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Dec 9 2009

Just Another Spending Program?

by Ian Stermer

Obama has just announced a plan to use the $200,000,000,000 in soon-to-be-returned TARP funds to stimulate the economy, specifically jobs. Let me first state I applaud the idea of creating jobs as a path to improving the economy. The current “jobless recovery” leaves as many people homeless, food-less, health care-less, and in need of aid as no recovery would. The last stimulus bill didn’t help, so something new must be tried.

Obama’s plan sounds nice, as long as you don’t think about it much. Use funds due to be paid back to us, rather than go further in debt. In that respect, it is good. Going further in debt is bad. The problem lies in the fact that we are already in debt. With debt comes interest that must be paid. The longer we hold a debt, the more we have to pay in interest. Interest is a huge problem. In Fiscal Year 2009, the government spent $383,000,000,000 on interest payments. Compare that with $53,000,000,000 on education, or $73,000,000,000 for the Department of Transportation.

The TARP bill was set up as a revolving loan program, where repayments were to be funneled back into the program until its end in December 2009 (although expected to be extended until October 2010, at least). At the end of the program, repayments were to be used to pay down the deficit. Unlike the Stimulus Bill, which was a spending bill, TARP was to be a loan. Any questions about repayment should be quelled by Obama’s confidence-inspiring statement “most of the money going to the banks will probably end up being paid back with interest.” My troubled heart is now at rest.

Some justifications could exist for diverting the money; there are times that it is wiser to invest in a new venture rather than to pay down a debt. For example, after college I opted to buy a CD at 5% interest rather than pay down the principle on my 0.5% interest rate student loan. The question here is does Obama’s plan offer more reward than the alternative?

The answer to that lies in how the money would be spent. Obama has laid out three areas to target with the funds: helping small businesses to add staff and grow; updating transportation infrastructure like highways and bridges; and refitting homes to be energy-efficient.

Small business growth is a no-brainer. We want that. Small businesses make up just over half of all US jobs. In the last 15 years, 64% of all new jobs have been in small businesses.

Infrastructure is nice, but it is questionable how much impact it would have long term. It provides short-term jobs to out of work construction workers. While helping these people temporarily, it is unlikely that the increased spending from this sector will do much to solve the big picture.

Likewise, refitting homes could give more construction workers jobs, and the money saved on heating and cooling bills could go to other expenses that would help the economy, but to what degree is debatable.

Wherever it is spent, though, it will be spent; not loaned, not expecting a return. Worse still, Congress seems excited to spend, but doesn’t really know what to do yet. According to Rep. Steny Hoyer of Maryland, the No. 2 Democrat in the House, “100 billion, 150 billion, 75 billion — those are all figures that are being talked about.” Remember the Department of Education budget was only $53 billion.

So this new job creation program will differ from the stimulus package in that it will encourage construction and small businesses. It seems that was the focus of the last Stimulus bill. If that one didn’t create jobs, what does this one promise to do differently?