The election of Barack Obama is a first and probably necessary step to getting the nation back on the road economically, God willing it comes to pass, but it will not be sufficient.
A case in point, an object lesson, is the fate of the first stimulus package passed in February and implemented in May and June. It was not sufficient. The more targeted, more substantial program advocated by many -- including yr. obt. svt. -- would have begun a recovery that is now still far off.
What we needed then and need now is a recovery plan, not a stimulus hope.
First realize that the U.S. economy under Bush was always weak. The housing boom simply papered over this weakness with debt. When the flood of debt ebbed, it left the wreckage on the beach.
Stimulus which is intended to jump start spending and get the consumer back in the game is simply not going to work. The consumer is buried. The public sector is going to have to lead the way.
I wrote in February:
The burgeoning economic crisis in the country is an easy road to the White House for Democrats. But there is increasing likelihood that the economic downturn is not going to be shallow or mild, and that necessary steps to resolve the crisis may disappoint some key constituencies.
My diary last November wondered why the candidates were missing in action on the kitchen table economy. No longer a problem. But the full scale of the economic situation has not come into full view for either the candidates or their constituencies. There are multiple risks — big risks — political and economic risks — of doing the wrong thing, congratulating the Fed for doing the wrong thing, not maneuvering so as to enable the right thing to get to the table, and ultimately of being branded as inept because the problem was not solved.
The big three risks are:
- The responsibility for the economic crisis has not been clearly assigned to Bush, Greenspan and the unregulated banking sector. Bipartisanship may turn out to be co-ownership.
- Democratic fingerprints are all over a stimulus plan that likely will not work.
- The political will will not be forthcoming to do what needs to be done to prevent a hard landing and a long Japanese-style malaise to follow. Democrats will sooner or later be viewed as inadequate, paving the way for a return to the Right Wing policies that have failed so well in the current circumstance.
Politically, I hit some parts right, some wrong, and some have changed. At a minimum, a better economy may not have been better for Democratic candidates. Economically, though, I was right. We have hit the hard landing. We will need some action on the plus side of the same order of magnitude as that we've endured on the minus side.
Among the casualties of the failure of the last stimulus package has to be Larry Summers, who arrived on Capitol Hill during the height of concern with the stone tablet and the three commandments: Targeted, Temporary, Timely. Summers was the successor to Robert Rubin as Treasury Secretary under Bill Clinton. He then went off to Harvard to be head man. One or another episodes led to an early time from that position. He now appears at Congressional hearings and academic symposia as one of Harvard's select University Professors.
He got the timely and temporary, though it is less clear about the targeted.
The staging was perfect, the Congress acted swiftly, the checks were in the mail in a bare three months. We should have been suspicious, however, when the most ardent supporter of the measure turned out to be George W. Bush.
(I understand the rebate checks were precisely what Ben Bernanke would have suggested. In fact, I heard yesterday that in Bernanke's academic career he was known as "Helicopter Ben," for suggesting that money from helicopters was a good way to avoid depression.
We have used the phrase "dropping checks from helicopters" here on Kos, but we must admit we did not know this was the actual recommendation of Mr. Bernanke. Perhaps he thought it was similar to John Maynard Keynes' famous example, of burying ten pound notes in bottles and hiring people to dig them up. Not similar enough. At least with Keynes, you have a job to begin the cycle with.)
As you heard here before it happened, the business tax break component was pocketed with no comment, while the rebate checks themselves resulted in about forty cents of spending on the dollar. The balance of the rebates was used to pay down credit, to save, to buy Chinese goods at WalMart, or just to offset the higher cost of fuel.
It's hard to imagine a less stimulative use of the deficit unless, perhaps, you were to give insolvent banks tens of billions at low interest rates and call it equity, or something like that.
Competing with Summers three T's in another hearing room at the Capitol were the three P's -- Permanent, Productive and Paid For. We heard it from Congressman Brian Baird, though we cannot testify that he originated the three P's. The occasion was the report of a blue ribbon commission on transportation infrastructure.
The commission proposed the phase-in, at five cents per year, of a gasoline tax of -- eventually -- 83 cents per gallon. The tax could provide $250 billion in infrastructure spending for roads, bridges, rail, and mass transit for fifty years. That is what the commission figured would be needed to overcome past infrastructure neglect and produce a modern transportation system.
Had that plan been initiated, the nation would have $250 billion in infrastructure spending now in place and another $250 teed up for next year. The cost of a gallon of gasoline would be only a dollar less. Hundreds of thousands of people would be employed who are idle now. Dozens and hundreds of companies would be ramping up for new bids rather than cutting staff.
I call this costless, even though there is a gas tax increase. Costless because we are producing infrastructure that will substitute for imported oil. Inasmuch as there is a supply-demand component to the price, the future price will be less than the non-infrastructure price.
Now imagine global warming. Avoiding costs from global warming is no longer possible. Our opportunity is past. But we can avoid extinction. The earlier we act on this, the better, the less costly, and the more sane. We simply need the financial scheme to bring forward the survival premium to the present day. Is that so much to ask?
If we can bring forward the cost of building a MacMansion on the tenuous cord of a subprime loan, we can bring forward the immense benefit of saving the planet on the rope of rationality.
Another way forward is the Green Recovery Program from PERI. Robert Pollin and his collegues at UMass-Amherst and the Political Economy Research Group.Robert Pollin has looked at the bang for the buck and identified saving the planet as a worthy and usable means of recovering the economy.