Fear and Loathing of the Stimulus Plan
Let us look at the same set of facts from three perspectives.
The President
As an experienced politician, I am looking for the best way to enact my proposals. I seek bipartisan support. I know that money bills originate in the House, and that House members want to claim credit for advancing various proposals. The Leadership wants to step forward. The Committee Chairs are chafing at the lack of power, but will go along. Despite my lobbying efforts, the GOP will probably not get on board.
The Senate will introduce a more conservative bill. There will be bargaining and negotiation. We will build a consensus by accepting compromise. Our objective will be to avoid a filibuster by gaining some GOP votes — perhaps ten, maybe more.
The Senate and House bills will go to a Conference Committee where there will be bargaining about the differences. The final Bill will go once again to both Houses and reach my desk by mid-February.
This is the normal legislative process. I and my team are expert in this, and will build support. The final product will not be perfect for anyone, but acceptable to a majority.
This is the American political process in action.
Wall Street and the Punditry
Wall Street reacts from a position of ignorance about the political process. Please note the difference between intelligence (which everyone on the Street has) and knowledge about the political process (which they all seem to lack.) The Street pundits act as though the House version of the Bill is the final version. They claim that politicians "do not get it" and find everything they hate.
You can watch any TV channel or read any pundit. All have criticisms. It comes from the left and the right.
The problem? The criticisms are, of course, inconsistent. One viewpoint wants more tax cuts. Another sees a chance to get a jump start on social programs. There may not be another chance for years. Be part of the stimulus!
Meanwhile, everyone makes dubious claims about what is real stimulus and what is not. In particular, advocates emphasize direct connections to job creation. Nearly everyone ignores that any deficit spending involves job preservation or creation, via the invisible hand of the market — according to Keynesians.
But this is another avenue for debate, permitting the citation of conflicting economic theories. What fun!
The Analytical Perspective
Some program will be passed. It will include whatever is needed to get a majority in both Houses. While the exact stimulative effect can be debated, there will be an effect. It will be significant.
The result will follow a traditional course. Good policy is one that can be agreed upon by competing interests. No single party will applaud the outcome, but it will have a major effect.
The Conclusion for Investors
There is a widespread feeling that the 2008 stimulus "did not work." The cash payments were saved, not spent. Have we all forgotten that this happened in the context of rising gas prices, which were widely observed to have offset any stimulus?
The current environment is different. Regardless of the exact makeup of the package, regardless of the debate about multiples of effect, it is going to be significant. It is much larger and it will hit in an environment of lower fuel prices.
Investing on this will be tricky. The political debate has polluted the understanding of the economic impact. As we have repeatedly noted, a skeptical market will wait to see some effects. We do not expect a market cheer for passage of the bill.
And Meanwhile….
The same scenario is playing out on the Obama plan for TARP — a subject for another article.
A possible catalyst will come with President Obama's speech to a joint session of Congress, the equivalent of a State of the Union Address. We shall see.
