Obama's Big Lie ... or, "We're gonna need a bigger stimulus"

Reason's April 2010 cover story on the failings of the stimulus package to create sustained growth is enlightening. The article is not featured on the web yet or else I'd link to it. But the issue is out there on newsstands and it is a really great article.

The story sheds light into how the Obama administration's claims that our country is headed towards recovery due to the stimulus are absolutely false. Yes, GDP rose... with a huge portion of that rise coming from the purchase of new cars and homes.

The article explains how the automobile industry got a big surge in productivity after the Cash for Clunkers program, but that as soon as this program ends, the industry will slow again - mostly because Cash for Clunkers did not create NEW demand. People did not utilize the program unless they were already planning on buying cars, so the increase in demand was sort of a consolidated demand from the coming months. Why does this matter? Because it cannot be sustainable - not without a bigger stimulus down the road.

Similarly in the housing market, housing credits encouraged the purchase of new homes. This, again, does not create demand, but instead consolidates future and present demand - it encourages people to buy homes now, rather than in 6 months. The Obama administration extended the housing credit until April 2010 because they are aware that their stimulus did not create demand, did not create recovery, and will not be sustainable long term.

The main failings of housing market still have not been addressed. Instead, the stimulus provided a short-term band-aid cure - a politically motivated band-aid cure - that has two outcomes: either a). the programs will end, leaving the housing and auto markets flailing and leaving America with a federal spending hangover or b). the administration will continue to extend federal spending, extending our debt, encouraging inflation, and creating a new bubble.