Tuesday, January 6, 2009

Obama's Stimulus Package

Well, we knew it was coming, and apparently Nobel Laureate, and most certainly not my favorite economist, neo Keynesian, Paul Krugman, apparently is less than impressed with the numbers that are tentatively being put forward by the incoming Obama Administration. Here are my thoughts. Well, some of them.

As is so often the case, with institutions and individuals alike, the one thing that needs to be done is the one thing that will NOT be done.

What needs to be done is to NOT spend that which we can only raise via issuing colossal sums of debt.

To continue:

Here is the premise, or the raison d'etre upon which the proposed spending program is based.

1.) A severe economic contraction here in the U.S.


Is this, in fact, true? Try not to laugh, when I suggest that a collapse in the financial services industry (the F in the FIRE economy) may not be tantamount to a general economic collapse.

Let us assume a 12% unemployment rate and then let us assume the kind of workers who have lost, or are about to lose their jobs. Putting aside the absolute certainty that we can not pay for this program honestly- (by honestly, I mean without recourse to yet more deficit spending by an economy that looks nothing like America circa 1932), does what we know about Mr. Obama's program address our primary ills with respect to unemployment?

Now on to a somewhat different perspective on matters. Government in our time has, by my lights, clearly become an instrument for looting, and while it would be comforting to believe that the Obama Administration will, in this regard, somehow comport itself differently then its predecessors, experience, to put it gently, lends to skepticism. Any proposed massive spending programs ought to be planned and administered in a way that we have not borne witness to for a very long time. This means a sizable government bureaucracy. And with that we are already behind a big, fat, neo WPA eight ball.

Another thought: (please forgive me for not wrapping the various strands of this post into a cohesive, nifty whole). Even if there were no term for what we now know as Keynesian deficit spending, we would have had it as an accepted staple in our nominal Democracy for generations because short of making war and taxing the citizenry, governments must always be seen to be doing something productive in times of crisis, even if upon close examination, the activity is demonstrably counterproductive. In short, liquidationists, however sensible their austere nostrums may be, need not apply.

And yet a few more thoughts:

Expect a lot of shape shifting from the Obama Administration as regards the still murky "stimulus package." My read of Mr. Obama is that he is, like President Clinton, a thoroughly political animal in the manner of "here are my views, if you don't like them I'll amend them...and quickly."

It is highly likely that Obama's apparent low balling on the stimulus package numbers is nothing more than a bit of misdirection. I am reminded of some of Clinton's jiggery pokery with the military budget where he managed to make the Pentagon seem frugal even as their budget was being increased.

Last thought, I promise. My view is that we will spend money, as we have so far, in epic amounts going forward and dare the rest of the world to do something about it. So far, except for a few rumblings here and there, the rest of the world doesn't yet look ready to do a damn thing about our atrocious custodianship of the world's reserve currency.


Mike said...

Good stuff Edwardo.

And I'm with you on the core of your thoughts here: "What needs to be done is to NOT spend that which we can only raise via issuing colossal sums of debt."


Edwardo said...

Thanks. Unfortunately, they aren't listening to the likes of us.

DED said...

except for a few rumblings here and there, the rest of the world doesn't yet look ready to do a damn thing about our atrocious custodianship of the world's reserve currency.

In fact, what I've heard is that the rest of the world is hoping that we'll be able to spend our way of this so they're only too happy to loan us the money. Unfortunately, I think all we'll do is drag them down in a manner worse than the whole CDO/sub prime mess.

Edwardo said...

Hi Ded,

See my most recent comments over at http://suddendebt.blogspot.com

Thai said...

We'll I cannot comment on all of Obama's plan but I can comment on the health care portion that I read in the Washington Post today and from a health care perspective it will most certainly NOT WORK.

First of all, it doesn't even try to address the issue of total spending. It just increases it more. And the second portion, instituting a national electronic medical record, or EMR, should make you run with terror.

The reason we do not have widespread electronic medical record deployment in America has nothing to do with the fact that health professionals are idiots, etc... the reason we do not have EMRs is because they MASSIVELY REDUCE health care provider productivity. MANY studies have now shown a greater than 30-35% reduction in productivity after deployment (it is something like 50-60% reduction in productivity in the first few months and then settles out as it improves to a loss around 30% long term).

So if a doctor could have seen (say) 3 patients per hour, now they can only see 2. And as we are already having trouble seeing all the patient's we have, now we are going to need a whole lot more physicians and nurses just because we want to go to an electronic medical record?

Remember, 80% of health care costs are in labor and increasing the need for that labor just increases health care costs. I have almost 100 physicians and mid-level providers who work with me in my practice, I am our CFO, I run all our numbers. Trust that I know where the money goes.

So would you really want a pretty computerized record if your total bill went up by 35%? Or would you be willing to live with old fashion paper and pencil for a lot less money? Because that is literally the choice we are talking about.

To be fair there is definitely SOME reduction in costs as a computerized record helps reduce redundant testing. And it is also true that if you are a health care manager, your job is made MUCH easier by an EMR, but we will not make up for this large productivity loss with this small benefit.

This is why recent attempts to deploy an national electronic medical record or EMR failed big time in England. The user interface technology is just not there yet. I am getting old enough to have seen multiple EMR roll outs fail in multiple hospitals over the course of my career. I think we will eventually get one, as user interface technology improves, but I don't think we will get what the government wants for many years.

I am thinking gold is looking better and better. How does one buy physical gold outside the US?

And why would you not like the ETF GLD?

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