The American Spectator : The Spectacle Blog : The Stabilization Bill

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McClatchy quotes investment analyst Ed Yardeni as saying that "nothing would have been better" than the stimulus package currently being rushed through Congress." He continued, "It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos…. Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits."

The part about stabilization is key to understanding the politics of this bill, and it relates to what I wrote about earlier this week. No matter how bad the economy is when the 2010 elections come, Democrats are going to argue that it would have been much worse had we not passed this $789 billion bill. It's something that's entirely non-falsifiable, since we don't get to know what would have happened without the legislation. That's why Obama keeps warning of double digit unemployment, 5 million job losses, an irreversible economic death sprial, etc. He wants to be able to say that he saved us from a return to the 1930s. I think the key element in all of this, is will Obama's policies be inflationary? In a recent off the record meeting, a Republican lawmaker told me that while Bush will be blamed for the recession, if inflation comes -- a very real possibility given the expansionary fiscal and monetary policies -- then that will become Obama's baby. And inflation wll put him in a very tight spot, because as we know from the early 1980s, the way to kill off inflation is by slowing down the economy.

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David Herr| 2.14.09 @ 2:06PM

Whatever comes from the Porkulus bill, inflation will not be a problem anytime soon. The amount of extra money being printed by Bernanke and now Obama/Pelosi/Reid pales in comparison to the destruction of credit on bank and shadow-bank balance sheets. A deleveraging tsunami is swamping the economy, and nothing can stop it. And nothing should stop it, since the whole economic problem we are facing is too much debt. There will be no recovery until private debt (household, firm, and financial firms especially) is reduced, through paydown and default, to a more manageable proportion of PRIVATE SECTOR GDP. The real problem with the Porkulus bill, is that it increases government debt, and thereby undoes the private sector's painful work of reducing debts relative to income. There will be enough natural increase in federal government debt on account of the recession and the transition from maximum borrowing and consumption to frugality and savings. Tax revenues will be down, as people save more and because the frothy financial and real estate sectors will revert to their more normal 5% of the economy, instead of the bubble-icious 8% that they were at the peak of the credit boom. The porkulus bill just adds more and needless federal debt. What we should be doing is CUTTING program spending and entitlements, so that we can finance the necessary FDIC depositor bailouts ($3-4 TRILLION) as best as possible. If the $4T bank bailouts are amortized over 15 years at $400B per year, that is how much we should cut from the program baseline. Seeing as how Bush took federal spending from $1.9T to $3T, a $1.1T increase, cutting $400B from that should be easy, and still leave us with a robust military budget.