Afternoon Review

There was no major news that specifically moved any of our Approved List companies today. The markets continue to move higher on speculation that the U.S. economic stimulus plan can help the country out of recession. Barack Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the stimulus, and pledges “unprecedented transparency” including publishing online “very detailed information about all the projects that are taking place.”

At this point, Obama is trying to provide the markets (both domestic and global) with what they need most: confidence. The stimulus itself is unlikely to make the economy turn around any faster, but the speed and efficiency with which the government implements the funds will have a large effect on confidence.

Rewind to 9/29/2008 when Congress could not agree on the Economic Stabilization Bill. The government’s perceived uncertainty transferred directly to the stock markets, which fell nearly 9 percent that day.

I personally think economists are kidding themselves if they believe this stimulus package will create long-term jobs; however, the country’s rising unemployment could benefit if short-term employment opportunities prop up the work force until the economy reverses course.

I also think that the personal tax cuts will provide little aid to the economy. Look no further than the Bush tax refund in 2008 to see that most people pocketed the money and the temporary increase in spending simply delayed the inevitable. The business tax cuts, on the other hand, are more likely to have a positive effect on the economy. Either way, the tax cuts are crucial to the acceptance of a plan that is based on building confidence.

Spending nearly $800 billion on a short-term fix does seem a bit irrational, but if the money is spent in areas that will improve U.S. productivity and competitiveness then we can truly view this package as an investment rather than spending. This isn’t like the taxpayer’s investment in the financial system – which someday in the future will be viewed as genius or asinine – in that the dividends and returns will be far more difficult, if not impossible, to measure.

But, few can argue with long-term vision for the stimulus plan. Our internet infrastructure is embarrassing, our healthcare sector wastes billions of dollars a year due to record keeping mistakes and our transportation system leaves much to be desired, just to name a few.

How can the government can possibly allocate resources better than the free market? They probably can't. I am sure that there will be projects receiving funds that don’t deserve it, and contracts will not always be awarded as they might be on the free market, but that is not what a stimulus is about. This stimulus should serve as a kick in the butt to our country to tackle projects that wouldn’t be touched for years, while instilling much needed confidence in our country.

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Peter Lazaroff, Junior Analyst