Friday Rant: A Bad Mix — Economics, Stimulus Spending, Politics and Approval Ratings

Politics, while frequently incomprehensible, is something that everyone thinks they understand. We attempt to vote for those representatives who promise to promote issues and concepts that we believe in, and then hope that they do. Economics is a dubious quantitative academic social science that is extraordinarily complicated -- even for those few who have formally studied it -- and experimental at best. Enter stage right -- or left...you choose -- the most protracted economic malaise in most voter's memory and we have what is perhaps the biggest boondoggle in modern political and economic history.

President Obama proposed "business tax cuts" this week that allow companies to purchase new machines and other capital goods through 2011 and treat these investments as a current expense rather than follow traditional accounting methods to depreciate them over time. This has been hailed by some as a departure from his Keynesian economic policy leaning. For those who didn't get around to taking Econ in college: "Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle..." according to Wikipedia. Obama is also being variably criticized for being a day late and many dollars short, while others see this tax cut as a welcome move away from stimulus spending.

I believe that the program is paramount to a corporate version of cash for clunkers and a passing glance at tax cutting. With the cost of capital at its lowest point in decades, companies that decide to take advantage of this stimulus plan – and it is just that – would likely embark upon the same spend over the next year or so anyway and the government is sacrificing sorely needed tax dollars up front instead of mailing out checks. Politically induced economic stimuli is nothing but a short term attempt to garner favor. We might hope that voters could see through these actions but, in fact, they expect them.

The WSJ this week claims that "a new Wall Street Journal/NBC News poll found respondents disapprove of Mr. Obama's handling of the economy 56% to 39%. But asked if the government should 'do more to solve problems and help meet the needs of people' or if it is 'doing too many things better left to businesses and individuals,' respondents split evenly."

So what's a government to do? Most elected officials feel compelled to do something they can point to for re-election. Dubious and conflicting economic policy is ubiquitous in the headlines and is incomprehensible to most. And while voter's disapprove of current policy, they're split on what to do going forward.

I suggest that all politicians face the music that we're still in for a long economic grind and risk promoting long-term strategies to increase real investment in housing and employment. They may become sacrificial lambs in the moment, but at least they'll be doing what's right for the country -- and very possibly their long-term careers and legacies.

William Busch

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