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Is the Stimulus “Stimulating?”

Posted by Larry Doyle on April 20, 2009 5:30 AM |

As I referenced on my radio show last evening (note: you can listen to an audio recording of the show from the BlogTalkRadio player in the right sidebar), China’s economy is benefitting from economic stimulus enacted by its government. Well, the U.S. government also enacted a major Stimulus Package in early February. How is our package doing? Is it impacting the economy? Our economy certainly does not seem to be benefitting significantly from any government stimulus.

I wrote on February 7th that Martin Feldstein, renowned Harvard economist who sits on Obama’s Economic Recovery Advisory Board, called the Stimulus Package An $800 Billion Mistake.

Feldstein’s concerns about the Stimulus as reported by the Washington Post, focused on several items:

1. On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment.

2. The largest proposed outlays amount to just writing unrestricted checks to state governments.

3. The plan to finance health insurance premiums for the unemployed would actually increase unemployment by giving employers an incentive to lay off workers rather than pay health premiums during a time of weak demand.

4. A large fraction of the stimulus proposal is devoted to infrastructure projects that will spend out very slowly, not with the speed needed to help the economy in 2009 and 2010.

5. The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit.

Let’s see how business executives view the rollout of the Stimulus Package. Would they agree or disagree with Feldstein’s concerns?

The WSJ reports, Stimulus Questions Frustrate Businesses.

How is that frustration evidenced? The lack of clarity and speed of delivery in the Stimulus Package does not allow business managers to plan appropriately and move proactively. The WSJ offers:

Confusion over how to go after money allocated to various stimulus programs appears to be clouding corporate efforts to plan ahead, which were already complicated by the wider economic slump.

Is the money moving to market quickly to create the desired stimulus? Are jobs being saved in the process? Robert Alger, a contracting executive based in Connecticut with operations in 15 states, offers:

“They should have pushed this thing ahead quicker.” Other contractors along the East Coast have begun to worry that not enough highway money will make it out the gate by the time paving season ends in November.

While representatives from the Obama administration and Congress will understandably defend their efforts, let’s not forget that many analysts viewed the Stimulus Package as more a promotion of the Democratic agenda than a true Stimulus. The risk in that approach is if and when the economy worsens, but the money has already been committed if not yet spent. In fact, that worsening in the economy is occurring. The WSJ highlights:

Lack of clarity about Washington’s spending and regulatory policies isn’t the only factor souring the outlook of business leaders.

More leaders of the nation’s biggest corporations expect lower sales, capital spending, and employment over the next six months than at any time in the past seven years, according a first-quarter survey released last week by the Business Roundtable, which represents chief executives of the nation’s biggest publicly traded companies.

Sixty-seven percent of the 100 CEOs contacted in late March expect sales to decline over the next six months, according to the survey. In last year’s fourth quarter, 45% of CEOs had responded that they expected lower sales. Executives who expect employment to decline further reached 71%, compared with 60% last quarter.

Ivan Seidenberg, chairman and chief executive of telecommunications provider Verizon Communications Inc., said in a recent interview that the Obama administration is moving slowly to dispense stimulus funds because there are too many policy makers in Congress, the White House and various agencies with influence over the process. “They have too many Indian chiefs trying to micromanage how the money is spent,” he said.

Sounds like politics at its worst when what our country really needs and is screaming for is true leadership from both sides of the aisle. Feldstein appears prescient so far in his analysis. Too bad Obama did not follow his guidance instead of allowing Nancy Pelosi and Harry Reid to jam this Stimulus Package down the country’s throat.


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