24 November 2008

But I Thought That a Post-Bush World Was Supposed to Make Sense!

We have moved from talk of bailouts to massive economic stimulus packages without any intervening discussion. Somewhere in that transition I got lost.

I understand a bailout of banks. Capitalism without capital is like a party without people. If banks collapse, so will credit markets. But a credit crisis is different from a slow down. (Related, sure, but different.)

Unemployment in October hit 6.5 percent – up from 6.1 percent in September. This is not good news but it hardly seems like justification for spending another trillion or so to “stimulate” the economy as Obama's people are suggesting.

Remember how Afghanistan became Iraq without any backward glance? The Taliban hatched the plot for 9-11 and we overthrew the government that coddled them. That made sense. And then suddenly, we were headed to Iraq. No one could ever explain to me (sorry Davos – that includes you) why this was not the grandest non sequitur of all foreign policy blunders.

Today, I get a similar feeling about this talk of economic revival. We’re supposed to believe that 6.5% unemployment is historic, is awful, and requires an unprecedentedly huge stimulus package? Back in the early 80s, when I was doing my undergrad in economics, 6% unemployment was considered the "natural" rate - the percent of the work force that would probably be unemployed at any given time.

Economic stimulus is a completely different topic than propping up credit markets. Sadly, no one covering the news seems to make this distinction.

Households have been saving 0% of income for years. Now they are spending less. Spending less is a good thing - adjusting us towards something sustainable. A recession seems unavoidable as the economy adjusts to this new reality. This is not a bad thing – just an awkward thing. Like puberty.

Unemployment will go up more. So, we should extend unemployment benefits, fund education and retraining. We should make it easier on the poor and those who are struggling. These ought not to be short-term measures, though. This should be normal policy. And distinct from spending trillions.

Meanwhile, it might be worth considering the possibility that borrowing huge sums of money to fund government spending might not be the best reaction to narrowly averting a credit collapse.

Obama’s team of advisers is talking about spending another trillion or two (or three) – in addition to what has already been spent. To stimulate the economy?

Am I the only one who doesn’t see a recession stemming from a shift in the economy as different from a near collapse of credit markets? And I was so convinced that once Obama was elected I would stop feeling like I was from Mars and policy makers were from (“it’s not even a planet!”) Pluto.

Sigh. At least I'll still have something to blog about. If only it were some topic other than disasters boldly blundered into. Some days I wonder how I remain an optimist.


Pinky said...

Hasn't it already been approved? 2.7 trillion? Stunning. And what does that make our paper money worth? Where is the gold that is supposed to back up this money? In China? I'm so confused. The people voting on these "bail-outs" are basically propelling my children and grandchildren into debt.

How is that fair? How is that hope and change? I'm so angry about this. I agree, Ron. We should let it go. It would hurt and be uncomfortable, to say the least. But it's just wrong to punish future generations for our wrong doings.

cce said...

The American public has no stomach for this thing you call saving, it's spend, spend, spend with hope and praise and future assurances that we will not ever have to be held accountable for our miscalculations. Not sure what's to be done about all this spending and none of the saving and the government's attempt to stop the bleeding with bail outs but I can say that driving into a big-box parking lot to find two of the four retailers out of business is a bit disconcerting.

Ron Davison said...

we've gone from bailouts to corporate handouts in about two weeks, it seems. I might even be more sanguine about all this if I got the impression that sums of money this enormous were generating real and serious conversation.

as it turns out, Americans are beginning to save. This seems to be one big reason that we're teetering into a recession.

David said...

Couple of things. We're not teetering anymore - it's officially here, the recession. I just finished I.O.U.S.A. (the book) and if the cardiologist doesn't tell me tomorrow that I have six months left it may not make any difference.

I don't advise the weak or infirmed to read that book but Pinky might want to. It offers some hope I guess.

However, I watched Obama's show this morning and quite mystically felt renewed in a spirit of hope for America. I know you think I'm joking. I'm not.

About Iraq. I'd never try to change anyone's mind and I didn't try after spending two tours in Vietnam working with people who opposed communist aggression. It's either something you come to know, believe in, or not. Burke has helped me find all the books to read on that war and I stand and on what I saw and was told.

I'm pleased with the selection of Hillary, Gates and the others. I'll bet that helps them sleep at night.