Broadband: [MediaValue] Stimulus Stumbles -- While Economy Heals Itself

Stimulus Stumbles -- While Economy Heals Itself

Andrew Jeffery Jul 20, 2009 2:25 pm

Federal relief efforts have questionable impact on recovery.

Correlation, they say, doesn't always mean causation. Just because one event seems to lead to another doesn't mean it does -- in any complex system, the answer is unlikely to be that black and white.

Nearly 6 months after President Obama announced his $787 billion stimulus package, the economic outlook appears decidedly better than it was when he took office, at least to the casual observer. Job losses, while persistent, appear to be tapering off. Credit markets, while still gummed up, aren't nearly as frozen as they were last fall. Consumer confidence, while miserable, is no longer at its lowest.

In short, to quote Minyanville's Todd Harrison, "We've sold the car crash and bought the cancer." This is one man's way of saying that, to avoid an economic catastrophe, we've opted instead for a slow bleed, prolonging the ultimate day of reckoning in hopes that our wounds will heal in the meantime.

And each time a piece of economic data emerges that suggests the worst is behind us -- like today's positive reading on leading indicators -- Washington bureaucrats shout that it's because their particular pet policy has proved a smashing success.

To wit: In commenting on the relative effectiveness of the stimulus package, Jared Bernstein, chief economic adviser to Vice President Joe Biden -- whose office is handling the stimulus roll-out -- said that "It's working, it's demonstrably working."

But can recent economic data telling us the sky isn't falling -- but that it may fall -- be attributed to a functioning economic stimulus plan? The answer is an unequivocal no.

The stimulus was meant to be a 2-year investment package, with the bulk of the aid being doled out in the second half of this year. In fact, according to Bloomberg, just $103 billion -- or 13% of the total money allocated -- has been given out. For a country whose gross domestic product is more than $14 trillion, that figure barely registers.

At best, the stimulus provided the average US consumer, worker, and manager with peace of mind. Yes, the government is willing to throw boatloads of money at our problems -- the fact that it's our own money, of course, we're asked to quietly overlook.

To say that government intervention into financial markets hasn't helped stave off an outright meltdown, however, is to frankly ignore reality. The Federal Reserve, the Treasury, and the FDIC have jump-started certain segments of the credit markets; tax credits have pushed first-time home buyers into the housing market; and low interest rates have juiced bank earnings.

And while arguments that these measures have inspired artificial confidence in a system that's still doomed are compelling, this is our economic reality. We're left to either close our eyes and hope it goes away or to operate within its bizarre and sometimes contradictory constraints.

Meanwhile, confusion reigns in the real economy. General Electric (GE) issued a strong profit outlook. Meanwhile, Intel (INTC) and IBM (IBM) provided upbeat expectations about the future. JPMorgan (JPM) and Goldman Sachs (GS) turned in record quarters, CIT (CIT) teeters on the edge of bankruptcy, and the FDIC seems to seize a handful of failed banks every weekend .

Ultimately, the success of the stimulus package can't be measured in dollars and cents, since its true effect on the economy is far too difficult to isolate, tabulate, and report. Instead, its impact will be measured by the extent to which its message -- namely that the government has our economic back -- is well received by the American people.

The jury on that is likely to be out until sometime around November 2012.