Vigilant Investments Advisors, LLC.

Stimulus

The question of what parts of the economy to stimulate and how much to stimulate appears to be the political question of 2009.  Unfortunately, as in most political environments, those that have the power to decide are the least qualified to make the decisions.  In addition, the politicized aspect will certainly reward those with the best lobby efforts, better campaign contributions and those that have the most to offer the politicians in the future.

A few weeks ago, I wrote about the virtues of the economic cycle.  Unfortunately, economies built on capitalism will have cycles and the people will be best prepared for an economic cycle if they will limit debt, save money and prepare for a rainy day.  As the government is seen as the one to bailout the people, the people don’t need to prepare and the cycle is not allowed to complete and capitalism is circumvented and replaced by government control.  How disappointing this would be to our founding fathers who clearly understood the importance of these concepts more than our current set of politicians.

This stimulus package will clearly reward those that have contributed to the campaigns and agendas of those politicians that are voting for it.  The fact that the taxpayer is going to pay for this is not politically important because the economy is “in a tailspin.”  The fact that the government tried and failed in doing this several times (eight to be clear) during the great depression is lost on most of us who didn’t live through it.  The fact that Japan has tried this for more than a decade, without success, is also lost on most of us who didn’t see the Japanese problem up close.

Now that we are going through the problem, rather than learning from the past, we are pursuing the same failed stimulus programs that others have tried.  I can see why the politicians want to do this—it is a payoff for support of the past and the future.  However, job creation through government spending is expensive and misguided policy.

Currently, the crisis is one of confidence.  People have a lack of confidence in their current financial situation because of debt, lack of income or an unsure sense of their own job security. 

Consumer confidence comes through job security.  Jobs and job security are created through successful private enterprises.  The stimulus package as it is constructed today is designed to offer temporary jobs and temporary job security.  This will not yield long term confidence.

Businesses today have many wonderful and profitable business opportunities.  In fact, the economic downturn has created more opportunity than we have seen in a generation.  Unfortunately, businesses do not have the resources to take advantage of the opportunities.  A stimulus that allowed businesses to borrow the funds necessary to take advantage of the opportunities available today would create permanent jobs and yield the confidence to more people than the current stimulus package.

The political argument against this type of stimulus is that it takes too long to incentivize the credit markets and get the funds to flow to the people and the business opportunities available.  The educated response is that this type of stimulus is permanent.