The current economic recession was brought about by many factors of which the average citizen has little or no control over. President Obama has agreed the situation cannot remain untouched, but the current choice of solution is not an effective way to curb the effects of this natural economic cycle. Recessions have happened in the past, and they eventually correct themselves. Although we will receive some relief, President Obama’s Stimulus Package has more negative long term effects than immediate stimulation of the seized up economy. This idea is a poor solution because it goes against the natural cycle of the economy creating artificial demand, increases the national deficit upwards of a trillion dollars which straddles Americans with debt to be paid in taxes, doesn’t implement everything Obama implies effectively, is made out by Obama as the only effective solution, and is shockingly similar to a failed plan that has already been attempted in the past. In order to understand how this is true, one must have a basic idea of how this recession was caused and when it approximately began.

Around late 2001, the United States housing market was experiencing an uptrend due to the surplus of home financing options that could get almost any person with any financial history into a house. The increase in buying sparked home values to generally rise, and to seem attractive as investments to those that still did not own homes of their own. This especially caught the eyes of those with bad credit that could use a home that generated interest income simply by ownership, resulting in the creation of what is known as the Sub-Prime mortgage industry. Sub-prime mortgaging involves banks and other firms taking risks by lending funds to those with bad credit and a history of defaulting on loans or filing for bankruptcy. Their credit scores did not meet the standards set by mortgage giants Fannie May and Freddy Mac, but the loans were given out anyway. Because the demand for loans from these individuals with bad credit was so high, the risk could be offset with the chance of a large return for the firms due to a fixed high percentage interest rate, or a variable interest rate that could increase over time. This impulse in home buying only furthered the inflation of home values, which was beginning to seem like a rapidly inflating bubble. These sub-prime mortgages with outrageous potential returns seemed like amazing investments, and led to investment banking firms such as Bear Sterns and Lehman Brothers purchasing up all these mortgages from the lenders that had created them. Then as one can guess, problems began occurring similar to bombs with timers.

After being traded from bank to bank with each firm taking a slight cut of the interest, one bank or another would end up being the proud owner of these overvalued, toxic investments. These mortgages with mouth watering returns began to rapidly go bad in early 2008, as individuals tricked into variable rate mortgages ended up with monthly payments that had doubled and outpaced their earnings. People began to default on loans, and had difficulty refinancing for a different rate due to fine print in the loan agreements they had signed. At the same time, a downtrend in house purchasing began. So many foreclosures occurred that some investment giants were put out of business. When these giants toppled, it drastically affected other businesses and their ability to obtain credit and operate due to heightened restrictions, seizing up the credit market. Then layoffs occurred, leading to increased unemployment, and a further decrease in the real estate market, and leading to where we are today. President Obama deemed the situation a national emergency not safe to leave alone to correct itself.

As of February 17th, 2009, President Obama’s economic stimulus package was passed, with Senate and House versions of the bill merging to create a plan costing about $789,000,000,000. Obama’s administration has described the package as an investment in our country’s transportation and infrastructure. The strategy behind this outlook is to use government deficit spending to get men and women back to work. In the process, the goal is to also repair or replace aging infrastructure such as roads and bridges that will improve the overall flow of goods and services throughout the economy as a whole. The system also places some emphasis on updating America’s general technology, information systems, and industrial buildings to upgrade to a faster, greener nation. Some of the various allotments of funding in these categories include: $176 million for renovating Agricultural Research Buildings, $200 million for public computer centers at community colleges and libraries, $300 million for “green” cars for federal employees, and 5.5 billion for “green” federal buildings.

The stimulus package also intends to provide immediate relief to desperate individuals and families through various tax credits on homes and new vehicles, basic tax cuts, and increasing aid to the unemployed. One addition is first time home purchasers will now be eligible for a tax credit up to $8,000 depending on the value of the home purchased. The credit will not need to be repaid provided the ownership of the home is retained by the purchaser for three years. This is designed to curb the current downtrend of home values by building demand. Car purchases will also help stimulate the economy by aiding struggling automotive giants while providing incentives. Buyers of new cars in 2009 are eligible to deduct the sales tax from the purchase from their taxable income during the following tax season. We will even see aid as simple as reductions in income taxes implemented into our paychecks. The average worker can expect to see $400-800 added to his/her paycheck in increments over the next year. Lastly, the unemployed will receive benefits such as a lengthening in the period in which you can apply for aid, and making up to the first $2,400 of unemployment aid exempt from taxes. These three cuts and implementations encourage spending to boost the economy instead of hording cash for whatever turn the economy may take in the future, as well as sparking hope to search for new jobs. They also instill a sense of safety for those worried that they won’t be able to make it paycheck to paycheck.

Now that we have established an understanding of how this economic recession came into being, and have analyzed the solution being put into action by President Obama, the positive side of the situation draws to a close. The solution that has been drawn for this situation seems to be the only choice we have, according to President Obama. In some ways, his ideas will have a positive impact on the country, but in other ways, his ideas being implemented in this package will do more bad than good. Financial analysts complain that the choice shouldn’t be this bill or nothing. We deserve to have an alternate choice. The situation is like a person ill with pneumonia and is being diagnosed by a doctor. The doctor looks at the patient and says, “Well, he seems to be rather sick. Doing nothing isn’t really an option here, I think we should amputate.” Not only is the stimulus the only choice we have been presented with, but it has many fatal flaws.

The first major flaw of the stimulus package is that the plan falsely assumes that the government itself can create more wealth. The government does not create wealth; it merely moves it around, spending other people’s money less efficiently than they could spend it themselves. According to George Mason University Professor Richard Wagner, “The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing, or by inflating the currency, the added spending will be offset by reduced private spending.”(Freerepublic.com). What is essential here is that we understand that this $789 billion is not going to simply appear. For now, the funding will be tacked on to the national deficit. The current national deficit is over $11 trillion dollars, and is climbing an average of $3.67 billion dollars per day. Obama plans to avoid adding excessive amounts to the deficit by inflating the currency, or printing more cash. Any excess debt otherwise will be piled onto the average citizen in taxes over the next few decades until we end up back where we started. This massive inflating of the currency, or printing billions upon billions of dollars backed up by nothing but ink on paper, creates a flaw within a flaw;  that being artificial demand.

Throughout history, many economies have been documented as following the “Boom and Bust” cycle. This cycle involves gradually increasing demand for products as the economy endures an uptrend in many aspects. Prices inflate as businesses succeed, and wages rise accordingly. This segment is known as the economic “Boom”. Eventually however, businesses get too big for the population of consumers, and overproduce, leading to the overstocking of products, and less sales. This activity results in layoffs, price cuts, and wage cuts to cope with the decreasing demand known as the “Bust” part of the cycle. Afterwards, the cycle repeats itself again and demand begins to rise. The recession is not solely a dramatic version of this cycle, as other factors such as the sub-prime mortgage industry are to blame, but it is partly responsible. The sub-prime mortgage crisis simply occurred at or around the time that the “Bust” segment of the cycle occurred, resulting in the deepest recession since the Great Depression of 1929. Obama’s stimulus package is attempting to speed the turnaround time in this cycle, and to get us going in the positive, inflationary direction once again. This is a decent idea, but the problem with using freshly printed money or deficit spending is that the economy could get artificially turned around. Although this is the President’s purpose, he doesn’t realize that the bottom of the demand will soon fall out, as demand for products and services will have, in fact, not turned around, but will simply appear that way. In some cases, nobody may actually be buying any of these products and services! Just because money is being injected into the system does not mean people are spending again. This is a consumer driven economy, and the stimulus simulates the effects of consumers spending the cash that they are currently hording in fear of whatever may happen next. The creation of an artificial “Boom” can only lead to a devastating and unexpected “Bust”.  This will happen due to the prices being artificially raised on any product or service the bill decides to dictate funding to, and will only hurt companies in the long term when the stimulus stops and businesses with government contracts realize they don’t have any customers.

Not only does Obama fail to realize the flaw of creating artificial demand in the economy, he has also overlooked that this idea has even been attempted before! The Great Depression of 1929 caused unemployment to run so rampant (25% of the population), that an emergency plan was absolutely necessary. President Franklin Roosevelt attempted to solve this problem by introducing what he called the “First New Deal” of 1933. This new plan involved the use of government spending to implement banking reform laws, work relief programs, agricultural programs, and industrial reformations to create new jobs and aid the jobless. When this plan failed to produce major change, the “Second New Deal” of 1935 was then introduced. This time, the plan once again used government spending to create programs such as the Works Progress Administration, and the Social Security Act to protect the elderly that had lost their shirts in the stock market. Unfortunately, both phases of the “New Deal” ended up being failures, give or take one or two programs that still exist today such as the FDIC.

The government spending resulted in many poorly organized programs that had little effect on boosting the economy or creating many new jobs. Towards the end of the Great Depression, Henry Morgenthau, Roosevelt’s Secretary of Treasury stated, “We are spending more money than we have ever spent before, and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started and an enormous debt, to boot.”(Freerepublic.com). As sad as it sounds, the Great Depression was not escaped until the United States entered World War 2. The huge need for war materials resulted in such a surge in the building of factories to produce tanks, aircraft, and supplies that America was put back to work, and jobs became easy to come by. Clearly, stimulus via government spending was ineffective.

We already are attempting an idea that has been tried and failed before. Add to that the fact that we are not even attempting it quickly. Although the stimulus itself was thrown together in a couple months within Obama’s team, little effect of the package will actually be seen until next year. Only $26 billion, just over three percent, will be spent this year. Another $110 billion, or 13 percent, will be spent next year. This means that by the time our new president is halfway through his term; just 16% of his plan will have been implemented. If Obama plans to slowly unleash this plan over time, then why was the writing of it rushed instead of revised and perfected before its release?

President Obama has claimed that one of the supporting arguments for the bill is that it relies partially on improving infrastructure to speed the economy and flow of goods and services in general. Why would he place so much emphasis on a topic that occupies less than 5% of the spending? Only $30 billion out of the $789 billion is being implemented for repairing and replacing bridges and other infrastructure applications. Obama’s Budget Director, Peter Orszag, states “Even those (public works) that are “on the shelf” generally cannot be undertaken quickly enough to provide timely stimulus to the economy.” It does seem rather contradictive that someone on Obama’s own budget team would admit that 5% of the bill is somewhat ineffective in an area that Obama has stressed so much.

Lastly, people need to realize what else this bill can do to them. With our current national deficit, each citizen has roughly $36,687.43 of the debt to carry as a citizen. It is already crazy that aside from credit cards you haven’t paid, mortgage payments, car payments, or whatever else you may have indulged upon, you are also in debt as part of this country. The new stimulus bill adds an extra $11,000 in debt to the average family of four that will be paid slowly over the next few decades until the stimulus is paid off by hardworking taxpayers. This added tax weight doesn’t even include the fact that this stimulus spending will accrue interest over the decades that it may take to pay it off. This $789 billion is estimated to rise with interest to over $1.1 trillion by the time it is paid off (which would require the national deficit to reverse itself in the first place).

After all is said and done, this stimulus begins to sound like it may not be the best deal. With that being stated, the situation deserves some alternate solutions. Right now it’s seemingly the “Obama” way, or ceaseless economic turmoil and chaos. If you are a company that is struggling, now is absolutely not the time to cut back on advertising. Advertising should become your priority because even during the Great Depression, some companies did manage to prosper such as Kellogg’s cereal. Those companies that seem well enough to advertise during desperate times instill confidence in consumers. If and when we emerge from the recession, consumers can only treat your brand as more reliable and respectable for staying strong, earning you possible lifelong customers. As far as solutions to turning the economy around, we could start with a slashing of our marginal corporate tax rate which is second highest in the world. Allowing large corporations to prosper and enjoy a larger portion of their profits can benefit everyone. Lightening up on their taxes prevents them from firing workers, cutting pay, and decreasing advertising expenses. Allowing corporations to prosper leads to growth and expansion, which will surely create the need for workers. And who knows how to create jobs better than the companies we end up working at?

Unfortunately, it is too late to turn back and select an alternate way to approach this major economic recession, as Obama’s Rescue and Recovery plan has been hailed as the only choice, and has already begun its implementation phase. The money is being spent, the taxpayers will pay, and nothing that is said or done will change that scenario. If this plan indeed proves itself one of the biggest blunders ever made by the United States government, at least it will be understandable as to how it came about. Obama’s plan goes against the natural cycle of economics with artificial demand, raises the national deficit while straddling Americans with more debt to be paid in taxes, suffers from poor organization and ineffective implementation, and most importantly is a repeat of an idea that has been tried and failed. May God help us all.