Flying Pink Unicorns

New stimulus packages, take II

As loyal readers know, I've been advocating big stimulus packages for almost a year now. And I sure as heck haven't changed my mind.

The (un)employment report, released today confirms what was already very obvious. We are in a deep recession. I suspect that it will end by around May, possibly earlier. There is already a good bit of stimulus in the pipeline. The shape and strength of the recovery, however, is yet to be seen. I am looking for stimulus packages not to end the recession, because I think it will end on its own fairly soon, but to ensure a more vigorous recovery than the last two we have had. Following both the 1991 and 2001 recessions, we had unusually slow and weak recoveries, both properly derided as jobless recoveries. Businesses order books started expanding, but they made do with the same number of workers they had, and didn't hire any new ones for quite a while, because they didn't have to. The best way to deal with that isn't big new tax breaks for new employees, as Obama proposed; all that does is make an otherwise unprofitable new hire profitable, a lousy economic policy (if not too too harmful of one). Much better is to give a quicker/sharper increase to the order books of business. And government knows precisely how to do that. Spend, spend, spend. NOT tax cuts-- these are too often saved in bad times. But government SPENDING.

Oh, one other not so minor thing. GM announced today that it would likely run out of cash early next year.

http://money.cnn.com/2008/11/07/news/companies/gm/index.htm?postversion=2008110714

Although not really a surprise, this is a disaster for the Michigan/Ohio area, and a real problem for the nation as a whole. GM and Ford are both burdened with awful labor contracts, which require wages well above what the competitive market would bear, and, worse, generous benefit packages for retirees. Since both companies have massively downsized in recent years, they both have a high number of retirees for each current worker. So the benefit payments, for pension and especially health care, are crippling the companies. Causing both to face bankruptcy early next year absent major federal help. That the lack of a national health care system that makes any sense would cause GM and Ford to go to the wall is ironic. I've been saying, since literally 1989, that they would be the biggest beneficiaries of a national health care system. They got there, but only in recent years. Management of both companies is godawful. This shouldn't be news.

Anyway, here are my stimulus plans.

Speaker Pelosi said after the election that she is hoping for Congress in an upcoming lame duck session (that is, the old Congress, not the newly elected congress) can come back and pass a stimulus package (which would have to be signed by Bush, not Obama).

http://www.sunjournal.com/story/290501-3/Business/Pelosi_weighs_stimulus_package/

The GOP apparently is dead set against any big spending package. This must must must be done, at all costs, jammed down their throats if necessary. The democrats should make the GOP actually filibuster, that is force them to actually do speeches, for weeks on end. Imagine the spectacle of the GOP inveighing against government spending and increased unemployment benefits at a time of a deep recession.

The article above spoke of possibly a $100 billion package in the lame duck session followed by a bigger one after Obama is sworn in. That works for me.

Barrack, Nancy, Harry: Here's what you should do.

1) Take what you can get from the lame duck congress. Spend as much as you can, get as much increased unemployment insurance benefits as you can. Few if any tax cuts, and only to the middle class.

2) When Obama takes office, mission number one is a massive stimulus package, heavy on infrastructure spending. My target is $400 billion over two years. A monster package. I would be willing to go up on that figure if it would help it pass. It simply has to be absolutely massive to do any real good.

The US infrastructure has been falling apart for years, much of the money would be well spent. Subways in New York City. Highways/bridges where they are needed. Road/bridge repairs. Port upgrades. Rail upgrades. Spend, spend, spend, all over the land. Don't sweat the inevitable waste. Minimize it, but don't sweat it. All these new construction and other workers will need new clothes, shoes, equipment, etc. Its the best way to quickly increase demand in the economy, which is just what the doctor ordered right about now. This recession will probably get a little worse before it gets better. Massive government spending may not be able to prevent that, but it can sure as heck make a recovery much more vigorous. Any inflationary risks are acceptable, to say the least, in an economy this bad with a still very weak financial system.