Of course, those familiar with this blog know that I tend to disagree with this type of article on various fronts.

One question (among many) that supporters of further stimulus should be asking is if stimulus is working (and there is solid evidence it is not, as seen in many of my blog posts), then why is further stimulus necessary?

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SPX at 1195.05 as this post is written

Some may wonder what tax increases I am referring to, as at least headline tax rates have yet to increase in many areas.  Tax increases have been deferred for many reasons.  Among these reasons is the negative political ramifications of raising taxes before the upcoming November elections.

However, if we are to at least partially curtail our current deficit levels, an increase in taxes is likely certain.  Everyone should know this, at least intuitively; and I believe there is widespread recognition of these impending tax increases.

Thus, our current economic situation is such:  economic weakness that is met with stimulus / deficit spending – that then leads to tax increases.  These tax increases – during a time of economic weakness – will likely weigh (very) heavily against any lasting economic recovery.

This situation may not be inherently problematical if the stimulus / deficit spending was indeed highly economically stimulative.  However, if it is not (and there is little if any evidence that recent stimulus programs have been), a “vicious circle” may form – with large stimulus / deficit spending driving ever-higher taxes – with the net result a weaker – and more highly-indebted economy.  This weaker economy in turn drives higher stimulus / deficit spending – and ever-higher taxes.

There are a lot of complexities and other factors at work in this relationship; however, such an in-depth discussion would be too prohibitively lengthy and complex for a blog post.

However, as one can envision, this “vicious circle” can become very pernicious on many fronts.

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SPX at 1107.93 as this post is written

http://www.whitehouse.gov/the-press-office/remarks-president-state-union-address

Here are a couple of my thoughts:

First, many stimulus initiatives were mentioned.  Some of these were new ideas.  That stimulus ideas are proliferating should not be a surprise, as many in our country believe they represent a sensible solution to our many economic difficulties.   I will comment on many of these initiatives when more details are available and/or they are enacted.  For now, I will say that before we, as a nation, enact more stimulus bills, we need to analyze the results of the many stimulus efforts previously and currently enacted.  Then, we need to assess the unintended consequences and risks these stimulus efforts hold, of which I have previously mentioned on this blog.

Second, the employment situation was mentioned.  This, of course, is not a surprise and is a very popular topic among all politicians – and for very good reason.

President Obama during the speech last night made the following comment:

“But the truth is, these steps won’t make up for the seven million jobs that we’ve lost over the last two years.”

I believe that our unemployment problems, both current and ongoing, encompass a population many multiples of seven million.   Our unemployment problems will most likely not be solved by any easily enacted solution, unfortunately.

For those unaware, I previously wrote a series of blog posts on unemployment, can be found here:

http://www.economicgreenfield.com/2009/07/24/why-arent-companies-hiring/

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SPX at 1086.85 as this post is written

At this juncture, one is led to wonder “what if more stimulus is enacted?” What may be its potential size and composition?  As seen in the following video interview of Christina Romer:

her view on the matter of additional stimulus is that “We’ll do whatever it takes.” 

I found the “We’ll do whatever it takes” phrase to be very interesting.  First, do we, as a nation, know “what it will take?”

Second, this “We’ll do whatever it takes” phrase naturally begs the question as to what, if any, limit there may be on the size of any additional stimulus efforts.   Even if there is no presumable size constraint on additional stimulus efforts from a legislative perspective, might there be constraints imposed by such things as market reaction to additional indebtedness?  As well, there are many other issues, of a complex nature, that would accompany further large-scale stimulus efforts.

Perhaps the most apropos way to end this series of posts on further stimulus is to say “Stay tuned.” (lol)

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SPX  at 878.38 as this post is written 

Copyright 2009 by Ted Kavadas