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FRONT PAGE CONTRIBUTOR

A Stimulus That Could Kill You

John Maudlin confounds the best efforts of the Federal Government to lie about the current state of economic play. He measures not what the indicators say the economy is doing – but rather what happens to people who live and work in this economy. He elicits an accurate picture of this desert of the real by measuring statistics that are not easily cooked. Today he asks the probing question “If This is Recovery, Where Are the Taxes?”

It appears these taxes are not being collected. Missing sales tax revenue indicates that most people just aren’t buying the taxable goods. A point of sale tax can’t be levied absent sales volume. As a result of these revenue shortfalls, the states have been forced to reduce social spending.

The budgetary proration that has hit Alabama’s education budget is typical of what has happened nationwide. Schools here struggle to employ enough teachers to meet their enrollments. Disappointed children ask their underemployed parents to subsidize extra-curricular activities that no longer get funded. It seems like a perfect use for the almighty stimulus dollars that were passed to save the day.

This brings us to the following astounding revelation. All those shovel-ready projects that we heard about last Winter – they went bye-bye! Those stimulus funds are now being expended to keep the teachers employed so that the next generation of Americans can learn how to read. Maudlin describes this process below.

“Fully nine states are in fiscal distress and only two have balanced budgets. States like Michigan are planning 20% budget cuts for the coming year. Indiana is planning a 10% spending cut in light of a 7.4% YoY revenue decline. How can the economy really be out of recession if government revenues are still deflating?

The logical answer to that would be private sector employment growth. That fails to occur if the stores can’t sell anything. These lost sales particularly hammer salespeople on straight commission. The employer signed them on to assume the performance risk associated with the job. Having no customers equates to a commission equal to 3% – 5% of nothing. These people starve on the Raman Pride Diet, but they don’t show up in the unemployment numbers. It’s a good thing they aren’t officially having economic difficulties. Maudlin continues his tour through the revenue wreckage at the statehouse level.

“The states are filling around 40% of their fiscal gaps with the federal stimulus (so much for spending on “shovel ready” infrastructure projects). Even after the fiscal help from Washington, the state governments will still face a projected deficit of $142 billion for 2011 (versus $113 billion in 2010).

The Federal Government thus substitutes Federal Spending for what the states would have spent if they had revenue. At the expense of Federalism, which serves as a vital constitutional check against the largesse of the DC leviathan, we can keep the broken machine functional three more years. At that point, 81% of the stimulus funds will have been expended. Which brings us to the sordid bottom line.

All in, the restraint in the state and local government sector is estimated to drain a full percentage point from U.S. GDP growth in 2010 and more than fully offset the stimulative efforts from Washington. The U.S. economy is more likely to post growth of little more than 2% next year, rather than the 5% currently being discounted by the equity market.”

That last sentence really explains the problem. When statistical analysts ignore the existence of the states as thoroughly as The Federal Government does, things look like they’ve turned a corner. Prescient geniuses like Andrea Mitchell insist that “Happy Days are here again!”

Yet, we can think of this economy like a newly constructed McMansion. The walls can be painted a nice, happy color and the aluminum siding looks tinny. The Chinese drywall rotting within only becomes a problem when the holes appear in the wall. But it only has to hang together until mid-November 2010. Then, as far as Speaker Pelosi is concerned, the warranty has expired.

Maudlin finishes his potential sequel to “2012 – The Disaster Theory” with a cheery vignette describing what the economy would have to do in order to get back to 5% unemployment measured by U6 in 2020. An economy that has no double-dip recessions, and the orderly retirement of everyone eligible at age 65 only has to produce 14.44 million jobs in a decade to get us there.

We deconstruct that further and get maybe 125,000 jobs per month that need to be born. We have a mechanism under stimulus, that creates and saves those things at a wrap-rate of 733%. This equates to $500K per job created.

Just toss off $62,500,000,000 in additional, unbudgeted Federal expenditures per month, and we can fix that economy right up. We can run those printing presses right into the ground. The bubbas downstairs at the mint would appreciate the overtime.

Or maybe, just maybe, we could consume all the seed corn that we grow next year’s harvest with in order to tread water amidst the rising flood. We could be attempting to swallow the poisonous digitalis pills faster than the sclerotic cholesterol of our suffocating plutocracy kills all incentive and desire amongst our private-sector entrepreneurs. We could just be coding on the table as the only likely end game of spasmodic, hedonistic nihilism.

All of that is possible. On our current trajectory, without course correction, this is the most likely outcome. However, we can also vote these idiots out and begin the vital reconstruction. We can lower our sights, improve our performance and admit to ourselves as a nation that we need to work more and eat less.

As the stimulus just gets burned to keep the fat people from starving, the hideous logic of modern Liberalism becomes more and more apparent. The Great Society of the Paternalistic Left becomes a death trap in which previously successful nations lose their societal character and die in the flaming ruins of their own stupid cupidity. We are kidding ourselves by attempting to recover via this stimulus that could kill us.

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