Are People Betting Against Obamanomics?
Greta van Susteren interviewed Dick Morris about the economy. Something that they talked about was the savings rate in relation to ARRA money being spent. Here’s the first key exchange in the interview:
MORRIS: I’m not basing my contention that it’s failing on rising unemployment rate. That is a lagging indicator and could go up for some time even once the economy begins to grow.
But if you look at the statistics for April, which I took a real bath in the other day, the household income in the United States of all the country put together rose by $121 billion. And of that increase, $45 billion was from the federal government, direct financial stimulus money that flowed into people’s pockets.
So the input is taking place. But while the income rose by $131 billion, savings rose by $121 billion; savings rose by $131 billion, $10 billion faster. In other words, what happened was the people are taking all the extra income and all of the stimulus money and not spending a penny of it.
What they are doing is what I said they would do when we were talking about this a couple of weeks ago. They are putting it in T-bills or paying down their credit cards or paying off existing bills or student loans, or putting it under the mattress. But the point is it’s not flowing into the economic lifeblood of the country.
So what’s going on is, on the one hand, the federal government is running all over the place, trying desperately to borrow enough money to push it out the door in stimulus spending. Interest rates have almost doubled since January 1st.
And because of that, and the stimulus money isn’t doing any good, because people are sitting on it and not spending it.
VAN SUSTEREN: Let me try to simplify it. So let’s say that the government wanted to take $100 billion of the stimulus right now and push it into the economy, that would have no value, if $100 billion got pushed into the economy and $100 billion got put under the mattress, right?
MORRIS: Right, if $100 billion got put under the mattress, it wouldn’t do anybody any good. It would in the long-term, it would lower credit card debt. But it doesn’t help the economy.
That’s the what part of the interview. Clearly, people aren’t spending their money. What’s important is why they aren’t spending this money. That’s explained in this exchange:
VAN SUSTEREN: How do you get that $100 billion, in my hypothetical, to go into the economy and not to pay down bills or into savings? That seems to be the choke point.
MORRIS: That’s the key question. And, by the way, in my book Catastrophe, I have a whole section on it. The idea that you give them $100 billion and they spend it is Keynesian economics. But that’s been replaced by economists, by the theory of rational expectations.
And what that says is that when you get $100 million bucks, a billion bucks, if we don’t think the economy is getting better and we’re worried about losing our jobs or our homes, we’re going to hang on to that money because we think it’s the last money we will ever get.
But if we think that this is a long-term thing with this money will continue to flow, we’re likely to go out and spend it.
So what he should have done is given a long-term commitment, for example, cut the tax rate by 10 percent, and tell everybody you are going to pay 10 percent less in taxes for the next decade. And then you know if you are going to be in better and better shape, and then you will spend that money, and it will do us some economic good. But instead, he cranked out the spending, and it didn’t work.
It’s predictable that people won’t spend money if they expect the economy won’t improve. It’s my opinion that people are worried about a plethora of economic data, including china’s refusal to buy more of our debt, ARRA being a failure thus far and the failed bailouts of Chrysler and GM.
I wrote months ago that President Obama thought that the way to stimulate the economy was the government just spending lots of money:
“So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No seriously. (Laughter.) That’s the point. (Applause.)”
I can’t blame people for thinking that President Obama doesn’t have a plan beyond having government spend billions of dollars. I can’t blame people for not having confidence in Obamanomics after seeing so many of his plans fail. President Obama warned of an economic catastrophe if ARRA wasn’t passed. According to this report, the economy has lost 2,200,000 jobs since the start of February. According to this article, President Obama’s predictions are off badly:
Obama says the stimulus plan will save or create 3.5 million jobs in the next two years. But the jobs numbers show that even if that happens, the economy won’t be back to even.
This article was written in early March, approximately 3 weeks after ARRA’s signing. The economy isn’t showing signs of righting itself. Politically speaking, this can’t continue much longer without Democrats paying a price.
John Q. Public is still willing to cut the Obama administration some slack. The longer this lasts, though, the less willing the public is likely to cut the Obama administration slack.
I think it’s wrong to say that the public has totally turned against President Obama’s economic plan but I don’t think it’s a stretch to think that they aren’t thinking about changing their mind.
Technorati Tags: Economy, President Obama, Unemployment, ARRA, Bailouts, Deficits, Democrats
Cross-posted at LetFreedomRingBlog
June 6th, 2009 at 7:26 am
Couple months ago, I guess to stimulate my retirement, the Navy reduced the withholding on my pension, explaining this was a “tax cut”. That would be great if it really were a tax cut, however, im not stupid enough to depend on that as my sole income, so Im only going to have to send it right back to IRS as estimated tax payment. Then as part of the stimulus, RRB sent me an extra 250 bucks on my Railroad Retirement which went DIRECTLY into savings since thats where Ive directed all payments to go on that check.
Of course, this is only anecdotal, but it only demonstrates how utterly inept and stupid it is for the government to start making assumptions that its helping the economy to throw money at people who dont need it, or feel the need to spend it.