Steady As She Goes
A big talking point of the Republicans is that Obama’s stimulus package has failed because the economy has failed to rebound, despite the fact that it’s only been a few months since the stimulus has been in effect. Even though preliminary signs were good–job losses turned around and started decreasing instead of increasing right after the stimulus passed–conservatives held that it had come and gone and, what, no effect. This despite giving Bush a far longer time to claim that his initiatives were successful, taking more than two years for most indicators, and even as late as 2004 Bush was still claiming that a job recovery was “just around the corner.” For Obama, right-wingers claimed that after three or four months, the game was over.
Now, many economists are saying that an economic rebound is in fact coming; indicators like the housing market and consumer spending are looking good.
So, how long until those very same conservatives who said no rebound meant Obama failed will now start claiming that the rebound has absolutely nothing to do with anything Obama has done? Three, two, one…
Don’t be surprised if many of them actually try to credit Bush for the rebound, claiming that Obama just wasted money on a stimulus that was not necessary after all. Now, the stimulus may not in fact turn out to have been the major reason for the rebound, in that there is usually not too much presidents can do to affect the economy positively (negatively is easy). But politically, presidents tend to get blamed for bad economies just by being there when it happens–look at how the right-wingers eagerly started calling it the “Obama Recession” just days after he got elected, months before he even took office–and, conversely, they get credit when economies are good. That’s simply how it works.
Whatever the case, if the economy does in fact rebound and things start clearing up, Obama will step up and take credit, and the Republicans will try to claim that somehow they were responsible (“we stopped him from making things worse with a bigger stimulus package!”). But since presidents historically get credit, and because Obama’s been the consistent one (conservatives not only have claimed that he is trying to destroy the country, but often claim that he has already destroyed it) in saying that things will get better. He has more cachet here.
The problem with this analysis is that the economy is most likely not going to rebound. It’s just taking a pause in its down word slide.
It’s not Obama’s fault, but when the Depression deepens, Obama is in danger of becoming Herbert Hoover (too conventional, too little, too late). Most people don’t realize, almost alone amongst Republicans, Hoover was relatively progressive for his day – but even that was too little and too late. The paradigms were too constrained by the recent past.
I blame the entire ‘Great Recession’ on the Republicans and I guess I should include the blue dog democrats who vote with them far too often.
Having said that, the stimulus is hardly satisfying. It hardly matches up to the true gravity of the situation.
This is a depression of collapsing demand. Demand, meaning consumption. Consumption is 70% of our economy. So it’s is collapse catastrophic event.
Demand is collapsing because wages, relative to productivity are declining. From 1945 to 1973, wages across the boards, increased, lock step, with rises in productivity. Since 1973, median wages have remained flat even though GNP has gone up 150%. Median family income has grown, only to the extent that more members of the median family have entered the work force.
The crux: since 1973 wages have remained flat while GNP has gone up 150%. That means most of the increased rents associated with that increase in GNP has gone to the ‘supply-side-investing rich’ (ssir). We are talking the top .01% of our society. That’s trillions and trillions of dollars, year in and year out, for decades. Meanwhile the median worker got nothing. This is ‘supply-side’ bias economic policies in action.
The 2001 recession accompanied with the implosion of an investment balloon were strong signals that our society had reached ‘supply-side saturation’ and that demand-side bias policies were called for. However President Bush did not heed this warning, and instead poured the coals on supply-side bias policies. Tax cuts, mainly for the rich, ever year, the near trillion dollar surplus became a trillion dollar deficit, the Iraq war sent another $3 trillion to war profiteers, the Medicare Drug Benefit gave $500 billion to big pharma. The median family income went down 5% while the top .01% went up 500%: we literally robbed Harry and Louise to pay Paris Hilton more money. Along the way the investing class was taught the best way to earn return on investment wasn’t in investing in factories that create jobs (as Ronald Reagan promised) but to buy politicians.
Back of the envelope figures suggest that Bush might have pushed anywhere from $5 to $11 trillion from the supply side to the demand side and covered as much his tracks as he could with cheap money from China (in exchange for a large chunk of our industrial base).
Then along comes the Recession. Tarp sent another $700 billion to the top of the economy. If you include all other bail outs and money from the federal reserve, the emergency funds that have been given to the top of our society is about $3.7 trillion (I got that from an article in Huffington Post a couple of weeks ago).
I have friends in high places at Korea’s central bank. Trillions of dollars have been pumped into the top of our economy to provide liquidity, but the banks in the U.S. won’t loan out money to get the economy moving again. Why? Because the borrowers exist at rungs lower down in the economy and they not worthy of credit – because… (drum roll pleas)… there’s no demand (ta da!).
The financial bailout is essentially an extension of the policies that created the mess in the beggining – sending money to the top of society. Instead of throwing the economy a life raft, it was thrown an anvil.
Given the tens of trillions of dollars flowing to the supply-side of our’s and other’s economies for decades, a stimulus plan less than a trillion dollars is just not serious. It’s too little. It’s not serious.
In the face of a deflationary recession in 2001, signalling, after decades of sending trillions of dollars to the supply side of the economy, that we had reached supply-side saturation – Bush pushed another $10 trillion over to the supply side.
Now that’s what I call audacity.
Obama implemented a stimulus package of only $787 billion, suspiciously similar in size to the TARP backage (politics?).
The audacity of greed far out strips the audacity of hope – which could lead to massive hopelessness throughout the land over the next 12 months.
I’m making a prediction here – and so maybe I’ll be wrong – but I don’t really see how things could be the reverse. Beginning in September 650,000 people will lose their unemployment insurance, and a like number each month, every month after that. That’s the sound of demand in the commercial economy crashing again.
None of this, of course, would never have had to happen if some 600 people in Florida hadn’t woken up on the other side of the bed and voted for Gore instead of Bush. But by 2004, because of the massiveness of the money transfer in Bush’s first four years, it pretty much meant that the current implosion was baked in even if Kerry had been elected.
Since it did happen, it still could have been largely fixed by now if the reaction to the crisis had been more demand-side oriented.
If you add that $3.7 to the stimulus you get $4.5 trillion. If $5 trillion had been sent to the bottom 25% of income tax payers, or just the bottom 75% of society aggregate demand would have been restored, from the bottom up, (for the time being) and the banks, toxic assets would no longer be so toxic.
I’m predicting (and I could be, and hope I am wrong) that there is going to be another dip coming. It won’t be pretty.
This time it will be pinned on Obama. The problem is, even Obama won’t do much to help restore demand because that means helping poor and middle class people and our political environment will simply not do that – even as a last resort.
Again, I hope I’m wrong.
Yes, I hope you’re wrong. Yargh.
Sorry if it’s not a good place for this, but I’ve had an aha! moment and wanted to share it with you and hear your thoughts about it too.
It’s about bailout money for banks.
The way I see it, if the government is trying to help them it’s not the banks themselves that need to be heped but their countless customers relying on them. The banks themselves should be treated harsh – I’d opt for a condition of replacing/removing all managers/CEO of a bank without any payouts, before the bailout money is given to the bank – and the new managers can’t be ones removed from other banks who want the bailout money.
It’s harsh, but those people are responsible for the bank situation and they should not be present there with the stimulus nor rewarded for their actions with their money.
If the bank doesn’t want to obey this condition, the stimulus is not given.
Just my thoughts.
Once again sorry for interruption.
Leszek: No problem, happy to discuss! Sorry it took a few days–just giving final exams now.
I think the issue has to do with the overall stability of the system. Because of Republican handling of banking regulations, a lot of stuff that should not have happened was allowed to happen. One of those things is that the banks got too big to fail–if one of the big ones fail, it could shake the entire system and possibly break it. As it is, the Bush deficits and disastrous trade deals by nearly every president since Reagan have so weakened and made vulnerable the American economy that it doesn’t take so much to destroy it–and we came inches from complete collapse a year ago, though the MSM has kept silent on the matter.
What happened is a mix of several things: first, it was as if the financial institutions opened their overcoats and revealed a bomb vest, threatening to kill us all if we didn’t fork over the money. Second, they did it at a time when we had a weak, corrupt president famous for giving away trillions to industry with no questions asked–and guess what, he did it again. And third, what few restrictions were applied were circumvented, for the most part.
It’s impossible to say how Obama would have handled it had it happened wholly on his watch; Obama seemed to approve of Bush’s move, but he may not have had much choice, especially considering that he was running for office and could be easily attacked for opposing a measure that many claimed was saving the country. But one imagines he would not have given nearly a trillion dollars to the banks with no strings attached. Still, look at how Obama was demonized for applying even the mildest of influence on the car companies when handing them a much milder bailout. One would hope that he would not have forked it over by the wheelbarrow without even the slightest oversight, but who knows–these were institutions which could not be allowed to fail, holding the economy hostage.
But what happened was a crime, and possibly the biggest, quickest, and most thorough looting of a major government’s coffers in all of human history. The money was handed over, the banks were not required to account for where the money went, they were allowed to enjoy ludicrously wasteful executive perks, and were not even slightly required to use the money for the purpose it was putatively supplied for–loaning it to the people. The government could have simply bought the banks outright for far less money–but had Obama been in charge and had he tried that, the blood-curdling shrieks of “Communist!” and “Socialist!” and “Nationalization!” would be spewing still from the mouths of conservatives everywhere. Alas, it was Bush, so not only was the money just given out, but it was given out like it was during the Iraq War–non-competitively, blindly, and unconditionally, with permission to abuse the law at will.
Okay, I’m not a professional economist, and my anger about this undoubtedly colors my judgment. But I still firmly believe that this was the Crime of the Millennium, and we were the victims.
Maybe Tim can provide a better answer…
So the forces behind did it in the last moment
And who’s to blame now?
(You don’t have to answer – it’s the one pointed out by the republicans)