My Thoughts on More Stimulus, Part II

Perhaps one of the first questions that should be asked with regard to our current economic difficulties is “Do we Understand the Problem?”  I discussed this concept in the article “President Obama’s Greatest Challenge” (listed here as the fourth article):

Do we understand the problem?  I will leave that question unanswered, for now.  However, some aspects to consider:

  1. We seem to continually underestimate the complexity and/or severity of our economic situation in that each stimulus is billed as the “solution” to our problems, yet each fails to stem further economic weakness.   This problem has occurred with the $150 billion tax rebate stimulus in 2008; TARP in 2008, and now, based upon results vs. plan (to date), The American Recovery and Reinvestment Act of 2009.
  2. As mentioned in yesterday’s post, “An Interesting Chart on Job Losses,” the length and severity of this purported recession are outsized, on a historical basis, despite the very large aggregate intervention steps taken.
  3. There is widely varying conclusions as to the effect of the $787 Billion American Recovery and Reinvestment Act.  As mentioned in this Wall Street Journal article (which does a good job of summarizing the current calls for more stimulus): “Depending on your perspective, the stimulus plan:
    a. Isn’t working.
    b. Is preventing unemployment from being even worse, or
    c. Hasn’t had enough time to really kick in yet.”
  4. The rather disconcerting reality that despite official large-scale interventions (including stimulus plans) since at least mid-2007, the economy is, at best, not getting any worse.  But as mentioned in the following Wall Street Journal editorial,

    “The real question is how strong and sustained any expansion will be. If the “stimulus” were working as advertised, it ought to be very strong.”

  5. Add to this list an array of disturbing economic statistics and other “outlier” behavior that I have previously discussed. 

As listed above, as well as for other reasons, there is much to consider when one attempts to answer the question “Do we understand the problem?” 

Part III to follow…

SPX at 880.38 as this post is written


Copyright 2009 by Ted Kavadas