Sushi Money

Catching up the past few weeks on some much needed organization, and a little more focus on priorities at home.   Most of those priorities involve looking very hard at our financial picture.   Congress is doing the same thing, but I’m not sure their priorities are all financial.  It’s politics after all, and the stimulus plan has now become a political spending platform.  Lately it seems that Congress wants to spend billions on a host of programs that may or may not help over the short-term, or that we may not see for decades.   Economists know that Components of the Stimulus will Vary in Speed and Efficiency.

“Devising any economic stimulus plan is tricky: initiatives that can be carried out relatively fast, like tax cuts, tend to provide less bang for the buck in terms of generating jobs and economic growth, while initiatives likely to spur more robust activity, like public works projects, can take so long to get under way that they arrive too late.”

But the country is trying to claw it’s way out of this recession, and today’s news reflects the magnitude of the challenge with the largest drop in GDP since 1982.   Now the debate is whether we’ve seen the worst, or that this drop in GDP is just a preview of worse economic conditions to come.  Consumers have really tightened their belts:

“Hit by tight credit and soaring job losses, Americans slammed the brakes on spending in the quarter.”

“Consumer spending fell at a 3.5% annual rate, which was the seventh biggest drop on record. Spending on big-ticket durable goods plunged at a 22% pace, the largest decline since 1987. Consumer spending accounts for more than two-thirds of overall economic activity.”

“But it wasn’t just consumers pulling back. Fixed investment in equipment and software, taken as an indication of business spending, plunged at an annual 28% rate. That’s the biggest drop in 50 years.”

So this certainly gives momentum to the stimulus package.   Honestly, most Americans just want the government to do whatever is necessary to get our economic engine restarted.  Exactly how you define the “whatever” is the problem.  Increase spending?  Cut taxes?  It’s the age old debate, and even Rush Limbaugh opines in the Wall Street Journal that there could be compromise… we could do a little of both.  

“There’s a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they’re left alone. What can make the recession worse is the wrong kind of government intervention.”

“Keynesian economists believe government spending on “shovel-ready” infrastructure projects — schools, roads, bridges — is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.”

“Recent polling indicates that the American people are in favor of both approaches.”

“Notwithstanding the media blitz in support of the Obama stimulus plan, most Americans, according to a new Rasmussen poll, are skeptical. Rasmussen finds that 59% fear that Congress and the president will increase government spending too much. Only 17% worry they will cut taxes too much. Since the American people are not certain that the Obama stimulus plan is the way to go, it seems to me there’s an opportunity for genuine compromise. At the same time, we can garner evidence on how to deal with future recessions, so every occurrence will no longer become a matter of partisan debate.”

I believe we need to do whatever fosters business and job growth- expanding economic activity- and both spending and tax cuts can achieve those goals if used effectively.  What effectively means is the real question.  Between job insecurity and the challenges of winter, energy costs and taxes- consumers have got enough to deal with over the next few months.  Let’s hope our elected leaders get it mostly right.

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