Wednesday, February 11, 2009

The US Bailout, Historical Revisionism, and Context

Brink Lindsey (author of Against the Dead Hand [Amazon]), writes why Paul Krugman should be careful of what he wishes for (Cato). Examples of effective "stimulus" are difficult to come by (Commentary Magazine). History is littered with examples of stimulus gone horribly awry. Perhaps that (among a few other non-stimulus related reasons) is why the "stimulus" package, is being rushed through Congress?

I inadvertantly ended up watching President Obama Monday night, and two things surprised me: first, the idea that he essentially thinks there is an economic consensus on the New Deal in that it helped (I'm guessing his economic advisor Christine Romer [WSJ] would disagree with him), and secondly, that he's in favor of experiments with charter schools (though this was an off the cuff remark and this may change depending on how much he needs the support of unions going forward). What bothers me most however, is the lack of focus on the longer term competitiveness of the US if the increased borrowing leads to higher interest rates for the next decade - crowding out private investment - and doesn't even address the real underlying issue (Forbes). This does not bode well for capital intensive businesses.

Given that economic downturns make it more politically expedient for blame to be shifted to foreign trade, it bears noting that the trade deficit has dropped to its lowest point in 6 years (AP/Yahoo). As is predicted, there's a proportional relationship between trade deficits and economic growth (Cato) - and it also bears reminder that the last time the US government tried to do something substantive about it, there are those who point out it may have lead to the Great Depression (US State Department). Succeed or fail, I believe the decisions that President Obama makes and has made in these few weeks may be his legacy. I'll go on the record that unfortunately, based on what he's done to date I believe it will be a failure. Given what I do depends to a fairly large degree on the strength of the US economy, I also hope that I'm wrong.

Update via Reason: I get the sense that the only people who may end up being happy about this package may be Republicans, given how much Democrats will "own" the results of the package. As Veronique de Rugy points out, even the supposedly non-partisan Congressional Budget Office believes the current stimulus package as it stands will result in lower long term economic growth - little wonder, given the list of initiatives of where the money is going to be spent.

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