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The Stimulus Package That Won't Be
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Don't get me wrong. I'm just as excited for my $600 check from Uncle Sam in the late spring as everyone else is. Heck, I might even whistle "The Star-Spangled Banner" as I walk out to the mailbox that day.
For those of us expecting a stimulus check, it's hard to voice an opinion against such government benevolence. But before you get too comfortable with how economically "stimulating" this program will be, you might want to take a closer look at some ramifications of this plan that proposes happier times ahead.
The music stopped, but the dancing continues
It isn't breaking news that the economy is in trouble. To what degree this is the case is a matter of debate, but it's pretty clear that the "Goldilocks" economy days have left the building. That said, something does, indeed, need to be done to ensure, at the very least, that we don't get ourselves into an even bigger mess than the one we're already in. But is shipping out checks really the answer?
The reason we're in this mess has nothing to do with consumers not spending enough money. If anything, it's that we spend far too much money and finance it with fictitious real estate valuations -- to say nothing of the disproportionate amount of money we spend on imported goods, which fuels an ever-growing trade deficit.
We've spent the better part of the past decade in an economic fantasy land that was propped up with real estate valuations pulled out of thin air and foreign investors always ready to lend us money. Now that our hot-air balloon is coming back down to earth, we're desperately trying to fire up the burners to keep it airborne. But that simply can't go on for long.
If only it were that easy ...
Let me be frank about the proposed government stimulus package: It won't do squat to pull our economy out of the doldrums. The thought that handing out a check to U.S. consumers will magically make our problems go away is on par with believing in the Tooth Fairy. After all, if handing out money spurs economic growth, why stop at $150 billion? Why not $150 trillion?
The answer is pretty clear to anyone who's taken Econ 101 -- you can't just pull money out of a hat and not have negative consequences on the economy, such as rampant inflation and a plunging dollar. Nonetheless, that's what we continue to do -- keep the printing presses rolling to fund our spend-happy ways. Money that is created rather than earned is like the difference between a diamond and a cubic zirconium -- they may look similar, but the difference between their underlying value is night and day.
Mo' money, mo' problems
Inflation continues to creep around the economy. Just last month, Tyson Foods (NYSE: TSN), Kellogg (NYSE: K), and Kraft Foods (NYSE: KFT) all reported that higher food costs were causing a pinch. On top of that, the dollar remains close to its all-time low against the euro. Yet the Federal Reserve continues to slash interest rates, and new money gets created as we speak.
But the problems don't end there.
No soup for you!
The bulk of the money in this stimulus package will end up in the pockets of those who don't necessarily need it. People whose incomes are so small they aren't liable for federal income tax will receive half the amount of those with higher incomes, and retirees living solely off of Social Security might be left completely off the list.
Those who do receive the money will probably do one of a few things: Consider it a windfall and splurge, pay bills, or stash it in the bank. What gets spent will probably go toward big-ticket items like fancy electronics, in which case a chunk of the money will head back to foreign manufacturers, or to fill the gas tank on our imported cars with gas that came from the Middle East. Although the splurge spending may end up being a boon for companies such as Best Buy (NYSE: BBY) and Macy's (NYSE: M), it doesn't get to the base of the problem. Sprinkling more money on the economy without addressing the big issues follows the same logic that pairing up a Diet Coke with a Big Mac actually makes the meal healthier.
Rather than dance willy-nilly around the problem with government handouts, why don't we spend our time and money focusing on the real problem: the debt monster that looms over our heads.
If there ends up being one single reason why the United States economically falls behind the rest of the world, it may be this: We're now saddled with so much debt, on both consumers and governments, that a large part of our future work effort will end up going toward simply servicing that debt. When too much of our work day is allocated to paying for the spending of generations past, inspiration for innovation and entrepreneurship -- the things that have brought our country prosperity -- go out the window.
Do we need stimulus right now? You bet we do -- stimulus that will educate us on changing the behavior that is bringing our economy down in the first place.
Both consumers' and politicians' love for debt seems to share a common ground -- the ignorance of thinking that the implications of our current spending can be pawned off to the future. Instead of giving consumers more ammunition to continue down the same path that has led us where we are, why don't we educate them on fiscally responsible spending habits, or overhaul the subprime-mortgage lending industry that is now causing so many headaches? Or why not spend it on projects that encourage more innovation here at home so we aren't so dependent on foreigners?
"Give a man a fish and you feed him for a day; teach him to fish and you've fed him for life." Following that logic, we'd behoove ourselves to first acknowledge our faults and work from there, rather than simply splash a cup of water on the fire that continues to smolder over our economy.
