Obama and "investment" (Updated)

examiner.com)

Projected US Federal Budget Deficit (Source: examiner.com)

The stimulus bill has passed the Congress and awaits signing by President Obama.  The AP reports:

President Barack Obama, savoring his first major victory in Congress, said Saturday that newly passed $787 billion economic stimulus legislation marks a “major milestone on our road to recovery.”

Speaking in his weekly radio and Internet address, Obama said, “I will sign this legislation into law shortly, and we’ll begin making the immediate investments necessary to put people back to work doing the work America needs done.”

Now I have to say that the term “stimulus” is euphemistic for “wasteful government spending”.  But the term “investments” for this bill is ridiculous.  If the US government doesn’t raise sufficient money to cover this deficit, it will lead to inflation.  Inflation is form of robbery.  Do you have a savings account?  At 20% inflation like what we had during the Carter years (I was alive in those days, I remember it), your savings account will have lost 1/5 its value in one year.  In five years its worth nothing.

The term “investment” properly refers an investor putting down risk capital with a hope of return.  So for example if I buy a stock which pays a 6% dividend, and I borrow money at 3% (prime rate in Canada), then I get a 3% return on my investment; if then the stock price goes up and I sell, I can also make capital gains, and I could have a considerable rate of return.  There is risk, because the company whose stock I buy may in the future be unable to pay the dividend, and its stock price may go down too. But an investment, properly named, is money spent with a reasonable hope of return.  If there is no reasonable hope, then it is wasteful spending.

Savvy investors understand that even your own home, which many consider their principal “investment” is actually a liability because they must pay a mortgage on which the bank gains interest; plus the home owner must put thousands of dollars into maintaining the house.  It is not an investment but a liability.  But buying a home and renting out to another person and making a return on the risk capital, that is an investment.  Not much if any of this so-called stimulus bill is an investment.  Most of it just simply grows the size and influence of the government; while this kind of government spending will cause problems, I don’t see how it can solve anything.

Such items as cars, computers, tools, or clothing, may help create wealth or improve our quality of life.  But such things have depreciating value–they wear out, or they become obsolete.  So they are not properly called investments either.  But for the government to print money and spend it on pet projects intended to increase votes for Democrats, that’s not investment, but the classic definition of government waste and pork.

UPDATE:

An example of government investment is the $28.5 billion  Alaska Permanent Fund.  Oil and gas revenues were set aside by the State of Alaska and invested, and now part of the revenue generated by the fund is paid out to every state resident (men, women and children) in the form of a dividend.  The dividend for the year 2008 is $3,269.00 (a family of 7 would receive $22,883).  Alberta also has an $15.8 billion  investment called the Heritage Fund; profits are used to improve quality of life in the province.

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One thought on “Obama and "investment" (Updated)

  1. Pingback: The Obama Dollar « Palabre

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