Abominable Obamanomics

Nobody in their right mind envies President Obama's position between a jagged rock and an economic hard place. But nor can a nation overlook the epic blunders of a grossly failed response strategy.

To his credit, the President finally appears to grasp the central role that resuscitation of the country's industrial base -- and reconstruction of a crumbling infrastructure -- must play in any response strategy with even a remote chance of sustainable benefit. Of course, he could have saved face -- and a considerable fortune in mostly wasted, debt-spawned capital -- by directing a greater portion of his initial stimulus plan into these traditional engines of growth.

On Labor Day, President Obama unveiled a $50 billion spending proposal to an enthused crowd of union workers in Milwaukee, Wisconsin. Following an initial push to build or improve the surfaces upon which planes, trains, and automobiles pass, this latest proposal would then seek to establish a national infrastructure bank to support green transportation initiatives, high-speed rail, etc. It's an ambitious plan, especially considering the ever-expanding spate of fiscal deficits stretched out along our horizon.

The President proposes to fund these expenditures by eliminating some tax breaks for oil and gas companies. While that may sound like an easy fix, I would point out that those changes are likely to filter down to fuel prices, which themselves could pose a barrier to economic growth.

Deja vu all over again
From the time we caught a sneak preview of the $814 billion stimulus plan back in January 2009, I expressed concern over an allocation model that would see only about 5% of all spending directed to infrastructure. Bellwethers like United States Steel (NYSE: X  ) , I argued, would feel substantially understimulated.

Soon after, Caterpillar (NYSE: CAT  ) CEO Jim Owens expressed dismay at estimates that only about 20% of all stimulus spending would support activities beneficial to his company. By April of 2009, Owens was removing the gloves, stating that he would "rather be President Hu than President Obama." I pondered whether Obamanomics could save Terex (NYSE: TEX  ) from the brink of failure, but in the final analysis it was a pair of key strategic moves that breathed life into the stressed manufacturer ... not the elusive impact of stimulus.

Throughout this trying period for American industrial bellwethers, Nucor (NYSE: NUE  ) CEO Dan DiMicco provided the most persistent and realistic voice of reason, calling for a reversal of wasteful deficit spending and a targeted initiative to jump-start the domestic industrial machine. After observing the folly of initial attempts to address the economic crisis, and contrary to popular opinion at the time, he also correctly predicted that this would become the "granddaddy of all jobless recoveries." The principles of his plan for rebuilding American infrastructure are discussed here, and can be viewed at Nucor's website here.

Now, some 18 months after he visited a Caterpillar plant in Illinois to tout his massive stimulus bill, President Obama appeared in Milwaukee to unveil his fresh initiative. In the very city where mining equipment manufacturers Bucyrus (Nasdaq: BUCY  ) and Joy Global (Nasdaq: JOYG  ) thrive -- largely on the robust global commodity demand that China's alternative stimulus strategy successfully promoted -- Obama has returned to the well for a second chance at jump-starting American industry. One can only hope that this latest effort will not be as fraught with damaging and embarrassing misappropriations like the $18 million-over-five-years redesign of government's Recovery.gov website. Don't hold your breath.

The dastardly debt debacle
Without question, today's proposed $50 billion infrastructure initiative can not be viewed through the same lens as the similar expenditure contained within the American Recovery and Reinvestment Act of 2009. For starters, the election-year political climate and increased public concern over expanding sovereign debt make its passage through Congress a decidedly uphill battle.

Also, the elapsed time that we've been mired in this economic weakness has a cumulative impact (not to mention threats of negative feedback loops); essentially adding weight to the lead collar wrapped around the economy's neck. For example, the minute difference between the August U6 unemployment rate of 16.7%, and the 16.4% rate recorded 15 months earlier, may not actually be so minute from the perspective of economic impact. The longer unemployment remains elevated, the more stagnated our economy becomes, and the heavier the burden a given stimulus measure will be tasked to address.

Therefore, I believe the most opportune time for well-targeted industrial stimulus and infrastructure investment already transpired at the outset of this economic crisis. Dollars heaped onto the problem today are likely to have a more muted effect.

 I personally have never been comfortable with the strategy of employing deficit spending to address a debt crisis. Although President Obama's latest $50 billion plan finally targets the right segment of the economy, it nonetheless strikes me as more of the wrong formula, at the wrong time, with paltry chances of even passing through a divided Congress.

But I'm just one Foolish voice among millions. Please take a moment to share your reaction to this proposed stimulus in the comments section below.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Nucor; purely as a matter of principle. Nucor is a Motley Fool Stock Advisor pick. The Fool has established a bear put spread position on Caterpillar. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 08, 2010, at 9:14 PM, hbofbyu wrote:

    The problem is that what starts as a temporary governmental fix usually becomes a permanent and expanding government program (for example the TSA and homeland security after 911) which stifle the private sector and undercut civil society.

    Things go wrong in this world but it's a tragedy that every politician believes these wrongs can be always be fixed with new legislation. The politicians will save us from the world but who will save us from the politicians?

  • Report this Comment On September 09, 2010, at 1:55 AM, jesterisdead wrote:

    I read an article that stated there was something like $45 billion from the first stimulus allocated for infrastructure, but still unspent. Only $15B has yet been used for this purpose. We were fools the first time to give this madman a blank check - doing it again would just be utter absurdity.

    The problem with our government is everything gets lumped into the general fund. The federal government taxes us 18.4 cents per gallon, which rakes in $23B in taxes for transportation, yet not a dime of this is ever allocated to infrastructure spending, because it is already used up for for entitlement spending. Until we either reduce the size of government and put this into private hands or restrict the greedy politician's from access to taxes that are supposed to be dedicated to certain expenditures, this will continue to be a problem.

    Government is not the answer.

  • Report this Comment On September 09, 2010, at 9:04 AM, jblemley wrote:

    yes he only spent some of the original stimulus. He will do a huge infrastructure play in 2011. Why 2011? He has elections comming up for 2012. People in the usa forget very quickly. The problem isn't the democrates or the republicans, it's both. It's the 2 party system. women do you like the right to vote, well the women sufferage movement brought that to national attention. Then the other 2 parties started to talk about it. Nothing will ever change as long as we keep pointing fingers at eachother's party. lobbiest will continue to buy off both side and will get a whopping 10 mile/gallon raise in the gas standard from 25mile/gal to 35/ gal. in 1996 my car got 49 miles/ gal without any hybrid in it. It is funny we can go from kittyhawk to the moon, a computer that use to fit in a room, now fits on your wrist,and from telegraph to a satalite, but the engine went nowhere. Oil rules, our government and big business. I can buy a senator (oops I mean lobby), but if I offered money to a cop or a judge I'm in jail.. You can;t buy those who enforce the laws, but if you have enough money you can buy those who create them...WTF is wrong with this country.. and to those who are spitting out socialism these days are MORONS(like me with spelling lol) free healthcare is not socialism..Do you like having public schools, do you like having libraries, do you like having police stations, do you like having firestations.. now imagine if you had to by a membership to have the firefighters to come put your house out..ooh wait if you stayed awake in social studies, you would know this is how it was. and i bet all thoe private companies fought tooth and nail not to socialize these things. Without government socializing education and educating the masses would all the previous advances i spoke of have ever happend. We were in the dark ages for hundreds of years, we went backward with technology then. We forgot how to forge steel at one point. How did this happen? The black Plague,it didn't care that the top 1% could read (the rich), it killed without bias. If everyone were educated during these times, we wouldn't have taken that technological step backward.... we all have the right to life, liberty ,and the pursuit of happiness.. I believe lobbiest infringe on these rights.

  • Report this Comment On September 09, 2010, at 9:18 AM, zooman53 wrote:

    Wrong-o! Government is the answer.

    If you recall, we got into this mess in the first place because of the greed and excesses of big banks and wall street looking for a quick buck. Government oversight and jail time for those fat cats who ripped us off was and is the solution.

    People cry about deficits, waste, and the huge amount of money that the government spent for TARP. We were looking over the cliff for a repeat of the Great Depression. Would you truly have liked the Government to do nothing? It's ain't perfect but this is better than sitting in a bread line.

    The President did exactly what needed to be done. We always get into big problems with short-term "feel goods" instead of looking for the needed long-term solutions.

  • Report this Comment On September 09, 2010, at 10:51 AM, pl2358 wrote:

    zooman53:

    Really?!? More government?? I agree with your opinion on only one front: That stimulus money was needed and taking action was better than no action at all.

    That being said, the last thing we need is more government. Our current government can't even do what they are supposed to because lobbyists are in their pockets. They can't balance a budget, and they definitely can't properly appropriate funding. There were HUNDREDS of millions of dollars wasted in the American Recovery and Reinvestment Act of 2009. Why? First, the hurried approval of the Act. It was so large that no one, not even the writers of the Act, had proper time to review it. I don't buy for a second that the actual legislators reviewed the Act prior to voting for it, supporters or detractors.

    Second, the aim of the money. Our economy has demonstrated for years that it's based on the ability to manufacture. If we aren't building houses, roads, rails, bridges, etc., we aren't employing either the construction workers, the materials workers who supply the construction materials, the miners to mine the raw materials used to make the materials, or other employees that work supporting any of those businesses with fuel, equipment, storage, etc. ANY person with economic sense should have seen that failure to fund infrastructure is a failure to fund our economy at the bottom levels and up. The braintrusts responsible for fabricating the President's plan for the Act didn't come up with that simple estimate....

    We need government OUT of our businesses. Financial regulation for banks was definitely necessary to attempt to disable the greed that put our economy in this mess. The measures passed didn't even go far enough. And I'm a staunch investor in banks saying that more regulation (and likely less profits) are required to keep this from happening again.

    We need less government. Our government wastes too much money trying to fix everything. How about making the government we have live within its means? We all have to.....

  • Report this Comment On September 09, 2010, at 2:01 PM, zooman53 wrote:

    Ok, you've convinced me -- no more government. I'm not worried about big banks and credit card companies finding ways to scam me with fine print for my credit cards and bank accounts . . . or BP taking short-cuts so that the Gulf is polluted . . . or big egg companies killing me with samonella poison because they won't practice basic cleanliness.

    Hundreds of millions wasted? Prove it. All I've heard about are the nickels and dimes that McCain and his ilk have been able to come up with. I won't assert that Government doesn't have use and abuse if you won't assert that private industry is a paragon of efficiency. Do you really want to defend big business with CEO's with millions and millions of dollars in salaries supported by equally outrageous salaries? HP just bought out 40% of its management to reduce costs. hmm. Do you think they needed all these people sitting at desks a year ago? Or maybe I should bring up the example of AIG?

  • Report this Comment On September 09, 2010, at 4:06 PM, PhulishMortal wrote:

    "Ok, you've convinced me -- no more government. "

    I will never understand why people insist on taking things to an extreme, particularly an extreme that was never suggested.

    pl2358 wrote at the start of his comment "The last thing we need is more government." At the end, he wrote, "We need less government." How did that translate into "no more government?" This sort of thing is why I have nearly given up on trying to find a coherent discussion on the internet these days.

  • Report this Comment On September 09, 2010, at 8:48 PM, DDHv wrote:

    Um. There are a lot of people who decided that having housing prices rise by about 100% while the income of those buying them rose by 2% was not a bubble. Similar for private debt, discretionary spending, the stock market, public debt, and the value of the dollar. The last two have not yet popped - does anyone think they won't?

    Most of these are like the problems with BPs well. Not doing the basics correctly usually causes trouble sooner or later. I suggest reading, "The Checklist Manifesto" by Atul Gawande who points out that a known method, with literally decades of history in some fields, is being expanded to other fields with good results. Including his profession of surgery.

  • Report this Comment On September 10, 2010, at 8:46 AM, zooman53 wrote:

    PhulishMoral-- Do you understand the concept of humor and sarcasm? I take some journalistic liberties to get across my point. I no more believe in "no government" than I believe in the excesses of free enterprise.

  • Report this Comment On September 10, 2010, at 9:26 AM, DJDynamicNC wrote:

    Hundreds of millions of dollars wasted?

    Overlooking the hundreds of millions, if not billions, currently being wasted on executive compensation for people who drove their company (and the economy) into a great, gaping ditch.... I'd be VERY interested in seeing some actual proof that hundreds of millions were wasted in ARRA. Considering that about half of it was tax cuts, I'm sure you don't think that was a waste.

    It's shocking to me that everybody has up and decided to completely forget the lessons we learned from the Great Depression and Japan's Lost Decade. Government deficit spending for stimulus worked. Austerity measures trapped Japan for 10 years or more in a cycle of pathetic growth and, thus, stagnant revenue.

  • Report this Comment On September 12, 2010, at 4:01 AM, PapayaChunks wrote:

    No economy policy ingrained in political partisanship can save the economy; to be efficient, authorities must use a combination of ideologies, extirpating the best areas of each and amalgamating them into a coherent plan deep-rooted in sound economics.

    First, the government must balance its budget by reining in bureaucratic waste at the federal and state levels, seeking higher efficiency in its social programs and maintaining a tax base able to provide sufficient inflows. The recent nomination of Jeffrey Zients as U.S. Chief Performance Officer is a welcome decision.

    Second, the government and the legislative branch must agree to suppress or significantly reduce pork-barrel spending; even if some of the projects subsidized are valid, the lack of transparency and the fact that too much power lies in the hands of one lawmaker are troubling. Citizens Against Government Waste, a private, nonpartisan watchdog, estimated in its latest report that 2009 pork-barrel spending amounted to $19.6 billion, up from $17.2 billion the previous year.

    Third, the government must invest in education, sciences, health, and recreation services to assure a productive labor force and educated populace. Every citizen appreciates a good local school system, an efficient police, and functional social services. Fourth, a gradual and well-balanced regulatory framework for critical sectors is needed to level the playing field for all economic agents and eschew the negative effects of systemic risks.

    Finally, the tax code should be more efficient and easier to understand so more revenues are collected. Currently, it is estimated that it costs the IRS between 25 and 30 cents for every tax dollar collected, without counting the billions spent by citizens in tax compliance and planning. We have a simplified property tax code in our cities; why can't we engineer a similar scheme at the federal level?

    ----------------------------------

    Money without intelligence is like a car without a road.

    http://www.intelligentinvestingtips.com

  • Report this Comment On September 13, 2010, at 2:23 AM, TheEDFLegacy wrote:

    What needs to happen is to let the economy fail.

    Yes. I said for it to fail.

    Why? Because, the only way we will get rid of the corrupt companies, and to get rid of the bad debt is to let everything fail. Only once we've cleared the rot out of the economy will it start to recover. It will be harsher short term, but long term, the economy will be better for it.

    Now that the government has artificially kept open these corrupt businesses, it has not only prolonged the recession, but also has potentially put the government into the same situation as the companies, where it is loaded with rot. It's a very bad situation that could end up looking like Greece in a short amount of time.

  • Report this Comment On September 13, 2010, at 3:39 AM, xmmj wrote:

    I think the author wants to go back to the VOODOO economics that threw us into the Great Republican Recession. Let's remember the great republican successes:

    The failure of the S&L (Savings and Loan) industry that cost taxpayers Billions back in Reagan's time. Then twenty-five years later, Bush liked that success so much that he gave us a repeat course only 10 times bigger with the current financial melt-down.

    President Obama inherited a train wreck, the cars were off the track and the engine down in the ravine. He has got the tracks straightened out, and the train back up. It is not moving full speed down the line yet - but it is starting.

    It took GW 7 years to ruin this economy, anyone who expects it to be fixed in less than two is a fool - a REAL fool.

  • Report this Comment On September 13, 2010, at 3:41 AM, xmmj wrote:

    @ PapayaChunks

    "tr.v. ex·tir·pat·e, ex·tir·pat·ing, ex·tir·pates. 1. To pull up by the roots. 2. To destroy totally; exterminate..."

    I do not think this is what you had in mind.

  • Report this Comment On September 13, 2010, at 10:35 AM, mrwizard555 wrote:

    our really basic problem is that even though the government claims Keynes would support the spending, they forget that Keynes expected budget surplusses when times were good.

    we hardly ever get the surplus part.

  • Report this Comment On September 13, 2010, at 3:12 PM, TMFDiogenes wrote:

    "our really basic problem is that even though the government claims Keynes would support the spending, they forget that Keynes expected budget surplusses when times were good.

    we hardly ever get the surplus part."

    ...[memory lane to 2001]...

    "That huge projected surplus provides the underpinning of all the administration's tax-cut and spending plans, Mr. Bush said in his recorded weekly radio address.

    "A surplus in tax revenue, after all, means that taxpayers have been overcharged," the president said. "And usually when you've been overcharged, you expect to get something back."

    http://www.cbsnews.com/stories/2001/02/24/national/main27433...

  • Report this Comment On September 13, 2010, at 8:53 PM, Howard1ii wrote:

    I never thought I would say this, but Obama had it right during his campaign. We should be investing in green jobs and technology, not more concrete for more roads and more cars. China is kicking our butt in Solar & Wind energy, let's build the infrastructure for electric or natural gas cars and trucks.

    Of course, the problem is even though Obama and the Dems know the right thing to do, they don't know how to do it and get re-elected.

  • Report this Comment On September 13, 2010, at 9:08 PM, rfaramir wrote:

    Cutting government is the answer, not letting it spend another $50 billion it doesn't have.

    To spend that money it has to take it from the producers, you and me and every profitable corporation. When it spends that money, it will not do so as efficiently as the free market would have. So it errs on both ends, both taking from the productive AND not allocating the taken resources as well as those stolen from.

  • Report this Comment On September 15, 2010, at 9:37 AM, dcrednek wrote:

    Obamanomics have been largely a disaster to date. The largest debacles have been carry-overs from the previous administration: TARP, Fannie & Freddie bailouts, and the continued funding of outsized military operations and nation-building in Iraq and Afghanistan. All high risk, low-yield investments in our nation's future. Go ahead and throw on top of that big hot mess the decisions to not correct the legislation that facilitated the credit bubble and the massive expansion of unemployment benefits and you see a very simple equation: the transfer of personal and corporate liabilities (i.e. debts) from the private balance sheet to the public financial statement.

    Where do we go from here? Unfortunately I agree with the author: infrastructure stimulus at this time is a day late and more than a dollar short. Even if it is late I support the infrastructure initiative; such projects will only be more expensive if pushed into the future. And a $50B infrastructure plan is far more likely to repay the taxpayer over its useful life than was the $700+B TARP plan, where the taxpayer bailed-out a financial services and banking sector which had grown to become a far too large a piece of US GDP.

    The US government, if it is to continue to be in the business of stimulus, needs to be stimulating companies to make things, to deliver services....not to push paperwork and unnecessary documentation. And the government needs to get out of the stimulus business (and all activities which seek to manipulate economic activity) as soon as possible.

  • Report this Comment On September 15, 2010, at 1:51 PM, doublearon00 wrote:

    Deficit spending did not work during the Great Depression. In fact, there is plenty of research to suggest that it caused an extra 8 years to the the Depression. Look it up. Milton Friedman, who worked with Kenyes in coming up with the economic plan back then supported it before realizing what a disaster it was. He ended up spending the rest of his life dedicated to the advocacy of free enterprise almost solely based on that lesson it didn't work.

  • Report this Comment On September 15, 2010, at 1:56 PM, doublearon00 wrote:

    Howard1: "Of course, the problem is even though Obama and the Dems know the right thing to do, they don't know how to do it and get re-elected."

    I have not seen anything that tells me that they do, or at least they have no intentions whatsoever to do the right thing. It seems that the numerous times Obama and Co. had opportunity to correct they have belittled themselves to political grandstanding.

    The latest about cutting taxes to small business is just a ploy to buy them some time. I fear there is a much larger agenda if there is Obama after 2012.

  • Report this Comment On September 15, 2010, at 2:08 PM, IIcx wrote:

    He is young and unseasoned -- his campaign claims were unrealistic -- the Democrat controlled Congress had the opportunity to do it right and did it wrong at every turn.

    His statements are anti-business and the Bills have been nothing short of foolish.

    Over 100k jobs have been added to government during a time we needed to see the Fed. contained for the benefit of "the people".

    The country wanted a change and still does but has clearly been shown the need for true Statesmen.

    Obamanomics are an a·bom·i·na·tion

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