Like Spending a Dollar to Get a Dime

That's how Louisiana Govenor Piyush "Bobby" Jindal described the Stimulus payments on unemployment on Meet the Press 2/22/09.

Leave it to a first-generation American to cast an objective eye on US politics. His parents, as most immigrant families, struggled to make a better life for their kids. They fended for themselves. They took responsibility for improving their own lives. They sacrificed. Bobby was undeniably acculturated from the outset, preferring the Brady Bunch to Bollywood, but his parents' lessons were clearly not lost.

He's not the only one, of course, but he's a nice contrast to the likes of Puerto Rico, which sees no problem asking for nearly 5% of the total stimulus, though their population is under 4 million and their economy contributes nearly nothing to GDP. Boy, it must be expensive to build down there. "100 acres of new energy efficiency industrial zones" is gonna cost us $17 billion. That would be $4,000 a square foot ... or $11 million per job created. Why don't they just hand out shovelfuls of cash to these Caribbean shits? That would probably be cheaper than one of their other requests: $500 million to give solar water heater tanks to rural families. 14 very short-term jobs there (by their own count), so $35 million per job. Apparently the current $2,000 tax credit just isn't enough for these people, even though that's precisely the price of a one-family sized tank.

Not that they're the only ones. Miami (city and county) have put in for nearly the same amount, mostly for transportation projects like the "Two hundred million dollar mile" project ($2.4 billion to extend the "Orange Line" east-west transit by 10 miles). By comparison, their pitch for $1.4 billion to expand the same "Orange Line" north-south is a bargain.

And there's:

• The "Billion Dollar Bridge" in Moline Illinois
• The $600 million 100MW solar plant in Alabama using outdated technology. Strangely, other states can use newer technology to generate the same 100MW for hundreds of millions less.
• The new digs for the chief of Oakland police, $450 million
• And a parking garage for the Oakland Airport $300 million. Who can blame them? Its just SO TIRING to walk through their current lot.
• The events center and hotel in Albuquerque, $418 million
• Not to be outdone, a similar pitch in Irving, TX (and here and here), including residential, commercial, and every other kind of -ial $1.4 billion. Where the hell is Irving anyway?
• Or a Performing Arts Center in Vegas. $375 million. Apparently they don't have enough stages in that town.
• Or $2 billion to put (outmoded) solar panels on every roof in LA

Below the $300 million mark (aka chump change), there are literally thousands of projects to replace things that aren't broken (over 1,000 fire/police station renovations) and install things that range from unnecessary (over 100 police or fire "training centers" for every village and hamlet from here to Timbuktu) to downright infuriating (dog parks; river walks; a $20 million "downtown quiet zone" for raucous San Diego; several multi-million dollar golf courses in Texas ... including a 36 hole Disc Golf course for the dusty hipsters in Austin).

I make no mystery of my opposition to each and every one of these government bailouts. Everyone has their reasons for advocating or opposing it. Here are one or two of mine:

• Today, 12% of GDP is spent servicing the national debt With our new expenditures, this will likely increase to 20%. This is an untenable level for any economy. There is no way to prevent it from reducing GDP growth (and thus standard of living) other than to bring it back down to single digits where it should be.


• The above is just to "service" (maintain) the debt. Fees and interest. To actually reduce debt means increasing taxes and reducing government spending over the 5-to-25 year horizon. Mathematically, when people and businesses have an increase in taxes without a commensurate increase in earnings, investment, savings, and/or consumption must fall. In other words, the major "drivers" of our economy must be throttled back in favor of the non-productive, non-job-creating, non-profit-generating activity of paying down government debt. GDP will necessarily fall.


• There is a strong inverse relationship between the amount of debt a country has and the long-term value of the currency. Currency values are determined by supply and demand, just like everything else (pay attention, Tim and Barry). Any schmuck who didn't sleep through Econ 101 knows that supply and demand meet at a price which "clears the market." For currencies, that "price" is the NPV of all future interest payments one can get by owning the currency minus inflation. In other words, the interest rate now, plus the PV of expected interest rates into the future, adjusted for inflation, determine the current exchange rate. All of this is a round-about way of explaining what most people just accept: the interest rate drives the exchange rate. So what drives the interest rate? It is a consensus opinion about the credit-worthiness of the country. Just like a corporation's bond issue, the US government has to offer an interest rate which compensates investors (=holders of dollar assets) for expected inflation plus the risk that the US economy goes tits-up. Inflation expectations and default risk have been low, so interest rates have been low. This thanks to Paul Volcker and the Reagan economic team (including Greenspan) who realized that a high interest rate stifles investment and savings. It thus stifles financial stability and economic growth. The inflation component drives people to put their money in other currencies and thus other economies instead of ours. With the current gratuitous increase in debt, coupled with the decrease in long-term growth due to inflation and taxation, this risk is increasing significantly. Interest rates will necessarily increase.

Call me crazy, but personally I'm a fan of financial stability and economic growth.

PS: I'm amazed by the notoriety Rick Santelli of CNBC has garnered by refusing to accept the Washington line. The snarky childish response from the White House, referring to him by name, is a little Putin-esque. Last I checked, we still had freedom of speech around here.