Will the stimulus actually stimulate? Economists say no

The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won't stimulate economic activity, according to a range of respected economists. "I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who's usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending. "It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits."

Another reason that some analysts frown on the stimulus is the social spending it includes on things such as the Head Start program for disadvantaged children and aid to NASA for climate-change research. Both may be worthy efforts, but they aren't aimed at delivering short-term boosts to economic activity. "All this is 25 years of government expansion jammed into one bill and sold as stimulus," said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

The view wasn't much more supportive on the other side of the political spectrum. In a brief on the stimulus compromise, William Galston, a senior fellow at the center-left Brookings Institution and a former Clinton White House adviser, warned Thursday that a bank-rescue plan being finalized will make the $789 billion look like "pocket change." "While the stimulus bill is a necessary condition for economic stabilization and recovery, it is hardly sufficient," Galston wrote. "As the lesson of Japan in the 1990s shows, fiscal stimulus without financial rescue yields stagnation - at best." " . . . Serious observers believe that recovery cannot begin until we acknowledge that losses in the financial system amount to some trillions of dollars, rendering many institutions insolvent. The temptation will be to muddle along, hoping that these institutions can gradually regain strength without putting massive amounts of taxpayers' money at risk. If we go down that road, we are likely to end up with zombie banks whose balance sheets are riddled with near-worthless investments - banks that cannot lend to credit-worthy customers and who cannot trust one another," Galston wrote.

Even some proponents of a stimulus are disappointed, however. Harvard University economist Martin Feldstein, a former adviser to President Ronald Reagan, was an early supporter. He said that government is now the only engine left to spark economic activity, but he said that the compromise falls short of what's needed. "If the choice is between the current bill and an improved bill, I would say wait and improve the bill," Feldstein told CNBC on Wednesday after the compromise was announced. "I am disappointed with the structure of this bill." Like Yardeni and other analysts, Feldstein wanted more incentives for consumers to make big purchases that have ripple effects across the economy. When a car is purchased, it helps not only the carmaker, but its suppliers, the trucking companies and railroads that transport cars, the states that issue license plates and so on.

There's also the problem of time. Much of the stimulus is to be spread over a two-year period or longer - and 2009 looks increasingly bleak. A Wall Street Journal survey of 52 mainstream economic forecasters published Thursday found that while most forecasters still think there could be slow growth by the second half of the year, that won't offset steeper-than-projected declines in the first half of 2009. That means this is essentially a lost year for the economy. Most scenarios envision the economy picking back up again next year.

More here

***********************

The Mice that Roared

There's an old saying that, "If you give a mouse a cookie, it'll ask for a glass of milk." Well, it appears that the salt marsh harvest mouse may receive more than just a cookie. Thanks to house Speaker Nancy Pelosi (D-CA), up to $30 million has been allocated in the so-called economic "stimulus" bill, for wetlands restoration-surprise, surprise-Ms. Pelosi's home district in order to accommodate the creature comforts of the harvest mouse.

While the stated purpose of the $789 billion spending bill-$1.1 trillion after interest-is to promote job growth and thereby stimulate the economy, the bill has turned into special-interest funding heaven, with billions of non-existent taxpayer dollars going to fund legislators' pet projects. And yet the politicians have no qualms about promoting it as the best-laid plans of mice and men. As the bill, almost universally opposed by Republicans-as well as 69 percent of Americans who lack confidence that Congress knows what it is doing when it comes to addressing the country's current economic problems-entered the final stages of negotiation between House and Senate, Democratic leaders engaged in a game of cat and mouse with the American people, claiming that the bill has no earmarks. And they based that transparent obfuscation on the fact that that the billions in pork was added via a different method than the usual way earmarks are traditionally handled.

And yet, spending $30 million on wetlands in the district of the Speaker of the House can hardly be called anything but an earmark-especially given the fact that Ms. Pelosi has pushed for funding of the mouse's wetlands in past sessions. This cheesy earmark is, and represents, a tipping point in this trillion dollar total spending extravaganza that compels the American people to demand that the bill be recalled and redrawn.

The fact that the full amount will have to be paid by future taxpayers-with interest-means that future generations will be left as poor as, well, a church mouse. As Senator Tom Coburn (R-OK) pointed out, the average American family will be saddled with an additional $10,800 as a result of this bill. But Democrats have been as careful as possible to avoid any discussion of the full cost of this measure. Despite the many times they loudly objected to "passing the bill to future generations" when the Republicans were in power, they have been strangely silent as to the costs of their own measures. And with good cause.

More here

**********************

Iraq's Quiet Transformation

by Charles Krauthammer

Preoccupied as it was poring through Tom Daschle's tax returns, Washington hardly noticed a near-miracle abroad. Iraq held provincial elections. There was no Election Day violence. Security was handled by Iraqi forces with little U.S. involvement. A fabulous bazaar of 14,400 candidates representing 400 parties participated, yielding results highly favorable to both Iraq and the United States. Iraq moved away from religious sectarianism toward more secular nationalism. "All the parties that had the words 'Islamic' or 'Arab' in their names lost," noted Middle East expert Amir Taheri. "By contrast, all those that had the words 'Iraq' or 'Iraqi' gained."

Prime Minister Nouri al-Maliki went from leader of a small Islamic party to leader of the "State of the Law Party," campaigning on security and secular nationalism. He won a smashing victory. His chief rival, a more sectarian and pro-Iranian Shiite religious party, was devastated. Another major Islamic party, the pro-Iranian Sadr faction, went from 11 percent of the vote to 3 percent, losing badly in its stronghold of Baghdad. The Islamic Fadhila party that had dominated Basra was almost wiped out. The once-dominant Sunni party affiliated with the Muslim Brotherhood and the erstwhile insurgency was badly set back. New grass-roots tribal ("Awakening") and secular Sunni leaders emerged.

All this barely pierced the consciousness of official Washington. After all, it fundamentally contradicts the general establishment/media narrative of Iraq as "fiasco."

But in the intervening years, while the critics washed their hands of Iraq, it began developing the sinews of civil society: a vibrant free press, a plethora of parties, the habits of negotiation and coalition-building. Reflecting these new realities, Grand Ayatollah Ali Sistani this time purposely and publicly backed no party, strongly signaling a return -- contra Iran -- to the Iraqi tradition of secular governance.

The big strategic winner here is the United States. The big loser is Iran. The parties Tehran backed are in retreat. The prime minister who staked his career on a strategic cooperation agreement with the United States emerged victorious. Moreover, this realignment from enemy state to emerging democratic ally, unlike Egypt's flip from Soviet to U.S. ally in the 1970s, is not the work of a single autocrat (like Anwar Sadat), but a reflection of national opinion expressed in a democratic election.

More here

**************************

ELSEWHERE

Time to scrap Britain's banking watchdog: "So ex-HBOS banker Sir James Crosby has quit his job at the UK's bank regulator, the Financial Services Authority. It happened just 30 minutes before Gordon Brown faced questions in Parliament, so I guess he was pushed. But the surprising thing is that Brown appointed him to the FSA in the first place. The Authority is now saying that it had been concerned about HBOS's risky investments since 2002. And then Brown makes it's head poacher into one of the gamekeepers! Absolutely bizarre. The Financial Services Authority is no good and should be closed down."

British PM vows to 'claw back' bonuses amid backlash against the bankers: "Gordon Brown promised moves to "claw back" bonuses from bank executives yesterday, as a poll showed a big public backlash against the banks. The Prime Minister foreshadowed changes to the bonus system that would ensure it was no longer a "one-way bet". Banks should be able to recover bonuses from staff who ended up losing them money, he said. The public will clearly back such moves. According to a Populus poll for The Times, executives responsible for the near-collapse of rescued banks should be forced to repay the bonuses they have received in previous years." [Hard to disagree with that]

For more postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, SOCIALIZED MEDICINE, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena

List of backup or "mirror" sites here or here -- for readers in China or for everyone when blogspot is "down" or failing to update. Email me here (Hotmail address). My Home Pages are here or here or here

****************************

The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

****************************