(Over)Stimulating an Economy

I hesitate to judge the economic rescue/stimulus packages passed by the various countries in the world. I only hesitate because I am not an economist. My knowledge of how the economy functions really relies upon what I absorb from media and what I've learned in my academic career.

That's all well and good, but as a citizen it is my responsibility to be critical of my government's action. I have no objections to the Canadian plan of action, but there is our neighbour to the south that I wish to discuss.

The Democrats and Obama has introduced some incredibly radical legislation in recent months to "deal with the crisis." I want to point out that my problem isn't in particular the Democrat's spending priorities, but with the amount of spending itself and the way the spending is being carried out.

As a student of history the most effective way to stimulate the economy is as part of a broader program. By this I mean the following, it's usually not enough to just throw money at the problem. Instead of just pumping billions of dollars into the economy it should be more targeted. For all of the problems of the New Deal many of the projects that were carried out benefits the economy to this day. Eisenhower primed the economy with the interstate system, Hoover built a certain dam located somewhere in the Southwest, the name escapes me.

Here's the trouble. The Americans have over stimulated their economy from the get go. Spending is absolutely out of control before this crisis, and even more so now. Keynesian economic policy says the ideal situation is that going into a recession the government goes into debt to revitalize the economy. During times of prosperity the government saves up, pays off debts. This is a pretty sound idea, no? In the 1990s and 2000s the American congress has been swimming in red ink, and now they are drowning in it.

I would argue that if spending had been controlled over the past fifteen years the problems today would require much less spending to recover. This is all part of the corrupt nature of American politics. There isn't corruption as in old politics of politicians pocketing government funds and handing off contracts to friends (while that still happens, but not in a systematic way). Instead elected officials are expected to get a big slice of the pie for their districts or states. These are earmarks.

The fact is that there are not that many "meaningful" projects to fund. I'm confident some of these earmarks were/are valuable, some congressmen/women get money for much needed projects, but can there be so many deserving projects. What about these research projects figuring our uses for wood, and bear DNA?

Regardless, now when it is time to push money into the economy it is already obscenely bloated, and government debt is huge so the impact of this new debt is getting truly staggering. It hampers the effective nature of these policies, because the economy is already heated up with government spending.

As a final criticism I'd like to go back to the idea of a broad program. Why doesn't Obama introduce an idea of a fundamental economy-shaking investment in the economy? Instead of just throwing money in why doesn't the American government start a real program. Begin investing money so that the American economy no longer works on gasoline. Invest in hydrogen technology, build new powerplants, and bring in this "smart grid" that has been mentioned. Invest billions in a meaningful way that will obvious profound implications on the American economy.

But like I said, I'm no economist.