Economists and Obama often wonder why the Stimulus didn't work. Libertarians and the GOP think they know the answer, though they suffer from intellectual Fundamentalism of the same sort all zealots display, the need for absolute certainty -- a need which creates a bias in the processing of all information that has led to the Birther's ridiculous position, and the general political bankruptcy of the Right, which has resulted in candidates such as Sarah Palin, and Donald Trump. The truth is, neither group actually has any experience with the stimulus. From my small little bit of stimulus, I can tell you, the stimulus worked, just not that much for America. The reasons for this are that the economists, who are academic by nature, prescribed policy measures without an understanding of the warped structure of the US economy.
If we recall, the first stimulus occurred under George W, when he mailed out cash checks, the Republican way to stimulate an economy -- to increase consumption. I remember receiving the check in the mail and spending it on French Food. Suffice it to say, there was no increased productivity injected into the economy nor was their much of a multiplier effect, since the food was subsidized by the government to begin with, and my preference then for oily foods only decreased my productivity by a few percentage points. Further, since most of the waiter's were illegal immigrants, that money was quickly drained, tax free, from the economy into Latin America. However, one group did benefit since I put the charge on my credit card -- the Banks! Big surprise. Some of that money probably went to online poker too, also based offshore.
I have to admit though that, while running a tea company I had started in 2003, I did notice that after the checks got mailed out, my profits had a small jump through the month of May and June of that year, although sales were still 60% off the peak in 2006. So that was one bright spot for the US economy since only about 10% of the price of tea went towards the cost of tea and raw materials from China, while 50% went to Google adwords with the balance going to my labor force and myself and payroll taxes.
So the economy continued its downward spiral until its spectacular crash right before the election, though I often wonder if Obama won because the market crashed, or if the market crashed because the old money was afraid that Obama was going to win and raise taxes on them, which he didn't -- or that Obama might do something far worse to their $$$. Take a look at the triple digit decline in the markets right after Obama won the Iowa primary, and you might see a similar pattern. Whatever the case, thank Mammon for kicking the GOP out of office then.
The next stimulus I received was also somewhat unproductive for America, although perhaps more productive than the $500 check I received in the mail, and definitely very very productive for Germany, which is evident from the spectacular performance of Germany during the global economic crisis, when compared to the lackluster performance of the US economy . At the time I was a Grad student studying under a German professor working on Carbon capture and storage, who also happened to be a nuclear physicist and former Associate Director of Los Alamos National Laboratories. We were granted $3 million from the Department of Energy. Approximately $200,000 of that money has gone towards paying for my tuition and stipend, which hopefully will turn out to be a positive net investment, while the rest went to support 5 professors (Only 1 of whom was an American Citizen -- the German) receiving in aggregate $1 million dollars for doing pretty much nothing, save spending a few hours a week in meetings with me. However, the rest of the money went towards buying high technology goods. Unfortunately, despite pouring through hundreds of catalogs, and hoping to patriotically only buy American, the vast majority of high technology goods come either from Germany or Japan, or are manufactured in the US by German owned companies -- I was also German owned at the time. Thus, approximately $2 million dollars went towards contracting and material costs, which paid engineers and workers in Germany and a few sales people in the US. Of that $2 million, maybe $1 million (optimistically) went toward paying the wages and profit margins of the American Subsidiaries, with the balance going to Germany (I decided not to buy anything from Japan). Thus, if we calculate the total stimulus to the US economy, of the $1 million that paid for professor salaries and my own tuition and salary, only maybe $500,000 went to US citizens. Of the $2 million in contracting and material costs, maybe $1 million went into American pockets, though pretty much none of it went towards creating productive capital located in the US, since most of the costs went to sales people and wage laborers, with the balance being capital gains for German companies. The remaining $1.5 million went towards augmenting the German economy and increasing its capital stock and productivityhttp://www.nytimes.com/2010/08/14/world/europe/14germany.html.
Of course the numbers above are very rough estimates, but it gives you an idea of why the stimulus turned out to be lackluster for the US, while spectacular for Germany. What else can I say about the stimulus?
When there were tax breaks given for trading in old fuel-inefficient cars, and to support the real estate market, whatever bump my tea company, which had now downsized from 3 full time employees and up to 8 part time employees and a warehouse to just 1 full time independent contractor (my widowed mom who lost nearly 40% of her retirement funds to a real estate scheme) with no warehouse, received from the first Stimulus was taken back, since business died until the day those two programs ended. Why would anyone want to pay full price for tea, when cars and real estate was on sale? Fortunately, during that period I was receiving my own stimulus as described in the previous paragraph. At this point I must admit again, that the 2 trillion in Federal Reserve, monetary as well as the fiscal -- stimulus did give my speculative activities a boost, since I bought some Ford and leveraged up my position ten times. However, that money went to pay off credit card debt accumulated from the warehouse lease and severance of labor I had been forced to take on as a result of the economic crash, though I learned that 1 motivated worker (my mom) could do the work of the 11 employees and warehouse I had previously been paying for.
I was fortunate to have no compunction in temporarily falling behind on my credit cards and loan to survive financially, and was well diversified so that my income met my needs, though the banks had to wait for their share. However, most of my tea customers, and most Americans in general were not so lucky. A tax cut did not do it under Bush and a Fiscal stimulus did not do it under Obama. Another tax cut, or a cutback in spending isn't going to fix the economy either. Instead, an increase in taxes is the only reasonable way of addressing the fiscal position of the economy, though these taxes should fall on the shoulders of those who reaped unprecedented profits during the boom, while the rest of the 98% of americans did not see much of an income increase. Back in the good times, this was justified as due to the globalized economy, and the new information economy which valued highly productive individuals.
However, having dined with many of these so-called highly productive individuals over highly productive and economically stimulating meals, I have my doubts about this theory. Instead, it was a typical redistribution of wealth seen so many times in history, when a small group of individuals uses the capital of a country to reap foreign conquests. In our case, instead of military conquests (which America never really does for profit), we had foreign economic conquests. This is the reason the dollar declined so much during the boom, since dollars were being exported in greater and greater quantities to foreign countries in search of higher profits, depriving domestic labor of productive capital and thus productive livelihoods. Contrary to what the GOP thinks, a tax on high income individuals is both fair and economically efficient, and hasn't been tried yet. The alternative is a one time capital levy (which the state of NY did to my bank account on two occasions for forgetting to file a form, leaving a phone number on the bank statement to call. Only after I called and was warmly received by "enforcement" was I informed that I had forgotten to file the forms 5 years before, when I was still a college student. They had slyly let the years pass so that the fine could be maxed out before enforcing on me. Fortunately, I wasn't in trouble since everything had already been taken care of by the levy) -- but that would reek of socialism.
So lets stick to raising the income tax so that average Americans can once again have some faith in the fairness of the system which has robbed them of their homes, savings, and productivity.