American Missive

ATLANTA— Angela Merkel has been making a surprising amount of sense to me as she seeks to lead her country through the current economic malaise that has afflicted the world.  She is resisting calls to engage in the massive “stimulus spending” that so many other countries, including our own, have begun.  Despite a recession many say will be the worst in Germany since World War II,  her government has not yet committed to such a package. 

She is resisting intense pressure from some of her constituents and from many members of the European Union in holding this view.  Her government instead is considering only a modest package of spending and tax cuts.  None of this is finalized yet, so they could swing in favor of a more massive program in the end. But if they do continue to follow a policy of only modest spending, then I am anxious to observe the results relative to our own.  

Her country is the largest economy in Europe and the third largest in the world.  Will such a fiscally conservative path have a more positive impact on her country over the long-term? 

Barack Obama’s $1 trillion stimulus package is anathema to me.  Some pieces of Mr. Obama’s plan taken individually I do not have a problem with.  For instance, we clearly need to invest in our crumbling infrastructure.  But I think we could do that at a more reasonable pace and price.  The total package taken together will very quickly sink this country into its biggest deficits in history. 

Some day we’re all going to have to pay that back through higher taxes. Higher taxes killed recoveries in the United States during the Great Depression (reference 1937) and in Japan after their real-estate collapse (reference 1998).  Barack Obama has already promised to raise taxes.  Whether he actively does so in the near future or passively does so through letting the Bush cuts expire in 2011, I think either event will have the same impact on our economic recovery- it will kill or severely hamper it.

Further, Mr. Obama’s stimulus plan has fuzzy math.  Paul O’Neill (former US Treasury Secretary) is rightly pointing out that Mr. Obama’s plan calls for adding 3 million jobs over the next 2 years. But that 3 million is the average growth in the work force during the same period. So- Mr. Obama’s job additions in theory will be a net nothing to the economy- and they will sink us into further debt.  

Should Germany pursue a policy of limited “stimulus spending,” I eagerly await the results.  I will not be surprised if they come out of this stronger on the back-end, as they will have much less to pay back.  Such a move has the future in view as well as the present.  In my opinion, the Obama plan has only the present in view. 

I have wondered what Mr. Obama will do if his stimulus plans do not show positive long-term results?  It could be disastrous both politically and economically.  You can bet conservatives like myself will be there to cry foul in the 2010 and 2012 elections.