buying into this ‘Bush did a horrible job with the economy’ nonsense. That (usually) means you don’t like the Bush tax cuts. As an investor I hope you’re not serious.

  7. Andrea says:

    @TML – “if you want my tax dollars to fix local spending problems, let me vote in those local elections.” I’m sure my tax dollars have paid for some pork in your neighborhood. These kinds of statements are chest puffing silliness, imo, because sorry – that’s just the way our government works. There may be very, very good reasons why my federal tax dollars pay for another town’s upkeep in some way or another.

    @kitty – Building schools doesn’t just create a few jobs for the time they’re built, that’s short and shallow thinking. The jobs created include the people who build it, the companies who provide everything that goes into it, the teachers and staff who work there. I’m not going to get into a debate about the benefit of public schools or the problem with our educational system, but theoretically educating children should be something that a society WANTS to do, not something that it only does when it’s economically convenient to do so. Providing daycare assistance to people who can work or can go to school is good NOW. Teaching people a trade so that they can work when the economy does recover is good NOW. Building roads and bridges is good NOW. I have no idea what you’re even getting at when you say that we should “stimulate the economy” when you don’t think that creating jobs right now would be a stimulus. Should we just give everyone $20,000 so we can all buy big screen TV’s and recliners? Is that stimulus? Sure, I guess it creates jobs, but what it would more likely do is act asa nice little bailout for the banking industry as people got out from under debt. Woooo. Then the banks would get their bailout billions and then some.

    @MP – Tax cuts aren’t evil, but they’re not The Final Solution. Bush did do a horrible job with the economy, and it’s not just the tax cuts. It’s deregulation, it’s a war without a plan, and it’s ALSO tax cuts. The only thing worse than “tax and spend” is “don’t tax and spend.”

  8. My Journey says:

    I knew I’d have MP on my side…I think he is a fellow Long Islander.

    Andrea,
    In my VERY VERY humble opinion I think you are confusing macroeconomic factors in your response to TML. While a school is likely to employ people, these people may or may not be from a particular area that we are trying to get money into.

    Notwithstanding economic protectionism which I am not in favor of on a global scale much less my next door county, you are missing the often cited economic theory of Deadweight loss as it applies to taxes.

    Specifically, school BURN money and especially by me do they BURN cash. WHERE DOES THIS CASH COME FROM?! ME AND YOU and my outrageous property tax. So while, we created a job for some lunch aid at $8 bucks an hour, it really cost me $12 an hour out of my property taxes.

    “In further response to my original point,
    But My Journey, if the people in the poor districts can’t pay $4k, what would you suggest? Screw ‘em? Build the wall around your wealthy county and let the poor people fend for themselves? That’ll work out well.”

    What would I suggest? If they can’t afford the tax they will leave. Alternatively and a little more proactive would be to audit the poor school system lets look at the superindenent or equivilent head in the system making a couple hundred grand a year?

    @TML,
    How did that case work out? Where are you again, Tenn?

  9. doctor S says:

    I do agree he needs to drop the notion of the previous 8 years of failed economic policy. Move on already!

    I think the schools issue is something different. Not sure if you heard about Ed Rendell’s proposal to reduce 500 Pennsylvania school districts into 100. A little propostorous but I would love to hear your thoughts on it when you get the time. Iv been a ghost for a little bit Mr. TML but im back.

  10. Andrea says:

    @MJ – I knew talking about schools would be a bad idea. It’s such a loaded subject all on its own …

    People who can’t afford the taxes would indeed leave. And where would they go? What would happen to the areas they left and went to when they went? I don’t think you’re solving anything, just changing the location.

  11. MasterPo says:

    Andrea – Did Bush force people making $11/hr at Wendy’s to take out $300,000 no-money-down mortgages?

  12. Andrea says:

    MP – Gosh, no. Do you know such a person?

  13. kitty says:

    @Andrea:
    Again, you are confusing things that are good (now and always) with things that create jobs now. How many jobs is providing daycare going to create? You say that teaching trade is good now for the time the economy will recover” — how is it creating jobs now? Providing daycare is good – yes, if there is a job a mother can go to – but how many jobs it creates at this time?

    All this construction work does create jobs – many of them for illegal construction workers from Mexico. Even assuming the jobs will go to Americans, it’s not just construction employees that are unemployed now. I am sure all of these people who had desk jobs or manufacturing jobs building cars or banking jobs are going to become construction workers tomorrow.

    I believe in stimulating the economy – by providing tax cuts to businesses that actually employ people. Cutting taxes on businesses reduces business’ operating expenses thus improving earnings and saving jobs. But there is precious little of this in the bill.

    “MP – Gosh, no. Do you know such a person?”
    I read about a strawberry picker with an income of 19K a year who bought a 900K home. The idea was that a few of his friends will help him with payments.

  14. Andrea says:

    @Kitty – Thanks for your comments. I am not confused.

    And if a bank gave a man who makes $19k a mortgage to purchase a $900,000 home, that bank deserves to go out of business and definitely shouldn’t be getting any bailout money. And just as Countrywide had to pay a settlement to Colorado this week, the bank should be charged with predatory lending.

  15. My Journey says:

    @Andrea,

    Your point is exactly what I went to town with against my wife and the mother in law. They had your view, of “let the bank go out of business.”

    I am not sure if you have ever read my blog, but I am free market to the core, with a distate for gov’t being involved in anything (I wouldn’t trust Sen. Barney Frank with ANYTHING nevertheless my money). Notwithstanding, do you understand what would happen if you let Citi, BofA, JPMorgan go under? The answer is no cause no one does! REGARDLESS IT WON’T BE GOOD LOL

  16. Andrea says:

    @MJ – I actually don’t think that the big guys should be allowed to go under, which I’ve written about before on my own blog, I believe. People who think that should happen have no idea at all how much of the foundation of our economy is wrappaed up in those companies and they don’t want to know, they’d rather just shout out “let them fail, where’s my bailout?”

    But I would also be really shocked if one of those guys actually provided that particular loan. I’m going to have to look up the story. :)

  17. Andrea says:

    Here it is, excerpted:

    http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL

    … But the couple says they were assured them it was possible. “The monthly payment was supposed to be $4,800, but then after we bought it, it went up to $5,378,” says Rosa, speaking of their zero-down mortgage with a one-month “teaser rate.” “Our agent told us that once we refinanced, we could get the payments down to $3,000 or less.” For a number of months Avila, who arranged for the loan with New Century Mortgage, paid the difference between what the buyers had said they could afford — $3,000 — and the actual loan payment. According to the buyers, this arrangement was supposed to carry them over until the group refinanced.

    The money-saving refinance failed to materialize, and eventually, Avila stopped subsidizing their current mortgage. (According to my analysis of interest rates during the period, hitting the $3,000 number would have been virtually impossible under any circumstances. An interest-only $720,000 loan at a 5 percent interest rate [15-year fixed] yields a $3,000 mortgage, but such mortgage rates weren’t available to anyone, much less a laborer with low income, no down payment and no other assets. Plus, that doesn’t count another $750 a month in taxes and insurance.) The two families continued to make the payments, sometimes sacrificing basic necessities, other times borrowing more. “It was very difficult,” Rosa says. “Sometimes we would eat less, and we took out personal loans from Bank of America.”

    (Maria Avila and Rancho Grande Real Estate declined to comment. Earlier this month, New Century Mortgage, the nation’s second largest subprime mortgage lender, filed for bankruptcy. It’s also facing a federal criminal probe.)

    ……………………….. In other words, they were conned, the real estate agent should lose her license, and New Century Mortgage isn’t Citi, BofA or JPMorgan.

  18. Andrea says:

    And, before anyone says something like, “how could they be so stupid,” this is the case of a PREDATORY lender who took advantage of people who don’t speak much English, there was no requirement that they receive Spanish translations of the documents they were signing, the home was overpriced (the real estate agent did NOT act on their behalf, which should have been her obligation as their agent). These people were taken advantage of, they weren’t “greedy.”

  19. kitty says:

    @Andrea. I don’t at all disagree with punishing those responsible and not just for those who gave these ridiculous loans, but also for those who created CDOs (collateral debt obligations based on mortgage-backed securities) as well as those who rated these securities AAA even though they had subprime loans in them. In fact it makes me mad how many of them retired with millions.

    In terms of banks’ that should go under, do you realize that a)the large bank’s going under will have a huge ripple effect on the economy, credit availability (for businesses) and jobs? b) a bank is not a single person; bank’s going under means tens even hundred of thousand people losing their jobs where most of these people had nothing to do with lending. It also means stock and bond holders’ losing money including all of us who have banks as part of our 401K funds.
    It actually annoys me when people think about banks as individual people. A bank is not a person, and most of bank employees had absolutely nothing to do with lending or CDOs.

    Back to the subject of stimulus – I think some, but not all provisions may indeed stimulate the economy, and as someone working for a technology company, it might even benefit me. But from what I heard, most of the money will not even be spent this year when this year is what is important. Also, Pelosi and Co. keep saying how republican ideas like tax cuts for businesses don’t work when in fact they worked very well during the Reagan era after Carter left the country with a recession and double-digit inflation.

    I am also worried that this huge deficit spending by most countries is going to lead to our creditors losing appetite for our treasuries and bonds. This may lead to higher interest rates and high inflation at the time that we cannot afford it.

  20. Andrea says:

    @Kitty – I’m at a loss as to why you would assume that I don’t understand that a bank is not an individual. In fact, in comment #16 on this blog I specifically said that I don’t think the big banks should have been allowed to go under and said,

    “People who think that should happen have no idea at all how much of the foundation of our economy is wrapped up in those companies and they don’t want to know, they’d rather just shout out ‘let them fail, where’s my bailout?'”

    I cannot, however, understand the rationale of supporting a mortgage lender who would grant a $720k loan to a family of five making $600 during harvest times. And as I also mentioned in the above comments, in this particular case, it wasn’t one of the big guys. Sorry.

    BUT on that note – why do you think that lender thought it could get away with doing this loan? My bet is because it was sold immediately, then packaged with a bunch of other subprime loans and sold with a AAA credit rating as an investment. When you say that the people who created these CDOs should be held responsible, you do know that you are including the very same banks that both you and I don’t think should be allowed to fail, and that the bank’s involvement and indeed the creation of this crazy system that allows those products to be created and traded is the result of deregulation of the banking and securities industry?

    I only bring this up because on this blog, I seem to be in the minority when it comes to government actually taking a role in the financial markets. I get the impression, and I could be wrong, that most believe that the markets are king and should be allowed to operate without interference. Well, look around.

    And as to the stimulus – Reagan’s tax cuts were combined with extreme deficit spending. Which one really produced results?

  21. Christine says:

    I don’t know if that’s greed or stupidity, and certainly the real estate agent and New Century Mortgage should be punished for their own greed and stupidity. But really, I don’t care what nationality you are, did they really think, “all my friends/coworkers live in shacks on the crappy side of town, but this nice white lady says we can have this beautiful large house for almost a million dollars, and we can afford that. Wonder why our friends don’t do that?” come on…

  22. Andrea says:

    You’re right, Christine et al. I’ve realized that I’ve been dead wrong. The problem with our economy isn’t because people in certain industries took some deregulation and ran with it, it’s because some stupid, ignorant immigrants didn’t know their place and thought that when people in the real estate and mortgage business told them that it might actually be possible to attain the American Dream of owning a house, they were telling the truth. If only we could divest our country of these drains on society, these idiots who pick our mushrooms and strawberries for minimum wage (if that) so that we can get our produce at a reasonable price and still have enough money to pay for internet access, who would steal our bailout money by building our infrastructure so that we could drive to Starbucks without jolting our poor bums too much.

    It’s a darn shame. Those foolish, foolish people.

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