Stimulus Schimulus

It has been an interesting couple of weeks. The largest "spending bill" in the history of the United States has cleared both the House and Senate and apparently made it through conference. But what do we get for our money? Work by cited by Ray Fair on Greg Mankiw's blog seriously questions whether we will get any lasting "stimulus" out of this bill.

The truth is I do not know. What I do know is that much of the bill is not stimulative. I do not question the need for more infrastructure investment. But those are long-term investments. The obvious short-term stimulative activities like reducing the corporate tax rate, capital gains tax rate, and, yes, even some payroll rate reductions seems to have been dismissed as "the rhetoric of failed economic policies" (I actually shudder as I quote Mr. Obama on that).

Two other "political facts" appear to be sinking in to at least some of the electorate. First, spending does not necessarily equal stimulus. Second, tax policy, while not perfect, is more easily reversible than spending programs. Can you imagine the outcry of governors a year from now when the Feds propose suspending Medicaid payments for the states??

Unfortunately, this "grandest of experiments" will have profound impacts on capital markets, interest rates, and inflation. Whew...