Stimulus

The rumor is that the House and Senate will pass another stimulus bill. It is 80 Billion dollars in stimulus. The knee jerk reaction by Republicans is this is a bad bill. Of course, the Democrats will say that they are just being obstructionist.

Let’s look at the economics behind the bill. The bill can be parsed into segments. A reduction in Medicare payments to doctors. Extension of health care benefits and jobless payments for unemployed. Additionally, money for roads.

They will construe the reduction in Medicare as “cutting the budget”. However, they are just increasing liabilities. Secondly, medical receivables have a long lifespan. This will just further impact doctors cash flows, making quality care harder to achieve.

Extending health care and jobless benefits is a tough one. No one wants to seem heartless by cutting off benefits to someone; but what is the incentive to work if you keep getting a government check? Two anecdotes. A factory owner let a bunch of workers go because he saw a slow down in business. He let less workers go than he could have by reducing the working hours of all workers. They went from a 40 hour week to a 35 hour week. He cut his own pay as well. When he saw that business was going to pick up, he wanted to rehire his old workers. Retraining is expensive, and he wanted to start down the learning curve for more efficient production. A majority of those workers turned him down when offered a job. Why? They could earn almost as much tax free from the Federal government, and didn’t have to put out effort. I also heard a story of a person that was okay with getting laid off, since they were going to make $1200 a month from the Feds tax free. The spouse had a job, so this was like free money. I think there needs to be a drop dead limit for these types of transfer payments from the government. I am for helping people out, but you have to have an incentive to work.

The 787 billion dollar porkulus, I mean stimulus, was supposed to be spent on “shovel ready projects”. It wasn’t. It was wasted. That’s what governments do best-waste tax dollars. This 80 Billion will be wasted too.

The multiplier effect of the government spending on economic production is 0. It might even be negative depending on how you account for it. I am predicting a rise in unemployment from the additional stimulus. The more the government spends, the higher unemployment will go. Government needs to focus on production. The path to more output and production is through tax cuts, not spending. Keynesian economics doesn’t work.

Have you ever met a politician that didn’t like spending money? Me neither.