Home > economics, General Comment, political-economy, politics > Obama’s sleight of hand…

Obama’s sleight of hand…

We just woke up to the fact that the entire Obama stimulus plan is a farce – a ploy designed to create the impression Washington was going to “spend like mad” to fight this downturn.

The aim of this ploy was pretty simply: If we believed Washington was going to spend a lot of money, we would go out and spend a lot of money in expectation of Washington’s spending.

In another example of this idea, the Federal Reserve has greatly expanded the amount of money on its balance sheets. This creates the impression among the investor class that trillions of new dollars will come flooding into the market to push up prices – creating hyper-inflation.

The economists around Obama – Summers, Romer, etc. – believe such expectations can change your behavior. According to the theory, if we expect, for instance, inflation to be very high in the near future, it might make sense to buy a house or put money in more risky assets. The same can be said for government stimulus: If we think the government is going to spend a lot of cash to stimulate the economy, we might be less fearful of losing our jobs, and more inclined to buy that 42 inch wide-screen high-definition plasma television.

According to reports in the media over the last few months, this was the projected schedule of stimulus plan spending:

stimulus28

As you can see, most of Obama stimulus spending comes in 2010, and the following years. Which, we thought, is odd, since this chart below is the likely projected course of the Great Recession, according to estimate by Obama’s economic advisers:

reality versus Bernstein

As you can see in this chart, with his stimulus plan (dark blue line), Obama’s team expected the recession to peak in late 2009, and for unemployment to be falling as we headed into 2010.

If this projection is true, why was the bulk of the stimulus spending loaded to the back end of the recession, when unemployment would have been falling, and economic conditions improving?

We think the answer is simple: It was a con game from the very beginning.

The con was to announce a really huge number in the press – a headline number – which would grab your attention, $878 Billion, but to quietly shelve the spending plan after you, inspired the flood of new spending which would be coming into the market, ran headlong to the mall to join Washington’s orgy of consumption.

Barack was going to take you to the mall, and abandon you there…

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  1. July 13, 2009 at 11:43 am | #1

    Very interesting perspective. Stimulus plans have not been previously successful so I had no confidence in this one.

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