Brilliant Political Strategy or What?

We are being told that only 10% of the original $787 billion stimuli plan has been expended. The remaining 90% will finally get into the economy during the next one to two years. With unemployment at 9.5% (U6 rate of unemployment is already 16.5%, which is the true rate of the unemployment percentage.), which equates to something like 15 million people out of work, there is clamor by some on the Hill for another stimuli package. http://www.bls.gov/news.release/empsit.t12.htm

I, for one, consider that the Obama team really believes the eventual time horizon for that remaining 90% is a brilliant political move on their part. Why else would they delay 90% of the expenditures until next year? My reasoning will follow shortly.

No one can doubt his overall popularity and what it has gotten him so far. For instance, in his first six months, he has been able to nationalized specific segments of the financial industry and, of course, the auto industry. Now, he wants to nationalized our health-care system and has introduce the largest indirect tax on the American people through the “Cap and Trade” bill, which has been passed by the House and currently being debated in the Senate. Now, popularity only goes so far in Washington, D.C., as witnessed by the fact that more people currently disagree with his handling of the economy than approve of his handling of it.

Now, because of his popularity and the Democratic controlled Congress, President Obama will probably get his social agenda passed in one form or another. However, in doing so, he will have used up most of his political capital this year. I believe that the electorate will become increasing disenchanted with President Obama as the unemployment rate heads above 10%. Remember President Clinton saying during his campaign for the presidency that "it is about the economy." Obama knows that, and he knows that so very well. But again, when will that 90% of the $787 billion get into the economy? Of course, that 90% will start stimulating the economy in 2010. And, what happens in 2010? The mid-term Congressional elections will occur. Obama believes that the 90% will be more than sufficient to not only stimulate the economy out of the recession, for which he and the Democrats get the credit, but to assist in electing Democrats back to Congress next year. This time lag, stimuli strategy is brilliant. However, if the economy does not improve next year, and the Democrats lose seats in the upcoming mid-term election; President Obama can still push through a “second” stimulus plan to assist him in his 2012 reelection campaign. Time will tell if this is a brilliant strategy after all or not.

Saying all that, I don’t believe the stimuli will grow the economy in real terms. I firmly believe that we cannot spend our way out of this economic malaise in a time when the American people are deleveraging themselves from debt. It has not worked in the past, and it will not work now. Real economic growth occurs through real investments/savings, not by government spending through monetarization.