A Tale of 2 Stim Plans: US Sold Out, Intel Got It Right

It’s hard not to look at the stimulus package announced last week and not be disappointed. About 35 percent of it is tax cuts that will be so small for the majority of us that it simply won’t have an impact other than to put the country in deeper debt.

Intel announced its own stimulus package in the form of a massive investment in new fabs; the difference being that the Intel program which also has, for a corporation, unprecedented spending will result in a word that Washington appears to have forgotten — revenue, and another they likely can’t even spell: profit.

At this moment I’m thinking Obama and Congress sold us out and that Big Oil may have been the big winner when the biggest beneficiary should have been an industry, like tech, that actually improves the country’s bottom line. As therapy for me as I plan my relocation to Panama I’ll compare Intel CEO Paul Otellini’s plan to Obama’s this week.

We’ll close with my product of the week: the PC, any PC, which can be used to provide more benefit to the U.S. citizen than most of the near US$800 government cluster … OK, time to take a breath.

Finance 101

I have a guilty pleasure; I like to watch the Rachel Maddow Show on MSNBC. It is kind of refreshing to see someone who is both articulate and can maintain an intelligent argument on TV. This, however, doesn’t mean I agree with her, and recently she has been both right and wrong on the U.S. stimulus package, right that tax cuts are stupid, wrong that the economists support the kind of spending the package envisions. In fact the only constants with the economists is that — and I’ve been spending some time reading opinions on this — they agree this is all new ground and don’t agree on anything else.

But my background is business, and while we study business economics, it is finance that we use to turn around a company. It is vastly less convoluted. In finance 101 you learn that if you don’t have enough income to pay your expenses, you go out of business. It’s not rocket science.

So the last thing a first-year business student would suggest on the written portion of their final exam on a question on “turnarounds” would be that the first thing you need to do is increase expenses and lower revenues.

Now an experienced turnaround CEO might argue successfully that increasing capital expenditures in order to increase future competitiveness and revenues would be a better path than just tactically cutting costs, because to sustain a turnaround, you need increasing revenues. This is especially true with layoffs, which actually reduce a company’s productivity and can make the problem worse. You need to both cut and build for the future.

Intel is building for the future, but unfortunately, our own government is putting us out of business.

Intel Shows the Way

Intel announced last week it would invest at an unprecedented rate to put in place a number of manufacturing plants, called fabs, to build next-generation 32nm processors. The result, assuming success, should be a sustainable competitive advantage in their chosen market, better personal computers, servers and smartphones (using Intel technology) that should increase demand for Intel products and allow them to enter new (smartphone) markets.

In short, Intel is spending billions to increase future revenues and creating short-term jobs to build the plants; but the plan includes staffing the plants, which creates sustainable long-term jobs. The resulting economic benefits should increase both revenues and profits (because 32nm parts should be cheaper) and they have the added benefit of being more power-efficient, which should contribute the fight to lower energy costs and eliminate global warming.

So, to summarize, Intel’s program creates short-term jobs, long-term jobs, increases both revenue and profit, and assures the long-term future of the company. In that last, and in other words, they aren’t passing bigger problems on to their children; they are introducing the novel concept of, OMG, fixing them.

The Stimulus Cluster …

After taking a look at the summary for the stimulus package, which appears misnamed because the one thing it probably won’t do is provide stimulus, I’m wondering what we are paying our representatives to do. I’m pretty sure I didn’t vote to bankrupt the country last November.

First, in exchange for votes from three mentally challenged (see I’m being politically correct) Republicans, a major portion of the plan is focused on meaningless, late, or problematic tax cuts. The first is $150 billion for income tax cuts. The average benefit of $800 over two years amounts to about $17.50 a paycheck and will likely be eaten up by inflation by year two anyway.

That’s $150 billion that does less than nothing (and that takes work). $70 billion to keep the alternative minimum tax from hitting tax payers for 2009. This could have an impact, but it will be small and likely around April of 2010 — or way too late. And finally, $3.7 billion to give first-time home buyers an $8K credit; this will help at the very bottom of the home market and probably get many people to buy a more expensive house, which kind of is what got us into this mess in the first place. The word “idiot” keeps floating around in my head for some reason.

Spending Does Not Equal Stimulus

Now, the rest of the bill provides spending for a number of high-profile projects. Some, like education, I think are very critical to the future of the country. But look at the details — the funds are largely focused on keeping some targeted things from getting worse, not improvements or growth. This would be like Intel, instead of funding new plants, spending less but putting all the money into painting existing buildings and fixing the plumbing. Yes, that too would employ people but it doesn’t address the core problems of competitiveness or revenue, and it increases short-term expenses. And then, what do you do with the people when the money runs out?

The education payments appear primarily to keep schools open and functioning. Most of the money to individuals is aimed at the poor, certainly important but not stimulus. Same for most of the healthcare funding, it will help hospitals stay open but most of it doesn’t seem to have any connection to actually making the country more fiscally sound.

The only stimulus I could find was $8 billion for high-speed railways (building something new), $7 billion for expanding broadband (increases the country’s competitiveness and additional building), and $19 billion to modernize healthcare systems (advancement and improved competitiveness). So, out of $789 billion I can find only about $34 billion that may provide short-term stimulus and/or some kind of a long-term economic advantage. There is some spending on alternative energy, but hardly the major effort most of us were expecting, and the mix makes it hard to estimate the real benefit.

With all due respect to Maddow, spending does not equal real stimulus, and apparently 200 economists (three are Nobel Prize winners) are publicly coming out against the package. Granted, it could be worse.

Wrapping Up

Part of the problem with politics is unacceptable compromises. For instance, if you didn’t have enough money for effective bulletproof vests for solders, a political solution could be to give everyone defective vests. That would be a win for the politicians, not so much for the soldier.

What you see is the result of trying to partially please a lot of people. Make no bones about it; this is a near complete wasted effort. What they should have done is pick those things that would provide the most stimulus and fund them completely. If education, then fund to put the U.S. ahead of the world, not just keep school doors open. If Healthcare, fund so that we reduce the cost of it, provide broader coverage, and lead the world with regard to medicinal cures we export. If it’s technology — where we used to lead, but where places like South Korea, Singapore and increasingly China are now kicking our butts — fund to restore our leadership.

As to why Big Oil won: Where is alternative energy? It is almost a footnote in this mess. If we dropped the meaningless tax cuts and instead funded aggressive alternative energy deployments, we could likely wean ourselves from much of the foreign oil addiction. Interesting how we lost something that would have helped Detroit build and sell new cars, improved the nation’s balance of trade (profitability), and created a better world for the next generations. Obama is mirroring Jimmy Carter in trying to do too much in too short a time and screwing much of it up as a result. This won’t end well.

In a turnaround, it’s not about making everyone marginally happy or looking really, really busy; it’s about getting the job done. Intel is a showcase right now; the U.S. government is an embarrassment. If that doesn’t change, in two years, Obama loses his majority in Congress and in four, his job.

Product of the Week: the PC

With the PC, you can prepare for your next job, you can watch your programs off the Internet from sites like Hulu whenever you want and for free, (saving on cable and DVD costs), you can manage your finances, you can stay in touch with current and ex-coworkers. With Web offerings like Facebook or LinkedIn, you can maintain and use the contacts you’ll need to find a new job. You can take you mind off your problems or work out your frustrations in games like “World of Warcraft” rather than on your friends and family.

And you can use it to keep track of your children, parents, friends and life partners. You can also use it, like you are here, to keep up on the world and keep you and those you care about safe. You can even learn what a woman wants in a man. As a result, the PC is my product of the week.