Re: Townhall.com – 2/25/2009 – “Judging Obama” – John Stossel

Stossel says “How will we know if President Obama's must-have "stimulus" program succeeds?” Good question. The success of Obama’s program will be judged most by the shape of our economy at the conclusion of the program. If the economy is better than it is now the program will be judged a success and if the economy is not better, it will be judged a failure. But that judgment will not be based on any real scientific measure the success of the stimulus program because we cannot simultaneously have results of a no stimulus or different stimulus program for comparison. While most of us will defer our unscientific judgments on Obama’s programs to give them time to take effect, it is clear that a majority of the politicians have made up their mind one way or another and are unlikely to be swayed by future facts.

Stossel is right that “Politicians grab credit for everything” although he should also add that politicians also throw blame at least as often. So no matter how good or bad things actually turn out to be, half the politicians will claim things would have been worse and the other half of the politicians will claim things would have been better without the stimulus.

Stossel says “[the stimulus advocates in Congress] excuse is already prepared: The stimulus was too small”. Based on my interpretation of the results of government intervention to “cure” the Great Depression and WW-II’s success in actually so doing, if we are headed into a Great Depression, we probably need a stimulus as large as WW-II, and by that measure, Obama’s proposed stimulus package is probably too small. On the other hand, if we are heading into a mini-depression (or a super recession, take your pick), then the size of Obama’s stimulus package might be large enough. Time will tell.

Stossel says “Since monopoly bureaucracies are not as efficient as competitive businesses, government efforts won't get as much bang for the buck as private efforts. They will likely destroy wealth”. I wonder why Stossel thinks that. The idea of the stimulus is to get cash into circulation to replace the credit lost in the bursting of the financial bubble --- in effect creating controlled inflation to just balance an on-going deflation. The government won’t shred paper currency with the stimulus, it merely prints money to hand over to private citizens to do with it what they will do. If projects planned and/or paid for by government, say to improve transportation, are not as effective per dollar as private projects to improve transportation, that means that on a per transportation project result basis, government gets more money into circulation than private industry could, right? Wouldn’t that be a plus for a stimulus where we need to inject more money than there are planned projects? Seriously, government can be inefficient at times, efficient at other times --- the proof is in the execution and not some philosophical prejudice.

Stossel has the quaint idea that people held back on spending and investing because “they don't know what activist government will do next. Will it prop up housing or other prices? Will it nationalize the banks?“ But until well after the economy began to nosedive, neither people nor the government had even thought of propping up the then robust housing market and/or intervening in what were then thought to be healthy banks. Stossel apparently believes that the effects predate the cause --- a belief most of us recognize as fallacious. Banks failed not because the government planned to intervene in their finances but rather government is intervening in the banks’ finances because it was feared by the government and by the banks themselves that without intervention, the banks would go bankrupt. Banks stopped lending because they didn’t have sufficient financial strength to make loans on their own coin and couldn’t get other banks to make loans to them. That’s why government opened its credit window wider and injected capital directly into banks. Not vice versa.