Ca Ching Ca Ching

While most Americans only selectively open their pocketbooks nowadays, our government is prepared to do the legislative equivalent of turning its pockets inside out and dumping out all its change. The new stimulus is upping the ante of our current economic crisis, but it’ll only be successful if these funds land in the right place. Yesterday, House Democrats released a draft of the package with a price tag of $825 billion. While a majority of the funds will be directed toward immediate tax relief and budget support, a substantial portion will be earmarked for long-term investments.  It really brightens our day here at GSI when we see the government take the long view (because it doesn’t happen that often).

Luckily, the NYT has translated the proposal into an easily digestible pie chart. After crunching the numbers, it looks like, if passed, the bill would devote a whopping $186 billion to long term investments, like upgrading the electricity grid, researching and developing research and development, rebuilding worn bridges and roads, and modernizing the health-care system. This in conjunction with serious investments in education could give American individuals and companies a leg up over their competitors. For more information about American competiveness, check out GSI’s Class of 2025 Initiative.

However, in the aggregate the stimulus package (which could reach $900 billion) and its successors (President-elect Obama introduced the plan as only a “down payment”) could work against US competitiveness.  The next generation will bear the burden when collectors come a-knockin’, and their problems will only be compounded by looming Medicare and Social Security crises. The US could even lose its star credit rating and some rogue investors have warned of a complete government default. While this news is certainly sobering, at the least, the current environment provides the US government with an excellent opportunity to change its modus operandi. The Obama administration could capitalize on this time of uncertainty to push through some major, enduring changes.

For more information check out the following links:

Amy Acosta Fraser, “Any Stimulus Legislation Must Include Budget Reforms to Address Long-Term Challenges”

CBO Report, The Budget and Economic Outlook: 2009-2019

And if you think you can manage emergency stimulus funds better than the professionals, try your hand at The Bailout Game.