I’ve been pretty busy at work, so I’ve just been reading the parade of posts ripping the stimulus (spending?) plan passed by Congress. Reading and thinking to myself – is what they passed bad?

In a word, yes, what Congress passed is not a great bill. It’s pork filled and expensive.

However, I’m not so sure the concept of the bill was bad, it was just so badly mangled and pork-laden, that it will ultimately fail in what it was set out to do.

I had a conversation with a couple of professors – one economics, one finance – in regards to what they think should be done about our current situation, and how the Obama plan stacks up. Here’s a synopsis of the conversation:

From the economist:

In a broad outline, traditional monetary policy has shot it’s bolt. Interest rate cuts have not stimulated much borrowing, lending, or investment. Tax cuts for the rich is a discredited concept. A sharp increase in spending is about all that’s left. The main worries about a sharp rise in spending are:

1. It is inflationary. I don’t see this as a problem right now, when deflation is actually more of an immediate menace.

2. Public spending will crowd out private spending. Normally, this, too, would be a worry, but the whole problem is that spending has collapsed. There is not much to be crowded out at the moment.

3. Our children and grandchildren will be burdened with debt. This is a worry. It can, however, be mitigated if the spending is on projects that confer benefits for future generations, such as badly needed infrastructure upgrades. The debt may also be unavoidable in order to prevent a downward spiral that could last for a decade or more and create massive political chaos, much like what happened to Japan in the 1990s.

The need for spending comes at an appropriate time, as our nation’s infrastructure is in bad need of an upgrade. The key is to chose the correct projects to upgrade. One of the mistakes of the Japanese plan of the 90s was the fact they chose to upgrade roads and bridges, instead of using the money on projects aiding a nation that needed to address an aging population and other issues related to that.

The finance professor:

Spending is all well and good, but it means nothing if the banking and financial markets aren’t fixed. If you let rotten apples like Bank of America and Citi die their deserved death and address the fundamental flaws in the system, governmental spending can act as a jump-start of sorts until public spending is revived.

The idea that tax cuts alone could fix the problems we face is preposterous, but unless we fix the problems, all the governmental spending in the world isn’t going to pull us out of this.

What I cull from these two opinions, is that the basic concept of a spending plan could very well be beneficial, however there needs to be some repairs done to the banking and finance industries before any of the potential benefits can be reaped.

What is also clear to me, is that what Congress passed and what President Obama is signing is not what either of the two doctors above is prescribing.

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