Stimulus thoughts from the alleged smart kids in the room

When the New York Times runs a story questioning the wisdom of President Obama’s $800 billion-plus stimulus spending plan, one might safely assume their are concerns among even the East Coast elite about the sensibility of pumping more federal dollars into the nation’s economy.

The Jan. 29 story from the NYT begins with this statement: “Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.”

Continuing, the report noted that all the smart, rich and powerful people who recently gathered in Davos, Switzerland, were concerned about the “long-term fallout from increased borrowing” by the U.S. government and “its potential to drive up inflation and interest rates” around the globe.

The NYT report even suggests that supporters of Obama and his stimulus plan “have called on the White House to quickly address how it will pay for the spending in the long-term.”

And one final gem from the NYT report: Niall Fergusan, a Harvard historian who studies government borrowing and spending, finds the large government borrowing odd when considering that the current crisis resulted from too much corporate and individual borrowing.

“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product. It cannot be solved with more debt,” Ferguson was quoted as saying in the story.

Ferguson had one more thought included in the NYT story: “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

SACHS REPORT
And then Jeffrey Sachs, a liberal economist who is certainly a support of President Obama, opined in the Financial Times that the stimulus is a “fiscal straitjacket."

Wow.

Sachs, who supports tax increases to help pay for a more moderate federal plan to support the economy, makes several strong points in his essay. Two of the more interesting are:

• “The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing. First it was former US Federal Reserve chairman Alan Greenspan’s bubble, then Wall Street’s, and now – in the third act – it will be Washington’s.”

• “The White House and Congress have stated an amount – $825 billion to be spent mostly over two years – on top of a deficit that is already projected to reach $1,186 billion in fiscal year 2009 without the stimulus package. Many of the details of allocating the $825 billion are being left to Congress with the aim of reaching a bipartisan consensus. The result is shaping up to be an astounding mish-mash of tax cuts, public investments, transfer payments and special treats for insiders.”