Obama’s Stimulus II

By :: December 8th, 2009

At Brookings today, President Obama laid out his vision for Stimulus II. At first glance, this seems to be a collection of odds-and-ends, only some of which will help the economy grow and create jobs.


Although few details are available, the package seems mostly focused on helping small business. That’s an important goal, although I’m not sure the president’s proposals will get us there. For instance, he’d eliminate capital gains taxes on the sale of small firms, allow them to continue to expense capital investment, and give them tax breaks for hiring new workers. It is hard to imagine a small business owner who is starved for cash and unable to get a bank loan thinking very much about buying new equipment or hiring new workers, much less capital gains. It’s a bit like throwing a drowning man a 64-inch flat panel TV. He might love to have one, but not right now.


Obama is also proposing to expand the Small Business Administration loan program. That’s a better idea, but I’m not sure SBA loans are the best way for credit-worthy companies to borrow. I’m not a monetary policy guy, but it seems that’s where the solution lies. I’d rather the Fed find a way to get small and regional banks lending again than fiddle around with an inefficient fiscal policy. Much of this would be funded with TARP bailout money that has either been repaid or not yet spent.     


Obama would also create new subsidies to retrofit homes for energy efficiency (aka cash for caulkers), spend more money for infrastructure, and provide additional aid for states. These also feel like off-the-shelf proposals that sound better than they are. The infrastructure funding, especially, seems odd. Today, 70-75 percent of Stimulus I remains unspent and it will be a year or more before that first tranche gets into the economy. It turns out that many projects were not quite as shovel-ready as some thought, so what good does it do to add to the backlog?


This has the feel of a check-the-box exercise. Need to make the governor’s happy? Give them some highway money and extend direct federal aid. Searching for a few GOP votes? Help out small business—and do it with tax cuts. As The Washington Post wrote this morning in the most unintentionally funny lines of the day: "'Politics may ultimately play into the decision of how to use the unspent bailout funds,’ analysts say.” Ya think?  


It would be nice if Obama would do with the economy what he did with Afghanistan. That is to say, step back, set a goal, and adopt the tactics necessary to achieve it. Obama has done only half that exercise.


In the short run, the economy and job creation are being weighed down by three interrelated burdens: an upcoming round of new residential mortgage foreclosures, a big overhang of failing commercial real estate projects, and banks that remain unable—or unwilling-- to lend, especially to small businesses. If a company has access to the capital markets, it can sell stock or debt. But if it must rely on bank financing, as 99 percent of U.S. businesses must, it is in big trouble.


  1. Anonymous  ::  7:37 pm on December 9th, 2009:

    While financing is certainly a factor is the decision to buy equipment and hire workers, the real driver behind doing both is a strong revenue base. You don't buy equipment if it won't be used or hire people who don't have anything to do. Cheap loans won't change that (which is why Supply Side Economics is a crock of stinky cheese).
    What would work is to rechannel tax benefits from home ownership to an expanded refundable Child Tax Credit as part of comprehensive tax reform. This will result in both more spending and a more robust housing market, since when people get more income they upgrade their housing to match family size.
    You can also use such provisions to eliminate many entitlements if you make ESL and remedial education participants eligible for the tax credit by virtue of participating in such programs (and paying students as well).

  2. Anonymous  ::  3:21 pm on January 31st, 2010:

    Obama's “stimulus” is a train-wreck- these jobs figures are far worse than the ones the White House warned us about if we DIDN'T pass the bill- so it was passed, and then unemployment soars anyway? He said it would top-out at 8%, we give him a trillion dollars, and he and Joey Pluggs now tell us they “underestimated” as it pushes 10%?
    -oh please
    Instead of creating jobs, interest rates were bumped up, the dollar slid… and it didn't help anybody get any work. Much of this is due to the fact that Obama's agenda has mortified almost every machine of job-and-growth creation in the country.
    The One couldn't deliver the type of “temporary, targeted, and timely” bill that he promised repeatedly, and regardless of his image in the press, Obama simply lacks the the political stature to control Pelosi and Reid… who hit the trough hard, while bickering like siblings.
    And the lack of GOP co-conspirators exposed Obama politically… this legislation now looks to be a HUGE gamble. And when all this pork-n-welfare fails to generate any real economic gains, the Democrats will face a bloodbath in 2010.
    One could even make the argument that Obama knows his legacy will be in tatters by 2012… so is just ramming-through as much of his far-left agenda as he can before the day comes when people cringe at the mere mention of his name… sure seems like it.
    omidiu, part of the Traduceri team.
    Traduceri autorizate

  3. Anonymous  ::  1:31 pm on April 8th, 2010:

    very interesting. thanks

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