With all of this talk comparing our present economic environment to the Great Depression, it is not hard for me to imagine that I am walking down the same path that my parents walked in the 1930’s. My parents were young at the time but they spoke often of how it shaped their lives. Recently my wife and I have had several discussions about how frugality is not only necessary but probably essential to our survival. It is the serious tone of our conversations about being more careful with our money that reminds me of my parents. As we try to sort things out, our spending habitats seem to be mimicking the spending habits of our parents. Although I do not remember distinctly what my parents said when they talked about the Depression at the dinner table, I do find that some of my more frugal statements have a déjà vu quality about them. 

Another area that has a familiar look to it is our government tone in their response to the economic crisis. It seems that every proposal has a aura of panic about it. Instead of instilling confidence with measured responses, they seem to enjoy fanning the flames of panic with emergency laws and “trust me” explanations that short circuit the slower democratic process. It seems that everything must be enacted immediately or there will be dire consequences.  Autocracy is favored over democracy. This leaning toward autocracy reminds me that the 1930’s was the time in which Hitler and Huey Long came to power.

The final area in which we seems to be following the script of the 1930’s is our government policies. Our government seems to be floundering with a myriad of proposals that look like throwbacks to the programs enacted in the 1930’s. Most of the 1930’s programs are generally considered to have prolonged unemployment and lengthened the depression. We have the benefit of both history and common sense and we seem to be ignoring both of them. Frankly I’m scared that our government will make things much worse. I bet my parents were scared in the 1930’s, too.

According to CBO’s estimates, with enactment of H.R. 1, the number of jobs would be between 0.8 million and 2.1 million higher at the end of this year, 1.2 million to 3.6 million higher at the end of next year, and 0.7 million to 2.1 million higher at the end of 2011 than under current law.

Testimony on the Economy and Stimulus
Douglas Elmendorf
Tue, 27 Jan 2009 23:58:12 GMT

First, as Cantor acknowledged later in the Fox interview, the CBO analysis referenced by Cantor only looked at so-called discretionary spending, not the entire $825 billion stimulus package proposed by House leaders. Among the spending not analyzed is a proposed $275 billion in tax cuts and nearly $200 billion for jobless benefits – both of which are expected by some to jumpstart the economy more quickly than infrastructure projects.

PolitiFact | Cantor distorts CBO data on stimulus package

Okay, I’ll ask the obvious question. Cantor alluded to the job creation question but Politifact completely ignored the question. I thought that job creation was the primary reason Congress was trying to pass this bill quickly. We already know how successful the tax rebate was last year. I am sure I heard more than one media pundit talk about the need to get people back to work quickly. When the guy on the street hears the words “economic stimulus”, he thinks it means more jobs will be available. My guess is that there are a lot of people in US who think the primary aim of the stimulus package is to create jobs in 2009 and 2010 to offset planned job losses. A real solution for a very real problem.

However when you eliminate the parts of the bill that are not related to job creation in 2009, you find the only part of the bill that has a chance of improving employment in 2009 is the tax cuts. Only 25% of the stimulus bill will help job creation in 2009.   That is pitiful on so many different levels!

If the need for legislative speed is not driven by the need to create new jobs in 2009, why are we rushing to pass this bill? Why can’t we take a few more weeks and get a bill that gets more people back to work in 2009?

The spending portion of the stimulus, in short, isn’t really about the economy. It’s about promoting long-time Democratic policy goals, such as subsidizing health care for the middle class and promoting alternative energy. The "stimulus" is merely the mother of all political excuses to pack as much of this spending agenda as possible into a single bill when Mr. Obama is at his political zenith.

The Stimulus Time Machine – WSJ.com

Here are several quotes from Instapundit that reinforce my skepticism and frustration with the stimulus package. When you look at the failure of last year’s stimulus check to stimulate and the TARP bailout to revive the credit market, it looks like Congress is following California’s foot steps on how to mismanage a fiscal crisis. Do we really want to be like California right now? Read them and weep!

STEVE CHAPMAN: “We all know how we got into this economic mess. We spent too much, borrowed with abandon, and acted like the bills would never come due. So what’s the prescription for getting out? Spending more, borrowing more, and acting like the bills will never come due.”

DAN RIEHL: If there’s an emergency, why isn’t Congress acting like it’s an emergency?

THE EXAMINER: When state taxes rise, businesses and residents flee.

INSTAPUNDIT: My take remains this one: “This is not so much a stimulus, as a massive transfer of wealth from the politically unconnected to the politically connected.”

Obama’s stimulus plan reminds me of a teenager planning their first party. He desperately wants to be liked so he invites everyone. Inevitably the people who show up are not the “cool people” he wanted to impress but the trouble makers. Eventually the party gets out of hand and is broken up by the police. Some kids get hauled off to jail.

For the teenager we write off this unfortunate episode as a learning experience on the way to maturity. If an adult tries to throw a party like this, we openly question their wisdom. Most of America has already cut back on their spending habits. The Obama plan is to throw a party with free money to a country who has become very risk adverse. The free money plan did not work on the banks so you have to wonder why Obama thinks it will work with the American people. It sure looks like the American people and businesses are very unlikely to change their austerity plans for 2009 and 2010. If the good folks in America are unwilling to go to Obama’s spending party who do you expect will go to his party? Didn’t we learn anything when Roosevelt tried this type of stimulus plan in the 1930’s ? Didn’t we learn anything when Harding and Reagan used the opposite approach to recessions in the 1920’s and the 1980’s ?

President Obama’s first serious test is whether he is going to require coal plants to include equipment to capture and sock away carbon emissions underground.

About 25 coal plants are under construction across the United States, more than in the past two decades. Another 20 projects have been permitted or are near construction and more than 60 have been announced or are in the early stages of development.

EPA ruling over climate jeopardizes coal plants | Environment | Reuters

The reason this question is so important is because:

• Any postponement of capital projects at these plants will have a major ripple effect to both the economy and employment. Delaying major construction projects affects not only the local employment around the plants but the equipment manufacturers located throughout the country.
• Many people believe the country’s electrical generating capacity is already in a precarious supply position. The lack of excess generating capacity is going to be especially difficult during the summer months when we see peak electrical demand.
• If the final decision is to require plants to install the capture equipment, the electrical rates will sky rocket as plants recapture their costs. Although President Obama maintains that this will bankrupt the coal companies, it will probably have effects he did not anticipate. Companies dependent on reliable electrical power will spend the capital to protect themselves by installing their own generating equipment. This will provide an incentive to the green economy but the price will be steep. The rate increases caused by energy cost shifting will primarily borne primarily by the people who can least afford it.
• Although the stimulus to the green economy may help in the long term, it will not overcome the direct effects of lower capital spending, lower employment, and higher electrical rates before the next election cycle.
• This will be a difficult political decision. If President Obama allows the projects to proceed without carbon dioxide capture, he will probably disillusion many of the people who voted for him. If he requires carbon dioxide capture equipment he will fulfill his green economy promise but he could be looking at a potential worst case scenario like:
  1. The companies required to install the capture equipment significantly increase their project costs to compensate for regulatory confusion and the engineering uncertainty with capturing and storing carbon dioxide.
  2. A significant portion of the electrical companies decide to delay their projects as they question the project economics in a dismal economy. This contributes to higher unemployment and fuels the green economy versus the general economy debate.
  3. All of the utility companies with surpluses start extracting significantly higher rates selling their excess capacity on the open market. Since we are looking at a market with a shortage, everybody will see higher electrical rates. 
  4. Politicians try to reduce rate increases by increasing regulatory authority with disastrous effects. I remember that when our country tried to regulate natural gas prices many years ago, this caused more unintended problems than it solved.
  5. The agile consumers protect themselves by generating their own power. The less agile customers will bear the brunt of the rate increases. This was a situation I saw in Houston as chemical companies increasingly generated their own electrical power and residential customers were left to pay the bill for the new generating plant construction.
  6. We start to see an increasing number of power outages due to failures at the plants and with the transmission lines. The issues we saw this summer with oil refineries and gasoline distribution provide us with a market example.
  7. The average person finds out that they are bearing the brunt of the green economy policy and starts complaining about electrical rates and reliability. The economists start writing about the impact of higher costs and an unreliable power supply to a struggling economy. The benefits of the green economy come under serious questioning.
  8. A majority of the scientists start to believe that we are entering into a global cooling phase and that although capturing carbon dioxide is a worthy scientific effort, they wonder whether this is a waste of precious economic resources. The scientists pull the scientific justification rug out from underneath the politicians.

Under this worst case scenario the average person will likely blame their local politician for their plight and extract revenge the only way they know how by voting them out. This political decision has the potential of becoming as unpopular as a gas tax hike and will shorten the political careers of several incumbents.

By far my biggest disappointment with Obama’s election is that there is no discernable bump to the economy or the attitude of the stock market. While the press gushed over the new President-elect, we laid a few more people off. There seems to be a real disconnect in the media between the excitement of the electing our first black president and the reality of our economic outlook. The press eerily reminds me of the band on the deck of the Titanic. Our company’s sales are on life support and we have run out of people to lay off. I am amazed I have not been laid off but each day I have a job I am grateful. I was hoping that after the election we would have at least a little pickup in sales. Unfortunately our sales mimicked the dismal performance of the stock market. So my boss did what a lot of bosses are being forced to do, preserve the firm for another day. Laying people off is always a tough decision but at least there is still some hope that sales might pick up before Christmas. At this time of year our sales typically start to climb as we get closer to Christmas. So far we have not seen any increase in sales. If this trend continues, it looks like it is going to be a miserable Christmas for a lot of people. So far the only group that seems to be benefitting from the election are gun shop owners. Instapundit references a local news story but I heard a similar news story in this area.

I looked at the The New York Times map of the 2008 election results and saw something interesting for Ohio. President-Elect Obama won the four of the most populous counties by a significantly large percentage when compared to the rest of the state. Whereas the voting percentages for most of the counties hovered around 50%, Obama won the most populous county, Cuyahoga with 68.5% of the vote. When you look at the number of voters, the margin of victory in this one county was about equal to the Obama margin of victory for the entire state. Despite Obama’s dominance in the most populous counties, the state favored Obama by a more modest 51.2%. Like California there is a strong difference of opinion between the large cities and the rest of the state.

Way too funny!

HEH: Black Man Given Nation’s Worst Job. "African-American man Barack Obama, 47, was given the least-desirable job in the entire country Tuesday when he was elected president of the United States of America. In his new high-stress, low-reward position, Obama will be charged with such tasks as completely overhauling the nation’s broken-down economy, repairing the crumbling infrastructure, and generally having to please more than 300 million Americans and cater to their every whim on a daily basis. . . . The job comes with such intense scrutiny and so certain a guarantee of failure that only one other person even bothered applying for it. Said scholar and activist Mark L. Denton, ‘It just goes to show you that, in this country, a black man still can’t catch a break.’"

HEH: Black Man Given Nation’s Worst Job. "African-American man Barack Obama, 47, was given the lea…
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Thu, 06 Nov 2008 07:03:24 GMT