RIGONOMICS:

The talk on all the news shows this week is, “What will we do to stimulate the economy out of this recession?”

Ever since the Big Three automakers got their $17-billion bailout, every lobbyist in Washington is trying to convince the incoming administration that the industry they represent — home building, highway construction, cellphone companies, Realtors (just fill in the blank) — can get us out of the recession if we just give them billions of dollars. Without any lobbyists in Washington, one sector of the economy is pulling us out of the recession without spending $1 of President-elect Obama’s $750-billion, two-year stimulus package. I am talking about the extra $1 billion a day that is coming from the free market.

According to Tom Kloza, chief oil analyst for Oil Price Information Service, Americans are saving $1.02-billion a day in gas purchases over what they spent just five months ago. To put that savings into perspective, according to Kloza, in July the U.S. was spending $1.613 billion a day for gas. Today, the U.S. is spending $611.5 million a day. That $1.02 billion-a-day savings comes from both conservation and the steep drop in crude oil prices over the last five months.

That savings will give a $372-billion shot in the arm to our economy over the next 12 months.

During the same two-year period that Obama wants to spend $750 billion to stimulate the economy, the free market will have $744 billion more to spend, because of the drop in the price of crude oil.

When you look at the savings in gasoline alone, it is amazing that Keynesian economists give more weight to Obama’s stimulus package, which will cost the federal government (read: taxpayers) $750 billion, than they do to the $744-billion economic boost the economy gets for no cost from the drastic drop in oil prices over the same period of time. I have said repeatedly that the final straw that broke the economic back of the consumer was the sharp rise in the price of gasoline. After pumping $119 into the Escalade gas tank, Joe Consumer was not in any financial shape to spend money on anything else. That same fill-up costs less than $43 today, and that doesn’t count the consumers who traded in their sport utility vehicle for the new Escalade Hybrid, which gets 65% more miles per gallon in the city than the old SUV did. The free market has given consumers $1 billion more a day to pump into the economy.

Another massive economic boost is coming in the form of homeowners refinancing their mortgages to lower fixed-rate loans. According to a National Mortgage Bankers Assn. report, the number of refinance applications leaped up 62.6% last week on a seasonally adjusted basis. This increase in refinancing was spurned on because interest rates on fixed 30-year mortgages dropped to 5.14%, which is the lowest rate since Freddie Mac started its survey in 1971. Some economists expect this refinancing to free up another $200 billion a year in lower housing payments that Joe Consumer can now save or spend on something else. If rates drop to 4.5%, as some predict, the number could hit $300 billion a year.

The home refinancing not only frees up money for homeowners to save or spend it also locks in rates for the many homeowners who have risky adjustable rate mortgages.

Homeowners who have 30-year, fixed-rate mortgages are more likely to spend and invest if they know they will not have any future surprise increase in their cost of housing. A $672-billion free market stimulus plan ($372 billion on gasoline + $300 billion in lower interest rates) is what will get us out of this recession without one dime from the taxpayer.

Like most previous stimulus packages, this one will be too much and too late to make any real difference in the economy. By the time the money is spent, the economy will be in full recovery. Believe me, I am not bashing this stimulus package because it is Obama’s; President Bush started the stimulus game just this last February, by mailing out $168 billion to every American family in the form of $300 to $1,200 checks. This was followed by his $700 billion Troubled Assets Relief Program, a.k.a. TARP, for “banks too big to fail” and lastly his handout to the Big Three.

The bottom line is that once our elected representatives, Republican or Democrat, move to Washington, D.C. they no longer believe in the free market. It must be in the water.

JIM RIGHEIMER is a Costa Mesa planning commissioner, a local developer and a GOP activist. He may be reached at jim@rigonomics.com.