Descend into the Maelstrom

Much is being made of controversial high-cost bailout packages and stimulus packages these days.  Washington is engulfed in an all-out war against an economy in global decline, and Washington is losing so far.  The conflict has already spanned over the sunset of the Bush reign and the sunrise of the Obama era.  It appears that the Obama administration, with a largely partisan Democratic Congress, will ram through some version of a $700-$800 billion stimulus package as an opening salvo in the battle.  Much has been said about all of this, and above all the only predictable outcome is more uncertainty in the short run.  Since I nearly failed every one of my college Economics classes, four of which I was required by my undergraduate institution to suffer through in order to matriculate, perhaps I’m not the best person to comment on all of this.  Then again, the world’s top economists and policymakers appear to be as clueless as I am, so here are some issues to keep track of as the battle rages on.  It’s a complex and unpredictable subject, so one thing we can sure about is that there are no easy answers.

To Stimulate or Not to Stimulate. That is the question.  Most of the citizenry and most of the government seem to be in agreement that something must be done, as the economic indicators spiral out of control.  Unemployment is at a high level unseen for decades.  Housing prices are down sharply, resulting in trillions of dollars of lost wealth collectively for Americans and foreigners.  The financial system is on the brink of collapse.  Lending is down, and so is consumer spending.  Most people, rich and poor feel like they are worse off right now than a few years ago.  To navigate out of the quagmire probably requires drastic government action of some sort rather than sitting lamely by.  The Democrats believe that we should spend our way out of it, thousands of multi-million dollar checks at a time.  The nay-saying Republicans have been thrashed so badly in the last two election cycles that they are rendered irrelevant in the debate because most of them are not needed to pass legislation.  Their game appears to be that tax cuts are the ultimate answer, not spending.  John McCain, the closest thing the party has to some semblance of leadership, has taken pains to absolve his party of responsibility for the bill.  As a compromise several hundred billions of dollars of tax cuts are part of the plan.  The Republican strategy appears to be: hope the stimulus will fail miserably in its aim, making us look good in time for the 2010 midterm elections.

The Need vs. the Speed. On the other hand, the optimistic tack taken by Obama and his Democratic team appears to be that the stimulus can right the ship, a la President Franklin Delano Roosevelt’s massive spending bills from the 1930’s whose public works projects shaped much of what America looks like today and helped the country out of depression, along with a patriotic re-purposing of the workforce toward defeating the Axis powers in World War II.  This period saw workers who used to make fridges learn how to make tanks and bombs instead.

However the stimulus bill is based on America’s ability to spend the money speedily.  In the political world that means progress must be made by 2010.  Contracts have to be signed, shovels have to pierce the earth, and dams and bridges and windmill farms must pop up or be repaired.  But the speed must be balanced with practical concerns.  Are we building roads that we really need, or are we just spending for the sake of spending?  Will the newly planted infrastructure help our economy into the future or will it be a one-off shopping spree that will leave us back where we are now at the end of it- like a temporary caffeine rush from a visit to Starbucks?  Unfortunately, Congress’s poor track record on spending wisely does not inspire any confidence.  That’s not even the biggest pitfall.

Debt. The larger risk is taking on more debt to get there.  Money doesn’t appear magically from the sky- the government is spending from a finite pot, and putting more cash in circulation means that the American people are borrowing against our own future.  This is a sticking point for Republicans, and it’s a good thing that it’s being discussed.  But debt is only a problem if the economy doesn’t get stimulated.  If stimulation occurs, the debt will be neutralized by a rejuvenated economy revving up.   If it doesn’t happen, we will owe the Chinese and the Gulf states even more in the future than we do now.

Bigger is Better? Size matters when it comes to spending.  What’s the right amount to spend?  Bush and Obama both backed a bill that injected $700 billion worth of treasure into the coffers of America’s banks.  With about half of the taxpayer money already spent, nobody can prove that it’s been any better than pissing $350 billion into the wind.  Credit hasn’t loosened, job loss has not been stemmed, and the banks seem even worse off and more tone-deaf than before.  Many banks have admitted to just holding onto the gift money for dear life to better position themselves for an economic recovery that they have no intention of contributing toward.

The latest stimulus figure being thrown around today,  $789 billion, has clearly been pulled out of someone’s ass.  Nobody can agree that any number, whether it’s $400 billion, $800 billion, or $2 trillion would really stimulate a damn thing.  That is because our economy is more complex and globally entwined now than it’s ever been.  This 789 number is an arbitrary compromise between all of the pigs feeding at the special-interest trough and salivating at getting their pieces of the slop.

What Should We Really be Doing? Ultimately I do not believe that we are spending the money in a creative enough fashion.  Our way of life as we know it is being threatened, and a massive shopping spree paired with a massive bank bailout simply cannot be the only fathomable option on the table.  We have to think of re-structuring our country and indeed the entire international trade system in radical ways.

We need to consider more carefully what Americans should be doing, and what we should let other people in other countries do.  Our economy should be driven more by things that Americans can do better than everyone else.   For example, our cars will not be able to compete much longer against those built by automakers in other countries with sharply lower labor costs and access to similar technology.  Cars, for America, are a thing of the past.  We should be focusing on what will matter 20 years from now, high technology innovation, the stuff that Google and Microsoft and Oracle are made of.  We should invest more of the stimulus money in alternative energy research and production, and re-thinking our entire energy grid system.  We should begin the complete transition of things we do not do well or cost-effectively, such as auto manufacturing to other nations.  People in Detroit should learn to make or do something else.  For that matter, American workers should be commuting to work not in SUVs but instead, newly-built mass transit or perhaps new types of high-tech bicycles powered by electric batteries.  Our schools should be teaching foreign languages from 1st grade onward, sponsoring mandatory study abroad programs, and hooking up every child with a laptop computer.

Finally, we need to invest in stabilizing the rogue states of the world run by dictators tacitly supported by foreign great powers, and get them working productively as part of the community of nations.  Until that happens, we will always be at war with somebody who hates us, and we will not be using our resources most effectively.  It’s my opinion that if Africa never becomes politically stable and civil enough to be the place that builds all our cars, America and the rest of the world will never progress.  We will probably sink or swim together now in the global drink.

Unfortunately, these creative long-term goals are difficult to achieve when politicians are only elected for short spans lasting 2, 4, 6, or 8 years at most.  Transitioning America toward the next and better step of history would take longer than that, and many aspects of creative and visionary thinking are defeated by the overpowering urge to seek short-term gain and glory.  Ultimately this may be the largest flaw in our system, one that is not nimble enough yet for the 21st century, and one that to our peril just may never be.

Inevitably, we’re going to have some sort of stimulus package.  I hope it achieves some sort of stimulation.  But I don’t think it will be a long-term solution in any case.  That means we are still going to need one.

I’m not going to pretend to be an expert on economics, but I do know that the American economy, and by association world economy, are in the midst of a history-bending crash. To boot, we are knee-deep in a contentious and ugly election cycle for the presidency and also Congress. Put the two together, and America is suffering from all that is bad about America: paralysis in Washington, skullduggery on Wall Street, and an American citizenry on Main Street that has no idea what is going on. From bankers to economists to politicians, nobody saw this coming despite what some of them might be claiming now, and nobody has convincingly provided any answers about where this thing is heading.

With an absence of reliable information available from any quarter, we must resort to analyzing the factors at play in the last few whirlwind weeks of finger-pointing and hand-wringing. I have been unable to find a simple breakdown anywhere else. In my opinion, this complex web of individual tugs-o-war are now actively underway and will shape the outcome:

To Bail or Not to Bail. That would be the question. The $700 billion dollar question, to be exact. Many mainstream politicians, including Bush and the duo of potential successors, McCain, and Obama all seem to be for it with perhaps slight modifications. Its authors, including Bush appointees Secretary Paulson and Fed Chairman Bernanke claim that the economy would suffer an unmitigated slide without the bailout, and the infusion of cash would be good for all Americans despite the unprecedented outlay of taxpayer dollars. They argue a doomsday scenario if we don’t make bail. But- and here is the terrifying part- the opposing arguments are legion, and sound just as reasonable, depending on which smart economist you talk to. The slide, which depends largely on an unquantifiable concept known as “confidence,” may be uncontrollable even with a bailout- like a Band-aid on a broken leg. Plus, is it the government’s role to save failing companies in a free-market society- therefore socializing the dumb risks that Wall Street takes? Most business owners who do a lousy job are simply allowed to fail across the country and around the capitalist world. That’s part of the definition of capitalism, something we’ve committed to centuries ago, and ostensibly, one of the core democratic values we are trying to protect and spread by fighting to the death in Iraq and Afghanistan. Finally, what’s in it for the common folk who are getting foreclosed out of their homes, the real losers of the day? Why does Wall Street get a bailout while they don’t? This leads to the next tug-o-war.

Constituents vs. Corporate Patrons. We all know that corporations fund both major parties and their candidates. On the other hand, politicians are elected by the people, and must heed the angry phone calls and emails from constituents. Congressmen are being torn asunder by an epic battle between the two forces. I’m sure most corporate donors are begging their buddies in Congress to vote for the bailout, while the citizenry smells yet another corrupt attempt to redistribute their money to benefit companies that do not deserve it. This has caused the impasse we are at right now, epitomized by:

Republicans Vs. Republicans. President Bush has been neutered by his own wretched performance for eight years, and with his popularity at a dismal low, this is not a good time for him to have to attempt to ram through unbelievably contentious legislation, even with vigorous gambits by Secretary Paulson and the presidential candidates. The House Republicans did not bite on the bailout vote, despite McCain’s support, because of Bush’s support, and that’s partly why the bill failed this week. With the election just weeks away, some Congressmen undoubtedly calculated that their jobs may hinge on this monumental vote. A smaller group may be against the bill on principle, under the conservative umbrella of free markets, deregulation, lower spending. Which is also worth discussing:

Capitalism Vs. Socialism. The bailout high jinks are part of a wider debate in America: what kind of nation are we? America exists in a bipolar, piecemeal twilight zone somewhere between the small-government capitalist standard-bearer of the world, and a nanny state who meddles in everything. While we promote trade and the free movement of labor and capital, our government is also full of folks who provide insane industry subsidies and tariffs; run housing projects, Medicaid, and Social Security; all the while protecting you by spying on your emails and forcing tobacco firms to warn you that the profit-inducing product inside the box will kill you. At some point, something has to give. Are we going to admit to nanny socialism by passing this bill or aren’t we?

Partisanship Vs. Bipartisanship. One of the highlights of the campaign season/ financial crisis cocktail has been McCain’s bizarre attempt to suspend his campaign and postpone the first presidential debate. Here comes this presidential candidate who admits to not being an economic expert, but believes he must drop the presidential campaign to come together with Obama to solve the crisis and rescue America. Except… he forgot to tell Obama about his Amazing Technicolor Bipartisan Plan. Obama for his part, raring for the debate that would likely help him push ahead of McCain in the polls, asked that he and McCain not inject too much partisan presidential politics into the crisis. But both did just that: McCain’s desperate ploy was strictly political. Obama and McCain then both proceeded to sidestep multiple questions from Lehrer about whether they supported the bill or not in the first debate. The most important question of the election cycle, and both of them refused to give a straight answer. Bipartisanship does not exist; it’s a cruel joke:

Republicans vs. Democrats. As the parties joust for position, it has been clear that the crisis, and the failure of the bailout to pass muster are both the fault of the other party, depending on which politician you ask. Democrats can blame Bush and the Republican Congress for sleeping at the wheel for much of the last eight years, and in fact many of them see the faltering economy as a boon to their chances to get re-elected in November. Democrats could also rightly claim that Republicans hijacked the bill. Meanwhile the Republicans are quick to blame Pelosi, Reid, Obama, or even Bill Clinton for all that taxing and spending. Anyone, anyone but themselves.

VP Gaffe Vs. VP Gaffe. Finally, we are approaching the long-awaited VP debate between Sarah Palin and Joe Biden, and all the campaigning before and after by these two on the economy. You could bill it as the All-America Alaska Ignoramus vs. Joey Foot-en-Mouth. Palin has no idea what a recession or a depression are, and has already predicted that we could be headed for a depression! That’s what pit bulls with lipstick are supposed to do: scare you (more so than a pit bull without lipstick would do), whether it’s about the Russians overtaking Alaska, Iranians terrorizing us and our allies, or another Great Depression. Have fear, and vote for Mommy. Meanwhile, Biden will give extremely eloquent and passionate remarks about how to solve the crisis, but he’s likely to draw on lessons from the wrong decade, using presidents from the wrong eras of history. At the very least, this should be highly entertaining, in a reality TV sort of way.

If any of this makes you feel better about this unquantifiable crisis we seem to be going through, I have failed.