The Stimulus Package - Trick or Treat?

This particular day makes me think of Peanuts. Not the kind you eat, but the popular cartoon created through the genius of Charles Schultz. Linus, with his annual vigil in the pumpkin patch waiting for The Great Pumpkin, and Charlie Brown going trick or treating but getting rocks in his sack rather than candy.

It’s all great fun in fiction, but there was a distinct feeling of deja vue yesterday as I watched the Obama administration boasting when the economic numbers came out about how the recession is now over and touting how many jobs the “stimulus” package has created. Indeed, the GDP grew by 3.5% (annualized) in the 3rd quarter.

This is good news no doubt, given the numbers that we have seen for the past couple of years, but in their haste to take credit for this bump, the administration conveniently left out the fact that it actually decreased in the 2nd quarter by .7%. Economic recovery is generally regarded by economists as growth in two quarters back to back. Well, we haven’t seen that yet, so perhaps this “irrational exuberance” is a bit premature.

Now normally I’m a glass half full kind of guy, but here’s the deal: When looking at numbers like this you have to take into account what has actually caused this growth. A large portion of it, roughly 45% was due to motor vehicle sales. This was largely due to the popular “Cash for Clunkers” program that provided $4,500 government (funded by taxpayers) rebates to people who traded in vehicles that met certain criteria.

The question follows – what impact might this have on future car sales? It doesn’t really take a lot of deep analysis to realize that these people who purchased cars under this program will probably not turn around and buy cars again in the next quarter and, in fact, may be driving the same car 2 or 3 years down the road. So, what have we done here? We’ve actually accelerated the car buying cycle, thus leaving a void for future car sales - all at the taxpayers’ expense!

Another thing that contributed to these numbers is government spending. Anytime money is injected into the marketplace with government spending there is going to be a spike in growth, but the dirty little secret here is that many of the “jobs” created are government jobs which has done two things:

1. Created additional government bureaucracy that creates future commitments to support these jobs.  
2. Taken people out of the marketplace who, if you subscribe to the American view of capitalism, would normally be entrepreneurs or otherwise be adding to private sector productivity and placed them on the government payroll or working on pork barrel projects that will only be around temporarily.

We’ve robbed Peter, as they say, to pay Paul. This myopic strategy may look good in the short run, but it could have tragic consequences in the long run. The truth is that the politicians are more focused on showing short term results so that they can get reelected rather than creating an environment in the marketplace that is conducive to long term growth. Even more distressing is that they are doing this all on taxpayers dime!

So, while we the people are sitting in the pumpkin patch waiting on The Great Pumpkin (aka the government) to come and save the day, our economy is rocks in its bag with artificial and temporary growth. Charlie Brown – I feel your pain!