The Daily Clarity

Economic stimulus or porkulus?

President Obama’s economic stimulus package and reforms  have split the nation. On the one side of the great debate, we have the likes of conservative shock-pundits, Rush Limbaugh and Michelle Malkin. They mount a loud and strident argument against the stimulus, terming it a ‘porkulus’ loaded with government pet funding projects. They see the stimulus and the thinking behind it  as shepherding in an era of American socialism, the end of the free economy, and the beginning of dark days for the US. They also term the initiative the ‘generational theft act’ – they appear to love the ‘witty’ descriptor. Such terms seem to excite their ‘readership’ who seem to have a preference for rhetoric over analysis. Their readers comments, particularly the ever unpleasant Malkin site denizens – talk of stocking up on ammunition for an armed resistance to the Obama Presidency, and want to spend more and more on defense, though they resent paying taxes to fund it.  On Malkin’s site yesterday, she was ‘proudly’ displaying on her lead article a graphic that says in is byline, ‘Revolution is Brewing’. There’s responsible journalism in action! However, regardless of the depravity of her method of messaging, the porkulus argument has traction and is obviously resonating with some Americans in the heartland, and so that forms the anti-stimulus side of the great debate.

On the other side, arguing that such a stimulus is not only necessary,  but perhaps should even have been larger, faster, and be more sustained are economists Richard Koo and Martin Wolf. Richard Koo, has am impressive biography, and is the Chief Economist of Nomura Research Institute. Koo has developed a whole new description of the type of recession we are facing, terming it a ‘balance sheet recession’, and you can reference his presentation on this phenomena here. In essence, what he is saying is that even if interest rates are reduced to close to zero, credit becomes available, and tax rates minimized, in the economic conditions we currently face, this will not result in increased spending. He argues that companies (and it is implied, consumers) will take any available funds and retire debt so as to minimize risk exposure and build up cash reserves. This therefore does not stimulate spending, which is problematical as somewhere around 72% of the US economy is driven through consumption. In essence, the type of economic measures argued for by the conservative pundits wouldn’t work in today’s reality.

Martin Wolf also has impeccable credentials as an economist, and is currently Associate Editor and Chief Economics Commentator at the Financial Times. He also argues that a massive government stimulus package is required,  based on not too dissimilar reasons to Koo’s hypotheses that the economy cannot self-heal in this crisis scenario. Wolf is however critical that the stimulus as enacted by President Obama may be too little and not being implemented quickly enough. Wolf’s recent interview with CNN’s Fareed Zakaria can be seen here. Wolf, and other like minded economists, also argue that the Reagon-like blunt economic tools such as tax reduction and the ‘trickle-down’ are no longer appropriate in a complex, interconnected economy that we currently operate in. Unlike, say the recovery from the economic crisis of 1837, there is no other country able to buy US exports (though sadly the US manufactures little these days), as international economies were also leveraged, and when the US economy toppled, the effect was global.

So given these great ideological divide, the reader is left to make a decision based on highly contradictory information. Should the loud, but maybe less than robust, arguments of the conservative commentators frame one’s understanding of the matter, or should the quieter but more reasoned voices of the economists prevail? Should the messages pumped out by the all pervasive TV networks, such as Fox, dominate the information highways, or should the written word such as in Richard Koo’s economic treatise or Martin Wolf’s editorial comments hold sway? It is up to the reader to make their own decision, but at a personal level, when an issue as complex as this recessionis  and with a potential for an impact on my loved ones is at risk, I tend to favor the expert. It is akin to if I had a life-threatening heart disease, I would consult the medical specialist not the local pundit who has an opinion, but no training, on most of the issues he espouses on. From us at the Clarity – good luck and we hope you weather this economic nuclear winter.