Wednesday, February 11, 2009

Words Are Important: Stimulus and the Environment

In recent years, as brutal winters rendered the spectre of “global warming” a punch line, environmentalists have edged their argot toward the catch-all term, “climate change.” In the United States, a similarly subtle rhetorical shift has occurred regarding the so-called “Stimulus” package that President Obama and Democrats in Congress are pitching to the American people.

To wit, as the nearly trillion-dollar monstrosity lurching through the legislative corridors of D.C. is revealed to be primarily concerned with stimulating government, rather than the economy, its proponents have taken to calling it by the official short-form, “American Recovery and Reinvestment Act.”

Words are important, and since not even the silver-tongued 44th president of the United States can explain how an omnibus appropriations bill that allocates billions to the ballet, hanging gardens, STD prevention and “neighbourhood stabilization activities” will do the first blessed thing to stimulate the economy, he and his colleagues must appeal to the greater good of “Reinvestment.”

This terminology adjustment is part and parcel with the political rudiment that whoever frames the question wins the debate. Throughout the sales process for this package, President Obama has chosen for his opponents straw men of his own design, refuting arguments that were never made. In his first White House news conference this week, Obama repeatedly chastised those “who believe we should do nothing,” as if opposition to this particular legislation were tantamount to declaring government has no place to address market failure. He spoke heart-wrenchingly of a school in South Carolina, where nearby train tracks disrupt classes, saying this package would help them. The president’s logic seems to be that if you oppose giving another $850 million to Amtrak, as the Reinvestment Act provides, ipso facto, you don’t care if kids learn to read.

Indeed, alternatives to this package, including a prominent role for government, have been suggested and summarily rejected. Senate Republicans cobbled together a mere $445 billion proposal that began by considering the most pressing causes of the current crisis – the housing meltdown and credit market freeze – then determining what should be done to remedy them. But Obama and Congressional Democrats prefer to stick with their method of dreaming up the largest dollar sum they can, then deciding after the fact how to spend the money.

Further similarity to the environmental movement can be seen in the urgency with which the Reinvestment Act’s supporters press their case. There is no time to debate, environmentalists have warned for years, the planet will incinerate if we do not switch to hybrid cars and unicycles by the end of the week. Likewise, Obama has set a deadline of February 16 for the Reinvestment Act, as though $650 million for digital TV coupons or $6.2 billion for the Weatherization Assistance Program could not wait one more day.

But crying wolf on a mass scale is always a risky proposition. As weeks pass and birds aren’t bursting into flames in mid-air, more and more people begin to question the purple-faced predictions of the green-savvy friends in our midst. Similarly, if Americans discover that the Republic can stand until, say, March, without spending $7.6 billion on “rural community advancement programs,” Obama may have a problem.

Speed and a lack of scrutiny serve the purposes of the Reinvestment Act’s advocates. For example, would House Appropriations Committee Chairman David Obey prefer America to linger on a bill that awards $1.7 billion to the National Parks System, for which his son, Craig, is the chief lobbyist?

Most important, once this massive spending is enacted, Americans will be stuck with it for decades to come. In Washington, government spending increases are used as baselines for subsequent years, making huge expenditures very difficult to undo.

As Milton Friedman observed, “There is nothing so permanent as a temporary government program.” If President Obama and Congressional Democrats insist on “reinvesting” in haste, the nation will repent at leisure.

Theo Caldwell, President of Caldwell Asset Management, Inc., is an investment advisor in the United States and Canada.