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Recovery Totally Dependent on Stimulus?   June 25th, 2009
Where do they find these economists??       

 
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Granted, economists come from universities and universities are notoriously liberal, so I suppose it shouldn't be surprising. But an article I just read on Fox was absolutely astounding for its one-sided opinion regarding the future of the economy and what it depends on. Essentially, the argument is that the entire economy's recovery is dependent on one thing: the success of Obama's stimulus program.

Even the most bearish economists say GDP is likely to improve, thanks to the bump in government spending that will likely stimulate growth throughout the end of 2009.

'We certainly are going to see positive growth in the third and fourth quarter, but only because of government stimulus,' said Lindsey Piegza, an economic analyst at FTN Financial.

Piegza predicts GDP to tick up in the third and fourth quarter, but worries about a possible return to negative growth once the impact of the stimulus wears off.


The whole article is predicated on the dubious assertion that government can fix the economy, that we can borrow our way out of debt, and we can push people to spend more money instead of paying off the debts they already have.

First, the most bearish economists don't say GDP is likely to improve. Sure, it might. But even Warren Buffet--an Obama supporter--is now confessing he's having "trouble seeing the green shoots" in the economy, is anticipating a lot of inflation, and says we haven't gotten the economy moving again. Wasn't that the point of the stimulus package?

And if there's a possibility of returning to negative growth after the stimulus "wears off" then it wasn't a stimulus. It was just wasteful spending. Unemployment continues to go up--even beyond Obama's worst-case no-stimulus projections. So if the stimulus package isn't having any measurable impact on unemployment and ultimately doesn't even stimulate the economy into a recovery, what exactly was the point?

'Will we see positive growth? Yes--we bought and paid for that already,' Piegza said. 'But the question is, once the stimulus money runs out will we see organic growth take hold, or will we see a return to negative.'


Sigh... We will see growth because we already "bought and paid" for that? First, we didn't pay for anything. We've spent money that we have borrowed and printed and which the next generation will have to pay for. And it's not guaranteed that we'll see positive growth. We might. For the trillions of dollars we're spending the best we can say is that we might see GDP growth.

It'll also be interesting if we don't see growth in Q3 and/or Q4. I certainly have no way of knowing what will happen. Sure, it might grow by the end of the year. Going from -5.5% in the first quarter to 0.1% in the last quarter of 2009 means a positive swing of 5.6% from negative growth in three quarters. We've done that in 1953Q4, 1956Q1, 1957Q4, 1974Q3 and 1980Q2. And in 1981Q4/1982Q1, the economy contracted a cumulative 11.3%--only slightly better than the 12.3% we've contracted in the last 9 months. And yet in 1982, three quarters later we had swung +6.8% to 0.4% growth, and then had positive growth for the next 8 years--most quarters north of 3% growth and some of them even approaching 10%.

The difference, though, is that that turn-around happened along with (and arguably in response to) the Reagan tax cuts and efforts at deregulation. Today we are doing the opposite. We're considering massive new taxes (for health care and cap and trade) and are in an environment of increasing regulation.

We'll see how that works out for us.

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