Titanic Stimulus Two – This Time For Sure!

One $Trillion Didn’t Work, so Half or a Third That Is Stronger How?

OK, today the POTUS Pontificated. It was supposed to be a policy speech of about 20 minutes addressing the economy. Instead it was a political “stump speech” of significantly longer. The net-net of it all is another $1/2 Trillion of “Stimulus” (per some sources) or $1/3 Trillion per others. “Throwing good money after bad” comes to mind…

I have a regular phrase I use for when a political menial in some government or other says something dumb that causes investment there to be a Bad Idea. “The Ministry Of Stupidity Speaks”. Usually it is a low level minister of some sort or other. Like the time a finance minister in India said they might put controls on foreign investments and had a few $Billion per hour flood out of their stock market causing a ‘flash crash’ all their own. In this case, it’s the Minister In Chief who has “had a stupidity moment”.

Some Details

The one that gets me the most is the $50 Billion for roads, rail, runways, and, er, “expanded broadband” – the internet? Pardon me, but how did the internet get into that part of the speech? And isn’t the internet already running rather well on private investment? Maybe AlGore needed some patent payments for his invention of it…

So, mr. “Energy Prices must necessarily skyrocket” who is doing every thing he can to kill the American oil industry is going to sink $50 Billion into roads, rail, and runways that all depend on, yes, oil. Sooo…. after they are built we will all just sit around and look at them, remembering the good old days of gasoline, diesel, and kerosene? The hypocrisy and internal conflict of these positions is not tangible to POTUS?

And this is going to ‘stimulate’ the economy in the next couple of months? Um, Mr. Prez, it takes that long just to FIND all the environmental impact forms and permit applications, never mind fill them out and file them… And THAT only gets to begin after the planning is done (that can take a year or two for the engineering and financial design and design reviews). So, if we’re lucky, in about a year we MIGHT have some spending on actual construction work… demolition of the existing structures and surfaces. Someone needs a lesson or two in Project Management and Lead Times.

But Wait, There’s More!

This was wrapped up in a context with all the “construction” jobs that were lost. “One in four construction jobs were lost” in the housing collapse so he’s focusing on roads, rail, and runways. Someone needs to clue him in that roads and runways are built by large paving machines, not painters, carpenters, plumbers and roofers. (But it will be good for large aggregate producers, cement companies, and major construction companies like Granite Construction who own that equipment.)

And do we REALLY need more airports, trains, and freeways? A 6 year plan? Can you wait 2 or 3 years for that “stimulus” to pay the rent? Are you ready to be retrained as a pavement layer? While the bridges will be a nice gift to the iron workers union, it will come at the expense of the waitresses and janitors, factory workers and secretaries who’s taxes and savings (via inflation consuming their value) will be used to pay for it.

And, when done in 6 years, what will be used to FUEL the vehicles on those roads, runways and rails? News Flash Mr. Prez: Trains in the USA run substantially on Diesel, Trucks and Cars run almost entirely on Diesel and Gasoline, and commercial airplanes on kerosene. That’s OIL. The stuff we won’t be pumping as the drilling rigs are being run out of the gulf. There are 10’s of thousands of US jobs in oil drilling and processing that are being run out with them. Far more than will be needed to pave roads.

And with what will those roads be paved? Asphalt? (Made from oil) or Cement? That cement emits LOADS of CO2 in the making, so can not be made if the Cap and Tax plan and CO2 reduction happens. So when you ban CO2 emissions, from where will your paving materials come? China?

Expensing Capital Investments

This bring me to the point of the expensing of R&D and capital investments. While a good thing for profits, the notion that it will cause a lot of factory jobs to materialize is a bit daft. It made sense in 1960 to 1980 when the USA manufactured just about everything a business bought. But today? News Flash: China is the manufacturer to the world. Money spent on “stuff” is going to China. Take a look at the “made in” stickers. Cameras, lab ware, notepads, pens, scales, even computers. Made In China. Even folks like HP and Dell use boards made overseas. (Many are still made in Taiwan, but officially we have a ‘One China’ policy…) Semiconductor fab left for Asia decades back. Light bulbs and fixtures? China. This week, BMW announced they were sourcing more parts from Korea. Yes, even your BMW will have Korean parts in it.

Frankly, other than buildings themselves (where we recently learned the sheet rock was made in China as some was having toxic emissions), there is little that is not sourced from overseas. Steel and aluminum too. (Yes, we do have some steel and aluminum made in the USA, but the industry is rapidly moving to lower cost locations as plants wear out. Aluminum is DIRECTLY tied to the cost of electricity, so as ‘rates necessarily skyrocket’, that will shut down in the USA.) So exactly who’s economy will be stimulated by writing off expenditures by businesses? Mr. Prez, we need to have emphasis on MAKING things in the USA, not just BUYING them.

Batteries, Solar Panels, and Electric Cars

There were words about the need for America to have a lock on advanced batterys, solar cells, electric cars, and windmills? That is Obama’s hope… News Flash: The major solar panel makers are already in China. Major wind turbine makers are European, though China is gaining fast. Electric cars? China has announced the intent to dominate that field and is already making them. They are being imported to the USA. Batteries? With the EPA / OSHA rules here? Good luck… Major cell makers are in Asia already and they show no signs of packing up to move here. Maybe you meant loading cells into carriers to make a ‘battery’?

Look, the idea that any particular THING being made grants ECONOMIC advantage is a farce. A fantasy. If you are non-competitive at making gasoline cars you will be even more non-competitive at making electric cars. If you can’t make an economical computer motherboard, you can’t make an economical solar cell either. There is a reason all that work is done in Asia.

So get a grip. China has mercantilist policies and currency manipulation and predatory monopoly practices (and more) that it is using to gain a PERMANENT advantage in manufacturing. Then, and only then, it will raise prices. And then you can do nothing. In one city, the government built a sock factory sized to produce ALL the socks in the world. Do you really think any socks will be made in the Carolinas in the future? And when (and it is a ‘when’) they have a factory sized for total world demand, exactly how will a small start up get enough economies of scale to ever displace them? That is when prices will rise and you have a choice of buying from them, or not buying. It’s called “monopoly practices” and in the USA it is illegal. “Predatory Pricing” writ large. If you don’t fix that, you can kiss goodbye to the idea of making anything here. And that includes ‘clean energy’ devices.

Fantasies about “green energy” will not fix the economy and will not deal with China. It won’t even make any jobs or tax revenue.

Illusions of Prosperity and Clinton Years

One of my favorite bits of Schizoid behaviour was the part about ‘Illusory Prosperity’ in the past, yet also the assertion that the economy was robust and profitable under the Clintons. Please, pick one. Those were the same years. So was it a Camelot of economic perfection, or was it illusory? It can not have been a robust and profitable growing economy under the Clintons due to higher tax rates, yet ‘illusory prosperity’ due to market games by evil capitalist markets.

The general demonizing of business and markets was very revealing of attitude, though. The answer, per Obama, is for the government to do for us “what we can’t do better for ourselves” (which in his view seems to be everything done via markets).

Unstated was that the Clintons got this real estate bubble going with the CRA and crazy loose lending standards and collected taxes on all the capital gains of that bubble. They also got ROTH IRAs going (a good thing) but collected a one time windfall of taxes as $Billions (or $Trillions?) were converted to ROTH IRAs and taxes paid. Further, they rode the Tech Bubble to loads of capital gains taxes. So I’d lean a bit toward the “illusory” side, but the fact is that the bubbles were formed under Democratic Oversight. They have substantially owned the congress during all those years, and the white house in many. Some day I may post the gory details of which laws were written by whom, but it comes down to the CRA for housing (with some adjuncts) and the financial ‘reforms’ of the era. It is astounding revisionism to say the Republicans wrote all the laws of that time and removed all the regulatory mechanism. (They helped vote, but it was not their congress when the CRA was passed and Glass-Steagall repealed. )

Yes, the Republicans screwed up in accepting that spending could rise WITH the tax cuts. Taking half a loaf. (The only thing worse than Democrats and Republicans fighting each other is having them work together, it would seem…) Yes, they ought to have demanded the spending cuts too.

The answer to the present budget mess is NOT to raise taxes, but to cut the spending. Look, the American Public is broke. The credit cards are full. The home has no equity. They have no jobs, or lousy paying jobs, in most cases. So you can not get any money from them, it just isn’t there. You are putting all the added spending on the Chinese Credit Card as they buy Treasuries, but they are cutting back. The Chinese Credit Card is about to be cut off. If you don’t ‘get that’, you will when we hit the wall.

And guess what? Adding more GOVERNMENT jobs does not give you any more TAX revenue. They are paid from taxes, so any ‘income tax’ you take from them is just a pay rate cut, not net taxes. So add all the government jobs you want, that will NOT improve things. No new net tax revenue comes from them, and no net wealth is created to ‘redistribute’. You are shrinking the base that does create wealth and tax revenue. This game leads to collapse. Please stop.

Taxing companies more just sends more of the jobs to China (and the wealth creation and tax base with them). You are past the top of the Laffer Curve and headed down the dark side. As you tax more, you drive more companies out of business and create more unemployment and get less tax revenue. That’s the spiral decent into hell we are on now, and you, Mr. Prez are driving the bus. Our prior market driven prosperity was not “illusory” (look at the Reagan years as an example of real wealth creation and prosperity).

Pandering To The Mob

There was a fair amount of time spent pandering to the mob. Tossing loves of bread to the arena. “Tax Cuts For The Middle Class”. Using “budgetary Pressures” as a lever against the rich. Pardon me, but who’s spending of $Trillions has brought about those “budgetary pressures”? Hmmm? Like the kid who kills his parents then demands clemency since he is an orphan. This, dear Sirrah, is a bald faced fraud. Cut The Spending and stop taxing EVERYONE. If you don’t, you will get less tax revenue, not more. That’s what we learned back when the rates were cut in the first place. Revenues went up then, they will go down now.

In pushing for the ‘tax the rich’ policy, emphasis was on ‘spending the money’ by poorer folks. And which of them will employ a person? Invest in building a new business? Mr. Prez, you NEED rich folks to do the investing we need. SPENDING is not our problem. Lack of INVESTING is our problem. Spending on clothes and stereos will give a gift to China (where all that stuff is made) not add jobs in America. It is a simple truth that poor people do not invest. Rich people do. If you tax the rich more, and give more money to the poor, you get less investment ( and that means less wealth creation and fewer factories and jobs… and less taxes) and more consumption ( mostly of things made in China these days). Once you have eaten your seed corn it’s hard to plant next season.

SIDEBAR: I have no great love of the rich. I’m not one. I’m presently unemployed and do not have a great deal of money. I came from a poor background and my sentiments run with the very poor. But I also know enough about economics, and that the laws of economics are just as immutable as the laws of physics, to understand that the best way to help the poor is to let the rich create companies and make a profit. If it were up to me, I had have all taxes be ‘flat rate’ applied equally to all. After all, 10% of a million dollars is a lot larger than 10% of $10,000. A flat RATE is a progressive tax.

So please, stop punishing the folks who create jobs and wealth and already pay most of the taxes paid. Then they will get back to the job creation, wealth creation and tax paying. The longer you bash them, the worst things will get.

In What Order?

Finally, we had the line about AFTER the “stimulus has worked” he will “work to” reduce the deficit. Riiiight… First an unattainable predicate, then an action that has no deliverable.

Classic.

And after I’ve made a $Billion Dollars I’ll “work to” pay some taxes? Does that “work for you”? How about if I have to pay my taxes up front and unconditionally, you reduce the deficit up front an unconditionally? That works for me.

So much back-assward in one speech. The depths of economic ignorance is stunning.

I’m beginning to think it ought to be mandatory that every politician run a hamburger stand for a year and live on ONLY the profit… And not a name brand franchise either, one with their name on the sign. And they get to raise the capital from the public via taking out personal full recourse loans, collateralized by their home. No bank need apply. Maybe realizing that if they don’t wash the dishes themselves, they will have no profit tonight, thus no dinner, would “orient” them just a bit…

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Political Current Events and tagged , , . Bookmark the permalink.

11 Responses to Titanic Stimulus Two – This Time For Sure!

  1. oMan says:

    Chiefio: You are on fire! Excellent demolition of the latest dose of Hopefulness. “The dark side of the Laffer curve” is a keeper.

  2. oMan says:

    I meant to add, what particularly irked me about the touted $50BN stimulus for infrastructure is its facial triviality in comparison to the stimulus already given, which did nothing. The new proposal would spread the money over 6 years. Even ignoring the huge lags (which you scathingly noted), this would average $8BN+/year. Yet the economy has been on a crash cart for the past 18 months, mainlining a stimulus package 100 times as big: $800BN. And what has that done for us? Nothing, and worse than nothing. So what will another 1% spending kicker produce? It will be below the measurement.

    Yet Mr. Obama offers us this in all seriousness as part of a Bold New Plan. He seems to have forgotten that in politics, as in life, you need to go from small to big; to turn up the volume as you establish your theme; to stay with the ante and raise it as the game goes on. By offering this anticlimatic dribble of old ideas and shrunken sums, Mr. Obama just persuades the electorate that he was never up to the job.

  3. Mike Patrick says:

    Mr. Smith

    I have been following and carefully reading your Titanic Stimulus rants, and I would like to say thank you. Many have tried to articulate the insanity of our current policies, but almost all find it impossible to do. You manage it seamlessly.

    Before (we) the people can address the problem, we must understand it. It must be defined from its genesis (well-intentioned, self-enriching, or power grabbing as it may be), to its lack of foresight, to its collateral damage, to its inevitable failure. Few writers have the ability to string those stages together coherently. You do. Again, thank you.

    Mike Patrick

  4. PhilJourdan says:

    Excellent analysis! If only the media was as honest in its reporting.

  5. E.M.Smith says:

    @all: Thanks, and glad you liked it. I just state what I see…

    Adolfo: That’s a very interesting link…

    PhilJourdan: Well, when you don’t have any shareholders, board of directors, managers, licenses to renew, advertisers to please, etc.; it’s a lot easier to tell the truth as you see it 8-}

    Then there is the simple fact that to get the investments / trades right, you must deal with the actual truth, not the ‘truthyness’…

  6. P.G. Sharrow says:

    Michaell Obama said that her husband is not good at keeping his promises.
    Barack has no talent except his golden tongue. He is the “Great Deceiver” and will say anything to win the point needed.

  7. Pingback: TWAWKI » The Green Economy

  8. gallopingcamel says:

    You (once again) nailed it. Where do you get the energy and eloquence?

    Obama seems to have a knack for job killing, especially when it comes to energy. Investments in “Renewables” soars in spite of abundant evidence of destructive economic consequences:

    http://www.windaction.org/documents/21233

    While governments around the world continue to waste resources on wind and solar, funding for more practical energy sources such as IFRs (Integral Fast Reactors) and LFTRs (Liquid Fluoride Thorium Reactors) has dried up.

    I guess we will have to wait for the lights to go out before our rulers get serious about energy policy.

  9. E.M.Smith says:

    @gallopingcamel: I have to trade to make money, so I have to be in touch with what is happening and that includes ( in ever increasing percentage…) the statements of our politicians and how the markets react. Writing it up is just me thinking out loud at the keyboard. Eloquence? Well, I can only assert modesty and a debt to Irish ancestors (for the gift of gab) and Scotch whiskey for loosening the tongue ;-)

    That windmills kill endangered raptors by the score and ‘greens’ are silent says a great deal to me about priorities. Chop up one raptor in a nuke water intake or water tower and you would be crucified with regulations. Wind bird-processors? Well, it’s just an unfortunate side effect…

    BTW, thorium fuel bundles for existing reactors are being built / test burned by LTBR (Lightbridge – used to be Thorium Power Systems) so we don’t need to wait for new designs to start using it (though I agree that longer term the newer designs are better.)

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