President Obama has characterized his $800 billion plus stimulus bill as being critical to the recovery of the failing economy.  The President gets no argument from me about the fact that the government has to do something to reverse the downward spiral. But it’s the manner in which this huge amount of money is being spent that concerns me and should concern every American.  Perhaps if my objections were illustrated in an example that even the most uniformed political observer could comprehend. Consider the following.

Mr. Oglethorpe’s Dilemma

Let’s suppose there’s a man named John Oglethorpe.  Mr. Oglethorpe has a son, Jimmy, and a daughter Elaine.  His wife, Jane, is a homemaker. John Oglethorpe is an insurance agent.
Due to a drop-off in new policies last year, related to the recent drop in home sales, John’s income is down about 25% in 2007 and things are getting pretty tight.   He’s got limited available credit … only about $2,000 available on his three bank cards with balances currently totaling over $18,000.  He has next to nothing in the bank.

By changing the location of his office, he could save $300 each month in rent. But to do it he’ll have to spend about $1,500 up front to move the office.

Mr. Oglethorpe’s house needs a coat of paint (that will cost $500), the daughter wants to join the drill team (but she will need to buy a uniform costing $400), and the son, Jimmy, has been pleading for a new drum set (that would cost about $600).

Mr. Oglethorpe’s next door neighbor was employed as a manager at Circuit City and just got laid off.  He came to Mr. Oglethorpe last night and asked for a loan for $1,000 to help him meet expenses.

Mr. Oglethorpe asks you … ”what should I do?”

I think the response to this is really simple.

1.  Considering the fix he’s in, helping the neighbor would be a bit risky.  He should ask the neighbor to search out every other possibility and explain that with his income down and with next to no savings he simply isn’t in the position to lend money to the neighbor.

2. Although the requests of his daughter and son are not unreasonable, if he uses valuable funds to satisfy their requests he won’t have the funds necessary to move the office.

3. The peeling paint makes the house look a little shabby but painting could be delayed a year or two without causing any significant damage to the underlying wood.

4. If he pulls a cash-advance of $1,500 off the credit cards for the move it will cost him an extra $38 per month in interest, but it’s a certainty that he’ll reduce his outgoing expenditures by $3,600 in the next few years with the $300 per month reduction in office rent.  This is something that he has to do. It makes good sense.

5. In the final analysis, the smart move is to do the cash advance on his existing credit card and spend the $1,500 on the new office location to get the immediate and verifiable results ($3,600 per year in savings) and to delay the remainder of the expenditures until the family is in a better financial position.   He’s even keeping an extra $500 in available credit for any emergency.

I doubt if there are many of you who would argue the logic of this approach.

Using the logic that Congress is applying to the proposed stimulus package, here’s how they would handle the problem:

1. First, Mr. Oglethorpe would apply for another credit card to get an additional $1,500 in credit (even though the interest rate is 29% on the new credit account).

2. He’ll then do a cash advance on the new card to paint the house ($500), buy the drill-team uniform ($400), and the drum set ($600).  If Mr. Oglethorpe’s brother asks him why he spent the money so foolishly, he’ll just respond that it’s no more stupid than the Shotgun his brother bought himself on his last birthday.  He’ll also rationalize that paying the painter and buying the drum set will help the painter and the manufacturers and salesmen of the drumset make a few bucks.  This is good on the outside chance that they’ll need insurance sometime in the near future.

3. Next, he gets a cash advance of an additional $1,000 off the existing credit cards and lends the neighbor the requested $1,000 and tells him to pay it back when he can.  It’s good to stay in the neighbor’s good graces so he’ll renew his insurance policy NEXT year.

4. Then, he finds another office location that only requires him to spend $1,000 up front but that will still save him $100 each month.  He rationalizes all the other expenditures by bragging that this one will net him $200 the first year and another $1,200 each year thereafter.

5. Of course now he has no money in the bank and no available credit for future emergencies.
This plan is a bit crazy isn’t it? Do you see the similarities between Mr. Oglethorpe’s dilemma and the dilemma facing Congress? I ask you, “Why should we expect any less of Congress and the President than we would of Mr. Oglethorpe?”  Contrary to the President’s position, I take the position that sometimes doing less or doing nothing is better than doing lots of stupid things.  And this is why I oppose both the Senate and House versions of the stimulus bill.

My name is Ken, and that’s my take on it.