Risky Business: With Stimulus Funds Running Dry, Government Betting On Private Sector

With midterm elections drawing near, it's becoming increasingly difficult to convince Congress that more government money is needed to pull the United States out of its economic slump. Instead, lawmakers seem to be banking on expansion and investment from private businesses.

Hopefully they were paying attention to Tuesday's stock plunge -- attributed to news of slowing economies from the U.S. to China -- which, in the view of David Leonhardt of the New York Times, suggested that "pessimism seemed the better bet."

One day of trading isn't necessarily a referendum on economic policy, of course. Leonhardt equivocates on the question of longer-term spending versus austerity, writing, "You can find good evidence to support either one." But investors remain consistently reluctant to let their money ride, consumer confidence is in the gutter, and the U.S. Census Bureau hired more than ten times as many Americans in May as the entire private sector put together.

As the Los Angeles Times outlines, state and local governments are still heavily dependent on soon-to-expire federal stimulus funding to avoid making painful cuts to social services that benefit millions of desperate Americans. The U.S. government isn't alone in its hesitation to keep spending, but the devastating effects of austerity measures in Ireland offer a bleak picture of what may come if Congress continues on a similar path.

There is precedent for premature economic optimism in the United States, as well. In 1937, the middle of the Great Depression, significant relative economic expansion had prompted President Roosevelt to cut spending and Congress to raise taxes, cratering the still-fragile national economy and spiking unemployment. Though Leonhardt argues that America will have to endure some painful cuts in the future, he writes, "The parallels to 1937 are not reassuring."

Comments

[Burkelbile]

01:29 AM on 07/02/2010

(with a Bill Murray side-of-mouth slur/lisp)

... "sho ... lemme git thish straight ... all I have to do, - is jusht lay here in the gutter
- and wait for shomeone to come along and trickle on me ...?"

[Rooster Coburn]

02:42 PM on 07/01/2010

The private sector is the muscle in the economy. The government is just the flab.

[Patrick Jones]

03:34 PM on 07/01/2010

Good theory. Too bad it has never worked.

[Burkelbile]

05:52 AM on 07/02/2010

Mucho flab between your ears

[Mike Keough]

01:18 PM on 07/01/2010

Two things are killing the private sector, well, maybe a lot more. Nobody is spending. Unemployment will rise as the 99'ers stop buying anything at all, so the 7-11 will be laying off, Wal-Mart will be laying off, and then we will get the layoffs s States cannot cope with their deficits. So the layoff's are not even close to bottoming out. Banks now have incredibly high standards to loan. Even if there was expansion in the private sector plans, they might not qualify for any kind of bank loan. Hey Ben Nelson, this sound like a recipe for success? I don't mind a deficit hawk, but what I do mind is simple mindedness, and, oh yea, Greenspan makes me want to puke. His errors were so sever that he would have NO credibility anywhere. But he is still out there talking his bull*hit, and the Republicans use it as a talking point.

[Faust Eddie]

12:15 AM on 07/01/2010

Did chairman Mao write this article?

[Santo2]

01:24 PM on 06/30/2010

Expecting altruism from the purveyors of greed,
would be like expecting Sarah Palin to tell the truth....about anything.

[Moshe]

01:17 PM on 06/30/2010

Don't hold your breath: The grass roots real economy won't bounce back unless the corruption and special favors for the mega-corps are eliminated.

Small and medium sized business can't compete with mega-corps that are getting free money and special favors to advantage them over everyone else.

Partisan politics is the shiney object they dange in front of the people to distract them, but behind the scenes there is a bipartisan race to see who can pander to the big money first.

And what the polititians have to sell is your interests.

Wallstreet just puts a few million in the right hands in Washington, and Wallstreet reaps billions when Washington sells out the People and small business in favor of the mega-corps.

Wallstreet/Washington corruption is funneling all the money to the top, and you can be sure that upside down paramid is going to do nothing but crash, again.

[InfidelSix]

02:42 PM on 06/30/2010

you see clearly.

[wigglwagon]

12:41 PM on 07/02/2010

"Partisan politics is the shiney object they dangle in front of the people to distract them, but behind the scenes there is a bipartisan race to see who can pander to the big money first."

exactly!

[Ryan Magdangal]

01:13 PM on 06/30/2010

wrong decision....they'll disappoint you dearly....

[guveqzero]

01:11 PM on 06/30/2010

We are a Polyanna nation. Face it. Too big to fail, the consequences would be worse, the unemployed are lazy, the war in Afghanistan, free trade for all, open borders....

[wigglwagon]

12:42 PM on 07/02/2010

yeah buddy

[pbinh]

12:34 PM on 06/30/2010

Obama should've declared the entire American economy "too big to fail" and pushed through a bigger stimulus that would've actually revived the economy from the bottom up. Saving the banks and sending temporary relief checks to local/state governments preserved Wall Street's failures and did nothing to help the economy enter into a genuine, broad-based recovery. "Extend and pretend" isn't a long-term solution, Mr. Summers.

[ClarcKing]

01:05 PM on 06/30/2010

Excellent

[pbinh]

03:49 PM on 06/30/2010

Thanks.

[Moshe]

01:08 PM on 06/30/2010

Right on target.

[pbinh]

03:49 PM on 06/30/2010

Thank you.

[lazercat2008]

12:31 PM on 06/30/2010

The Republicans want to steal your home your job and your future. We have to eliminate the party of NO and get something done.

[johnrobie47]

12:36 PM on 06/30/2010

The Democrats want your lives, money, and liberty.

[stopthe]

12:42 PM on 06/30/2010

Please tell how this is true in your view.

[Ed C Atlanta]

12:42 PM on 06/30/2010

john, please be serious at least one time ,, the way georgie and dick trampled on the constitution, that was taking away our liberty, money bsuh and co sent billions of cash dollars on pallets to Iraq and they magically disappeared,, our lives,, repubs want the country to sacrifice their lives for the country , but don't them or their offspring to serve,,please get real......

[InfidelSix]

02:46 PM on 06/30/2010

You are blind to the corruption in your own party and play right into the distraction of bickering partisan politics while Wall Street laughs because you're such a sucker. The Aristocracy would like you to continue to cheer "hurray for our side" while they use you.

[gypsysailor]

12:28 PM on 06/30/2010

That's about as F***ed up as it gets. The private sector is going to offer minimum wage jobs in slave labor conditions. I know, I've already done that in this country so please do not call me out on this.

When FDR had this challenge, his staff, in 1937, listened to the conservatives shouting that it was time for the government to back off and let the private sector take over. Well the economy went t!t$ up and it wasn't until war spending kicked in that the economy began to improve in this country.

We don't have that luxury this go around because we started with such a large Republican made deficit thanks to all of those deregulationatizi's out there. Welcome to the DOUBLE DIP, home of the worlds largest political screw-up. Thanks all of you conservatives out there. I like being poor and unable to find anything but minimum wage underpaid jobs to do. Can I please have another?

[lazercat2008]

12:31 PM on 06/30/2010

What we need is Roosevelt on steroids.

[johnrobie47]

12:37 PM on 06/30/2010

Right, lets resurrect the guy that started all this trouble to begin with.

[posttime2010]

12:38 PM on 06/30/2010

YES, but we did not have social programs then...government pension plans etc...
FDR had almost NONE of the expenses we have now.....not until he created some of them anyway

[stopthe]

02:15 PM on 06/30/2010

Yes but he had a depression.So his tax receipts had declined by much more per-capita.
.
Besides we control our own currency and therefore can print money.In the long run that can be inflationary but inflation is near zero now.

Roosevelt had a much higher debt to GDP ratio during World War 11.However wasteful war spending is in relation to infrastructure, this spending was enough to reverse the low growth/ no growth years of the depression.Later this spending did create an after shock of inflation; but it was a small price to pay for robust growth.

Balancing the budget in 1931 under Hoover precipitated deeper recession/depression.

Balancing the budget under Roosevelt in 1937 reversed the recovery and resulted in the continuation of the depression.

[posttime2010]

12:17 PM on 06/30/2010

People want to say, but Iceland does this or Denmark does that...problem with this is that the population of those countries is smaller than most of our cities.

Maybe compare us to Brazil or Japan, even German is like 200 million less than us...

Brazil isn't doing to bad, there tax rate is VERY similar to our CURRENT rates, we both have abt the same percentage of poor abt 12%, but Brazil spends very little on social programs, the gap between rich and poor is one of the largest and they spend alot less on military spending..

Japan is tanking right now along side us, and the only other country our size is maybe Russia, India and China of course swallow us in populaton.

So, to be like Brazil and have a robust economy, we would have to completly end our military spending and cut social programs in half...and convert to alternative fuels, Brazil has done a good job of that, instead of spending on social programs they went for alternative fuels, now I understand they are working on some social programs...

So do we cut social programs, prisons in Brazil are ...well...take a guess...lol...and sink that money into alternative fuels, but first we must destroy the military spending..

[Y3rMawm]

04:54 PM on 06/30/2010

The best lessons from Japan are the same failed policies during the Lost Decade x2 that we are following. Propping up zombie banks, multiple econ stimuli failed miserably. Japan has been tanking for 20 years in a long slow train wreck....and they still make stuff. The US? Not so much.

[posttime2010]

05:37 PM on 06/30/2010

100% agree, it didn't work for Japan and right now I think there inflation is really high, and that is what are future holds right now too, inflation is the only trick they have left up there sleeve.

[TheCatWhisperer]

12:12 PM on 06/30/2010

Betting on the private sector? What a joke, without enacting the necessary incentives for the financial industry to invest in developing new industries for the future of this country, and disincentives for corporate offshoring, we’d have a better chance looking for a magic lamp that we can rub.

[tiredoldsteelworker]

12:11 PM on 06/30/2010

13,000 private sector jobs created in June. That's about 260 a state, oh joy.

[pbinh]

12:35 PM on 06/30/2010

So much for letting the market work, eh?

[Y3rMawm]

04:55 PM on 06/30/2010

This has yet to be tried.

[realpolitic]

12:08 PM on 06/30/2010

We will likely slip into another recession and Republicans will celebrate. They will blame Obama.

[lazercat2008]

12:25 PM on 06/30/2010

The Republicans are pushing America off a cliff.

[realpolitic]

12:52 PM on 06/30/2010

True.

[InfidelSix]

02:50 PM on 06/30/2010

Meanwhile, NY Democrat Congressmen work to weaken any type of financial reform. Whose side are THEY on?