Tuesday, February 3, 2009

Jump Start, Stimulus or ?

Is it merely a frantic and futile, all-out and spare-no-expense attempt at resuscitating an economy that should have enjoyed an undignified death decades ago?

Frantic? Even common sense, cool head Obama indulged in hyperbole saying if the stimulus package wasn’t passed quickly a whole generation might be lost. Is this like the $700 billion Bush bank bailout that had to be passed within a weekend or the world would come to an end? In fact, there’s nothing of a stimulating sort that will have much effect at all in 2009.

The part that will have an immediate impact is the money allocated to food stamps, unemployment and other welfare programs designed to alleviate widespread destitution but that’s not stimulation, only treading water. Grants to cities and states is also important but in essence will not stimulate, but rather merely reduce the number of civil servants they will have to lay off and the severity of cuts in education and social programs they will have to make.

Futile because nothing short of time - a good long time, maybe five to ten years - is going to see a thriving economy again. Moreover, the more effort, and money, that is expended to revive the old economy, the longer it will take to create a new economy.

Futile because a good part of the “stimulus” is in the form of tax cuts which will have almost no positive effect but merely add to the nation’s debt load, which is approaching staggering dimensions. This is not only mortgaging the future but also will inevitably have a devastating effect on the value of the dollar. Taking on massive new debt in order to solve the problem of massive old debt is only something bankers, economists, politicians and pundits can get their heads around. For normal people it’s like the guy stuck in a pit who doesn’t know without coaxing to stop digging.

Debt isn’t all bad. Going into debt for infrastructure makes perfect sense, since it’ll be around for a long time. However, spending a lot of money on roads is almost counterproductive considering the need to get away from autos as a primary form of travel. Railroads, on the other hand, seem to have low priority in the package though they are the most efficient form of transportation. Three rail oriented improvements could be made that would quickly get the stimulus money in the system.

First is double tracking. Most lines in the West, for instance, have a single track. That means when two train’s path’s cross, one has to stop in a siding and wait for the other to pass. The train will sometimes have to wait for 15 or 20 minutes. One time on Amtrak in southern California our train got stuck behind a freight that couldn’t make it up a steep grade on one try. We had to stand idle in frustration for an hour till the freight’s engines cooled down and it could make another stab at it. Double tracking would thus allow for a significant reduction in travel time, and thus efficiency, as well as frustration level. Since most of the right-of-way is already in the hands of the railroads, work could begin within a couple months.

The second is electrification. Electric trains are superior to diesel in every way. They are faster, cheaper, cleaner and quieter and the engines last longer and require less maintenance. This work could also get started on a very short timetable. Their only drawback is the need for additional infrastructure, but since it would pay off for a long time, an ideal use for borrowed money.

Manufacturing modern, efficient, lightweight new rolling stock would also be a good investment that would put people to work very quickly. Amtrak’s trains are heavy lumbering beasts. They are very smooth and comfortable, but they were built at a time when fossil fuels were cheap and ‘inexhaustible’, and they pay no heed to conservation. Amtrak has been mercilessly emasculated over the past decades, so merely reestablishing previous routes would put people to work almost immediately.

Every penny of the stimulus devoted to conservation and green energy will be well spent, but that’s only a small part of the total.

Well spent or ill spent, it’s not going to jump-start the economy. Obama talks of creating 2 million jobs in two years, but the country lost 1.9 million in just the last quarter of 2008, and those losses are just the beginning. The most it will do, therefore, is provide necessary safety nets and keep the situation from getting worse. Problem is, in the longer view the increased debt will definitely make things worse.

What needs to happen is a total rethink, a movement towards a different kind of economy, one based on quality of life rather than quantity of possessions. One designed with sufficient leisure time so people can pursue the arts and humanities. What America, as well as much of the developed world, needs is shorter work weeks and a lower cost of living which can only come with deflation, a word that puts fear in the hearts of all those in power.

Obama is a quick study. In a very short time he will find his stimulus has been very unstimulating and be forced to seek alternatives. So far he’s gotten most of his advice from the very people who created the problem in the first place.

One policy change he must recognize pretty quickly is the need to raise tax revenue. The only place those taxes can be found is in the wealthy and corporations and taxing them is a good in itself. They’ve had too much power and privilege and must be reined in if any kind of new economy can be brought into play.

Meanwhile hold on to your hats, this is likely to be a wild ride.


Mark Roy said...

I'm not an economist but i figure good, healthy public infrastructure is an indicator of a nation's wealth - while masses of stocks, bonds and foreign debt aren't. Am i too simplistic?
Yes - invest in the trains! Road transport is tied in with the whole agribusiness economy, which is based on the finite resource of oil. Petrochemical by-products are used as fertilisers for cash-crop monocultures, and racking up food miles is seen as good for the economy...
(If you get a chance, Don Watson's "American Journeys" is an outsider's view American culture and history - from the window of an Amtrak train).

miCheLLeBLOG said...

You are in goog company Stan. Paul Keating's comments recently on Late Line were spot on. There will be no resolution of the global economic meltdown without a remodelling of the structures that allow countries in debit to continue to hold power.

But some of us who know nothing of economics but observe the cycles of nature and life don't find any of this difficult to understand. Just the wheel turning. I have been warning friends and family for many years about the impending collapse of the stock market. Investment in world destroying practices must eventually lead to economic heartbreak. I hope this will pave the way for a surge in ethical investments.