Got into a lengthy discussion, I want to republish it since it touches on a lot of political, social, and economic realities that have to be addressed in a short time.
“I am reminded of Iraq during the Bush 43 years, just before the Surge. Many on the left were seeing quagmire. Those on the right did not want to admit failure (with cause, given hindsight) and accused the left of hoping for failure and perhaps seeking to cause failure.
The shoes seem to be on the other foot, with the Obama supporters wanting to stay the economic course while the opposition is anticipating disaster.
I’m not particularly strong on economics. Spend to stimulate in very bad times while buying down the debt in good times is about as far as I go. (Well, I don’t like tax breaks to the bubble blowing class, either.) What we saw through much of the 3T was deficit spending in good times to extend the good times. What I’m hearing now from Obama’s critics is a recommendation for austerity in bad times, which was Hoover’s approach.”
Which seems backwards. It might fool some of the people some of the time, but I am dubious. It may be that the 3T economic policies were so bad that there is no clean way out. I hope not.
I dunno, Hoover didn’t exactly slash the budget and stay out of the market. Tariffs (buy American) and immigration crackdowns were part of a plan to manage unemployment – federal spending also reached peace-time highs as he introduced some expanded federal public works ambition. Some of his more radical ideas, like old age pensions, were rejected by Congress.
Anyway, the big problem I see with our current federal spending is a) where it is aimed b) how it is financed and c) how it limits our ability to respond to future mini-crises like the inevitable option ARM default wave coming.
The a) part was mostly organized under Bush & Paulson & Bernanke – Geithner was at the NY Fed at the time and that his policies suggest he’s interested in continuing that path. This is the majority of the trillions in spending & guarantees, and it is aimed to protect the “bubble blowing classes” from the consequences of their actions.
The b) part is a little troubling too. FDR financed his spending explosion with confiscatory monetary policy – an effective tax on everyone holding dollars. Even though we’re borrowing cheap, we’re still borrowing, now faster than ever, at a time when total public + private debt rivals any point in our history.
And c) relates to the current global economic scene. Borrowing money so as to hire someone to bury that money and dig it up again won’t bring back jobs from India – its not going to make us a competitive place for businesses to invest in new jobs, research, etc. The next mortgage default wave is practically inevitable, and between now and then China is in the process of working out bilateral trade deals to bypass use of the dollar. We seriously risk the loss of the USD as the international reserve of choice, especially if we print up too much money without investing in properly in our future earning potential. If demand for dollars falls on a global scale at the same time we increase supply into the trillions to pay off investing losses, our job & debt situation could be fixed at the cost of global purchasing power. Wages would hold flat nominally, but costs of living would increase (housing could fall even further under this scenario simply by virtue of oversupply and worker income until foreign investors buy it up and put a floor under it)
The crashing purchasing power destroys working class wealth, but it makes exports suddenly competitive. Unfortunately, a rapidly devaluing currency is also disincentive to work harder than what’s required for subsistence – trying to save gets risky.Â This means plenty of work available, but people earning very little for it and unable to build it up over time.
Of the trillions spent on stimulus & bailouts, only Obama’s $700B can really be counted as investment spending. Even some of that is more like “emergency money” to keep states solvent.Â We’re literally bailing out banks and closing schools.. so spending alone cannot persist forever.Â Solutions have to be built in the form of new institutions and paradigms of doing business.
Class structure should be flattening, but the top crust has been and continues to be the primary benefactor of our tax system and spending policies. As I posted in the Economy thread, our current futures market guarantees a profit to all the institutions & investors who can acquire low-cost loans from the government – at the cost of building a new commodity bubble in the hope that it will buoy home prices & the derivative investments.
“We seem to be at a place where people’s politics are reflecting their ideas of how economics works. I’m not sure how to proceed here other than waiting to see how the economy really goes.
But I think Brian laid out a plausible rhythm in his recent long post. If Obama holds the economy together he is echoing the S&H general pattern. Problems will be attacked now. Some transformation will take place. It doesn’t seem to me, though, that enough is being pushed in energy and ecology. It is not clear that the pull out from Iraq and stabilization of Afghanistan will be smooth. I am by no means certain that the economy will hold together. The possibility of a wild card surprise or two can’t be ignored.
But some of us seem to be in the ‘sip tea and cuss That Man In The White House’ phase. I’m not quite sure we are fully into the ‘blood, toil, tears and sweat’ phase. Sure, there have been some policy shifts. I’m not sure, however, that we have well and truly rolled up our sleeves and started to push.”
Someone mentioned this around here, “the risk in a 4t (crisis) is that you don’t go far enough.” From an economic perspective, I’d say Obama’s response is marginally better than Bush’s, but still headed in the generally wrong direction that began long before either of those two.
I would have liked to see the large banks fail under their own mistakes – and it would have been about the same cost to pay all those FDIC-covered deposits as it has been to keep them in business. Now that we’ve already paid in big time, we should be acting like the primary owner & investor of these banks. If we’re going to “save the system,” we should not go in half way and we should have investors near the bottom of the list of claim-holders since their “risk” was saved from zero by the taxpayer.
Nationalizing the banks wouldn’t be so insane either, controlling the money (and credit) supply is one of the very few enumerated powers of Congress.Â The Federal Reserve system is most certainly outdated, probably corrupt, and even possibly unconstitutional.Â Obama said “transparency” more than once during the campaign, and this would be a great place to start looking.
And don’t get me started on Universal Healthcare. I’m going to be royally pissed if they institute a mandatory insurance scheme over the single-payer model.
The consequences of these decisions will affect entire generations of Americans who haven’t been born yet. There’s no magical manifest destiny that says whatever we do is going to bring net happiness and opportunity and freedom. No country grows in leaps every 1T unless you’re looking solely at America – the nation with the shortest history.
If we use 4T momentum to institutionalize the latest goals of the bubble-blowing class, we could be in for the beginning of a long fall…Â Bush set us on that trajectory, and the economics have seemed more like an acceleration than a change in direction & ultimate intent..