Analytical Wealth

When I woke up this morning and read the details of the Bush administration’s long-rumored economic stimulus plan, I was rather unimpressed to say the least. The problem here is that it doesn’t address any of the core issues that are driving us towards a recession:

Bad lending standards, investments and decisions on the part of the banks
People in homes they can’t afford
The retail sector going through a market correction after years of inflated sales from consumers abusing HELOCs and revolving debt.
Energy, Grocery and Healthcare inflation
Businesses and consumers having to pay the bill for the excesses of years past (see above)

This plan is no different than any of the numerous plans by both private industry and the Government to solve the foreclosure problem: it doesn’t address any of the core issues behind the problem in the first place and is just a token gesture to make people feel better.

Another thing that bothers me about the plan is that it seems designed to encourage spending, as opposed to saving and paying down debt. I would feel better about the plan if it people were required to use the money to pay down debt, fund retirement accounts or savings/investments. If we’re going to deploy stimulus programs shouldn’t the goal to be to encourage behavior that can have a long-term positive impact on the economy? The stimulus package positively reeks of a plan to give people a short-term confidence boost, in order to buy time in the hopes that “something” will happen to fix the economy in the meantime.

At the end of the day the U.S. economy has long-term problems that cannot be solved by simple short-term solutions. At best the tax rebates will only boost consumer spending for 1-2 quarters, and then we’re on our way back to where we are now. Any legitimate stimulus package needs to be designed for the long-term, not a couple of quarters. The rate cuts of the post 9/11 era were supposed to help us avoid a recession and make the economy stronger, instead they only served to delay a recession and helped to create even bigger problems.

Don’t get me wrong, I won’t begrudge any household their $800-$1,600.000, especially since many of them need it. However, it’s time for the powers that be to get behind the eight ball and start creating LONG-TERM solutions to the nation’s economic problems. Short-term solutions often do nothing more than to delay the inevitable and are often cures that are worse than the disease.

Finally, the thing that concerns me the most about this plan is that it isn’t clearly articulated as of yet, which makes me wonder about how well it will be administrated. Announcing the plan now (obviously) provides a lot of great headlines and makes people feel good, but it should really be in its final form before it’s announced to the public.