One day, in a galaxy far-far away, the people who are paid to inform us, the electorate, about the goings-on of our public officials will have the foggiest notion of what the hell they’re talking about. Until then I resolve to put them on "BLAST" every time I get a chance.
This morning, I tried to listen to Morning Joe, but had to shut it off because I could no longer take the inane babbling of Mika Brzezinski and Joe Scarborough as they prattled-on about how the Obama team has misled the public on their willingness to be bi-partisan on the stimulus package.
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I had to shut it off because, between the two of them, it sounded as if neither had the faintest understanding of macroeconomics, nor had ever followed a piece of legislation through Congress, which is amazing considering Joe is a member of the famed Republican Class of 1994.
But in any case, the course of action for our troubled economy is not unlike emergency medical care. I’m not a medical professional, so bare bear with me, but I imagine the steps must be something like this:
-Assess the most immediate life threatening condition
-Repeat above until immediate life threatening conditions are alleviated and the patient is stabilized
-Reassess and identify the course of action necessary to restore the patient to longterm health (if possible)
It may be a poor metaphor, but our economy has presented itself in dire need of emergency medical care. So how do we proceed?
"Assess the most immediate life-threatening condition"
In this case of the U.S. economy, the immediate life-threatening condition was that our short-term credit markets had / have in effect been frozen. This has severe short-term implications for both businesses and private individuals. For many businesses, big and small, short-term credit is the lifeline of their business. That may consist of consumer lines of credit that allow consumers to make larger purchases like furniture, appliances and clothing without having the cash on hand. It may also consist of short-term lines of credit extended to them from the bank to allow them to make payroll, replenish inventory, or make equipment purchases, during the time period between when a sale is made and when the payment is received. This is extraordinarily important when you consider that many U.S. retailers don’t even turn a yearly profit until "Black Friday" in November of each year.
For consumers, short-term credit may mean the ability to put a plane ticket on a credit card, or obtain an auto loan for a car that will enable them to get to work, or to make an impulse purchase without having to consistently walk around with a couple of hundred dollars cash in your pocket. Please feel free to debate the moral merits of impulse purchases, but it is still the bread n’ butter of many retailers. (Do you really think anyone NEEDS anything from Brookstone?)
Judgments aside, short-term credit has been the lifeline of Western Hemisphere economies for multiple millennia. The increased demand that results from a wider base of people being able to afford a given product immediately has spurred on prices to where they are today. Yes, in my opinion, $20,000 is too much for the average price of an automobile, when the average household only makes $50,000, but we’ve spent the better part of 50 years using short-term credit to get to those prices. You’re entitled to your opinion on the slippery slope of revolving credit, but don’t be fooled. The end of short-term credit is the end of Western consumerism as we know it. And that end will be painful and enduring as it will result in a drastic drop in prices – AKA a "recession"—and an accompanied economic contraction. If that lack of credit continues and prices continue to plummet, you’re looking at a "depression."
There are arguments to be made (often made by the group of economic super heroes, the "Free Market-eers") that a deep recession is exactly what this country needs. But they often undersell the pain associated with that recession which includes, decreased government revenues, high levels of unemployment, reduced infrastructure and education allotments, national security cutbacks and assuming that we don’t enjoying watching men, women and children dying on the streets, huge demands placed on an already-overburdened social services system.
Realistically, we tout per capita income as pretty much the sole statistic determining first vs. second vs. third world status, so, under the assumption that we don’t wish the above to occur, how DID we first proceed? The only way the government truly knows how, we threw money at it. First we reduced interest rates to almost zero to decrease the costs of obtaining capital. The thought behind this is that with more money in the system, due to money being more cheap to borrow, would increase the cash available and would allow for more investment and for any troubled companies with otherwise strong foundations to bridge the troubled times. Did it work? In a word, no! Banks hoarded the money and still refused to lend because of the underlying fear about the scope of the troubled assets. So in our medical patient metaphor, we stopped the patient’s bleeding but their blood pressure continues to drop.
"Repeat above until immediate life-threatening conditions are alleviated and patient is stabilized"
Next, (in an attempt to raise our, theoretical patient’s blood pressure) we created the TARP program to deal with the troubled assets at the root of our financial crisis. The thought was that impaneling some really smart folks to keep afloat the trouble banks that were holding the toxic assets would restore confidence in the banking system and open up the short-term money faucet. Has it worked? To this point, one would have to say no, but in truth, we don’t know. There are signs trending towards a stabilization of the banks and a "loosening" of the credit markets, but payrolls are still being cut, houses are still being foreclosed and banks are still requesting money from TARP so it definitely has not worked as fast, or as well as we would have liked it, but the jury is still out.
But assuming the banks / credit market has been at least stabilized, what’s the next step:
"Re-assess and identify the course of action necessary to restore the patient to long-term health (if possible)"
Because layoffs are increasing and consumer spending is decreasing at the same time that struggling investment portfolios are pushing many State Governments to the brink of insolvency while amazingly, private banks continue to squelch their true altruistic nature to lend because "It’s good for America" It’s widely recognized that in addition to propping up the credit market and the banks, the Federal Government is going to have to adapt the Keynesian approach to struggling economies...spend like drunken sailors. All joking aside, Keynes posited that in times of acute financial strain, it was the Federal Government’s duty to deficit-spend because the States are bound by law to maintain balanced budgets. And absent forcing the banks to lend, which the government can’t do without Nationalizing the banks (a topic for another discussion), then deficit-spend we must.
This brings us to the stimulus bill, which by most news accounts, needs to:
-stabilize the markets
-fix the entire U.S. transit infrastructure
-provide tax cut stimulus
-restore consumer and global confidence
-fix health care
-convert the U.S. energy needs to green energy
-buy up all of the bad mortgages
-fix our schools
-and leave enough money for everyone to have a pony. (h/t Balloon Juice)
Yes, the last one was a bit of snark, but you get the point. Our chattering class wants to believe that there is a single gesture that Barack Obama and our Democratically-controlled Congress can make that will allow them to continue to feel guilt-free about their secure, high-paying jobs while the rest of us languish in the depressed economy. In other words they are looking for a...
...a SINGLE BULLET THEORY OF ECONOMICS
In reality, the true and necessary aim of this particular bill should be to get money into the economy quickly with an added benefit (compared to tax cuts) that the spending will be directed towards projects with more long-term benefit. Does this mean that money towards STD prevention is the best idea? Maybe or maybe not, but money towards successful STD programs will reduce the amount of money we spend on treating those STD’s as well as employ a lot of administrative workers, doctors and nurses, leaving healthcare money to be spent on other pertinent issues. Furthermore, it would also free up money that those infected with STD’s would otherwise have had to spend on prescriptions. That sounds like it meets stimulus requirements to me, but if there are better ways of using that money, then bring them forward. That’s the point of Congress.
But perhaps, Joe and Mika are, simply, so stupid as to be beyond belief, when they criticize the bill for having no "stimulus" in it. No, I dare them to find one thing in it that doesn’t aim to reduce the propensity for businesses or individuals to drastically cut back on planned spending otherwise known as STIMULUS. And is the allocation of money to the states simply partisan politics despite the large number of Republican Governors? They repeat this inane, tripe of a right-wing talking point despite it being widely known that many states are basically insolvent and will shortly need to begin cutting services and employees to meet their balanced budget requirements. This may not be "creating" jobs in the traditional sense, but it sure will keep States’ from laying off a bunch of people and cutting a bunch of services and that damn-sure sounds like stimulus to me.
And, for god-sakes, anyone who mentions tax-cuts, permanent or otherwise as the best way to achieve economic stimulus, in the face of all of the empirical evidence to the contrary, should immediately be kicked in the teeth on national television with proceeds, from the wagers on exactly how many teeth will be kicked out, going towards Head Start Funding. If the Democrats (including Obama) had there way there most likely would have been waaaaay less tax cuts in the bill than there were in the version sent to a vote. So the statement that the Dem’s made no concessions towards bi-partisanship is a damned lie and they should be ashamed at themselves for repeating it.
Furthermore, the other criticism heard from some on both the right and left that the entire stimulus needs to be spent on highway and transit type projects belies the fact that it could be just as big of a mistake to rush headlong into huge transit projects without sufficient planning. Despite how amazing it was that Boston’s "Big Dig" was remarkably on-time and under budget (extra snark at no cost ;-0), the facts are that crap transit systems are just crap transit systems and not necessarily better than the status quo. Even worse, once crap systems are started they are notoriously hard to stop. Therefore, if the projects are truly shovel-ready, then so be it, but anyone who’s landscaped a yard bigger than 4’x 4’ knows that drawing out the plans for your yard and being "shovel-ready" are two entirely different things. With that in mind perhaps we should take the time to actually plan our transit systems, highways and infrastructure investment and add the necessary Federal Investment to the Federal Budget as we should have been doing all along. This would allow for an eye towards our future goals rather than simply the IMMEDIATE SPENDING OF MONEY WHICH IS THE STATED GOAL OF THE STIMULUS BILL. (And by "immediate", that doesn’t mean it all needs to be done this year!!!)
I’ve tried not to make this a hostile post, but it is infuriating to listen to these debates as these no-nothings blather on about things they either don’t understand or are too lazy to actually bother debating in a substantive discussion. There is no single bullet that will successfully target all of the problems which we face. Yes, I agree there are improvements to the bill that I would like to see, but even I, a know-nothing with a Bachelor’s in Economics and an MBA can articulate them in a more constructive manner than the punters on television that are paid to do so. Restoring this country’s economy is going to be hard work. It will require a reduction in our standard of living...that is almost certain. But the immediate and certain bleakness of the short-term is an opportunity to look long-term and develop the economy that will be the engine for the future of the United States. Trying to figure out what that future should look like before we pass this very, time-sensitive stimulus bill is absurd and will serve only to neuter the potential good of both the Stimulus Bill and this Nation’s future prospects.