How not to stop the stimulus

There’s any number of good reasons to take issue with the 2009 model of “stimulus” proposed by the incoming president. Namely, America’s broke and there’s no money to pay for it, any more than there was for the 2008 model pushed through by the current president.

But is that the main argument we’re going to hear in the weeks ahead from critics of the idea? No. They’re actually going to argue — I can’t believe I’m typing this — that the economy is already getting better on its own.

Leading the Pollyanna squad is — big surprise — Larry Kudlow. A few indicators, he says, are pointing up again, even if he concedes they’re still “recession readings” — service jobs, overall business activity, factory orders.

So far so good. But then he says pending home sales in the Western U.S. are up. The key word there is “pending.” Funny we never hear figures for completed home sales. We never hear when those pending sales fall through because — oh, I don’t know, a borrower who was credit-worthy by bubble standards isn’t anymore. And the option-ARM debacle is yet to hit full force. More than a quarter of all recent mortgages in California are option ARMs, and last I checked, California is a western state. Sure you want to call the bottom, Larry?

Larry’s also excited by the rising numbers for real disposable income, a figure that’s tied to the consumer price index and as such is influenced by falling gas prices. It’s true, as Kudlow says, that lower gas prices have the effect of putting $350 billion in Americans’ pockets. That should be just enough to cover the new higher minimum payments on those maxed-out credit cards. Sure you want to call the bottom, Larry?

No matter. The point of trotting out these figures, he explains, is that “Lower tax rates for large and small businesses along with easier [credit] and lower gasoline prices will get us on the right track to increase the economy’s potential to prosper.”

Well, they don’t hurt. But this is pretty thin gruel to try to talk your average American out of a $775 billion “stimulus” that can only be paid for by borrowing and eventually printing more money. I actually heard some GOP hack on a cable gabfest this week trot out lower capital gains taxes and repealing the estate tax as things that’ll “put money in people’s pockets.” Come on. They’re good ideas, but they’re not going to deliver immediate tangible benefits of the sort the “stimulus” will deliver, and this clown knows that. Why even try to make that argument?

Perhaps it’s because in our consumer-crazy immediate-gratification culture, ordinary folks lost sight of the need to produce goods, which is driven by capital formation, which is driven by savings. Consumer spending became a form of civic virtue. Whatever dim awareness people might have had of the need for capital formation was killed off late last year by scandal and political sideshow. Suggest cutting taxes for big business now, and you’ll be suspected of performing more favors for Wall Street’s worst crooks. Suggest cutting taxes for small business, and the person you’re trying to convince will probably conjure up the image of that ridiculous “Joe the Plumber” character, who turned out to be merely an aspiring small businessman and as such wouldn’t have benefited from a business tax cut, at least not right away. The connection between lower taxes on the one hand and jobs and prosperity on the other is utterly lost. Another fine legacy of Team Bush. (Where was Larry, and Cavuto, and the rest of these guys when BushCo turned out to be the biggest spenders since LBJ?)

So count on a “stimulus.” Count on trillion-dollar deficits, as the new president promises. He’s sure as heck not going to follow through on this advice… so act accordingly.

The Daily Reckoning