As social democrats we should all be outraged at Obama’s announcement this past weekend!
Why be stingy and stop at 2.5 million instead of 25 million, 250 million jobs or universal employment? Furthermore, why limit himself to a triple-digit billion dollar stimulus package when he could implement a triple-digit trillion dollar package?
Or maybe that’s his next campaign promise.
Obama can indeed create a job description and fill it with able bodied individuals. Houses can be built, schools can be repaired and highways resurfaced. These are all tangibly seen phenomena.
However, the unseen costs are multifaceted. First, to fund this Operation Mana he will have to tap into the Treasury. Unfortunately for him, tax receipts will continue to drop as the private economy is going through a self-correcting recession. As a consequence, Obama will have to resort to issuing more treasury bonds and monetizing the debt (e.g., having the Fed expand the money supply).
In short, Obama and his flock are literally digging the collective economy into a bigger hole. True enough they may be able to pay for a significant portion with Treasury sales, but in the long run that debt will have to be paid as well — plus interest.
In addition, because he is reallocating capital into relatively non-productive business models (e.g., public transportation) and inefficient industries (e.g., public utilities) any payoff will fall short of the necessary revenue needed to pay off the debt issued.
I could be wrong though, perhaps the rest of the world will continue to buy large quantities of treasury bonds. However, in doing so they would be necessarily stifling their own growth. But then again, the US treasury has already snookered the rest of the world into buying $5.3 trillion in debt; plus world stock markets soared on the news.
Will this be a new bubble?