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Multiplication Isn’t Stimulating and Stimulus Isn’t Multiplying

Posted by Larry Doyle on July 17, 2009 12:31 PM |

What 3rd grade kid ever really enjoyed the multiplication tables? Every youth in Boston would race through those tables in order to get outside and play some street hockey, a much more stimulating experience!!

In a slightly perverse way, I think many participants on our economic landscape would prefer some form of youthful entertainment because President Obama’s Stimulus Plan is not creating any sort of multiplier for our economy.

Bloomberg takes the offensive in reporting, Obama Stimulus Fails to Reboot Economy as No Multiplier Effect:

The debate over whether the $787 billion stimulus package is sufficiently large or efficiently designed obscures a broader question, some economists say: Can any fiscal measure pull the economy out of the recession?

With credit still crimped and the outlook for consumer demand gloomy due to rising unemployment and increased personal saving, no amount of government intervention will be able to stanch the hemorrhaging of jobs and quickly ease the U.S. out of its deepest recession in a half-century, they said.

Why hasn’t the government stimulus gained traction, attracted significant private capital into the economy, and spurred the economic multiplier? In my opinion, for the following reasons:

1. Obama’s basic economic premise is the redistribution of wealth implemented across virtually every economic program and proposal. He won the election and he is entitled to put forth his plans. Whether the plans work or not is for the market to decide. So far, that question remains unanswered but the Stimulus is receiving very poor grades.

2. The markets, whether for housing or other assets, are not being allowed to clear. What does that mean? Assets are not being transferred from weaker hands to stronger hands backed by private capital in a timely fashion. Why? Uncle Sam is propping up individuals and institutions which could not now, nor should they ever, have financed the purchase of these assets. The result is that prospective buyers of these assets are compelled to hold off injecting new private capital because the overhang of current supply and future supply is weighing on the market.

3. The government money is akin to one large ‘pool’ of water but there is very little ‘current’ given Uncle Sam’s plans which not only crowd out private capital but will also heavily tax potential new pools of private capital.

I am personally aghast why more people are not talking about the impact on our economy and markets from the virtual certainty of higher taxes. Those tax increases will be a further drag on an already sluggish economy.

What would Sense on Cents propose to attract private capital and generate a multiplier effect from government stimulus? Do not punish the private capital, but rather embrace it. Promote transparency across markets so the private capital is protected. Provide incentives for the private capital to work with currently distressed homeowners and business owners. How so? Lessen, delay, or defer taxes so the private capital will work with these individuals or businesses. Provide further incentives for the private capital to hire new employees.

In short, the risk takers who have the capital to create the multiplier which our economy so badly needs must be rewarded and not punished.

Why won’t this happen? That approach flies in the face of Obama’s redistribution plans. While Obama and the Democratic Congress did not even have time to fully read the Stimulus Bill prior to its passage, now:

Obama administration officials such as Treasury Secretary Timothy Geithner said the measure needs time to work and are appealing for patience.

OK Tim, let’s go over the 9 times table…


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