Archive for February, 2009

Unrighteous

Sunday, February 15th, 2009

“Woe unto them that decree unrighteous decrees, and that write grievousness which they have prescribed.” Isa 10:1

One of the great things about our democracy is that old friends can have fundamental differences about things like economic policy, and yet the country still moves forward. That’s because every four years we all get to vote.

The last eight years President Bush earned the opportunity to test trillion dollar tax-cuts, unrestrained capitalism, and cowboy foreign policy. The results of that experiment pretty much speak for themselves.

The American voters had a clear choice in November. Republicans didn’t offer many new ideas. Instead they chose to attack the guy I liked. They called him inexperienced, a socialist, a friend of terrorists, a baby killer, and a Muslim. A majority of voters saw through that. Now my guy has earned the opportunity to take us in a different direction.

Because of the problems President Obama inherited, that direction includes massive short-term government spending. In the near future it may also include taking over failing financial institutions (like the infamous socialist Reagan did during the S&L crisis) and restructuring mortgages.

I didn’t like much of what the Bush administration did the last eight years. I suspect those who supported McCain and Bush won’t find much they like in the Obama administration.

The facts, however, are hard to avoid. The Bush administration added $5T to the national debt, started two wars, and left the country in the worst financial condition since Herbert Hoover. But when Democrats propose $800B to accelerate the recovery, Republicans call it “generational theft” and followed that up with a proposal for a $2.5T tax cut.

Rather than ideas, Republicans only have tired rhetoric – “tax-cuts are good” and “liberal/socialist spending is bad”. Their only plan for success requires President Obama to fail. Given the serious challenges facing this country that is a sad commentary.

House Fire

Tuesday, February 3rd, 2009

“Our holy and our beautiful house, where our fathers praised thee, is burned up with fire: and all our pleasant things are laid waste.” Isa 64:11

A number of people in print and on the Internet seem to be in denial about the November election. They seem to feel that if they continue bringing up the same old issues, the American people will somehow change their minds.

Here’s a message to those unhappy 30%.

We get it. You don’t like the current President and you are going to continue to accuse him of killing everything from babies to capitalism. If you are determined to hold your breath until things change, I hope that shade of blue looks good on you.

For everyone else, we’ve got a big problem that is going to require big changes.

Capitalism is broken and the only viable solution is for the government to spend money to get it going again. It may be tough medicine for those who have this ideological view that capitalism is the cure for all evils. The reality is that this is a time when government has to take the lead. It doesn’t matter whether you call it socialism or not. All that matters is getting our capitalist engine started again, because right now it is broken down by the side of the road.

This is not something that can be fixed with tax breaks alone. That’s because tax breaks only help those who have taxable income. They do no good for the person who is out of a job. They do no good for the company that is losing money. In fact one of the better things we can do is to give poor people more money because they are the ones most likely to spend it right away.

This is also not something that increased productivity can fix. The problem is not a lack of productivity. The problem is excess capacity. We have resources in the form of people and infrastructure that are not being used because there isn’t enough demand.

This is also not something that will fix itself. If we do nothing, it will get much worse before it gets better. That’s because we are already in a downward spiral where we are shedding jobs and eroding asset value. Both loses constrict what the economy needs to grow – credit.

Credit is tight because the banks don’t really know what their outstanding loans are worth because they don’t know what the assets backing those loans are worth. What they do know is that every month, the value of those assets DECREASES. So they are holding on for dear life to the cash they have because they are concerned about their own survival.

Every contraction throws more people out of work. Those folks run out of cash, are underwater on their mortgages, and have to declare bankruptcy. Unsold houses put more downward pressure on the real estate market and banks take the hit in terms of defaulted loans and houses they can’t sell.

The government (local, state, and federal) have to spend money quickly and massively to create demand across all sectors of the economy, get people back to work, and stop the deflationary spiral. If we can do that wisely, that’s a plus. But even if we spend foolishly, the sooner those dollars get into the economy the better.

As long as the money stays in this country, it will do good. It is best if it directly creates jobs, but even if some of it ends up in banks or paying down debt, it’s good. This is a massive amount of money. The challenge is going to be spending it fast enough.

The numbers can be challenging for some to comprehend, but in the context of a $1T spend, a $100M expenditure is .0001%. In other words, as bizarre as it sounds, it is not worth arguing about – yet that is what some would want us to do. Republicans want to delay this bill to because of $150M for endangered honeybees (which is a problem), $50M for the arts, $198 million to keep a broken promise to Filipino WWII vets, $15B for college scholarships, and $700M to buy fuel efficient government cars from US car makers. If you add up all of it, it is less than 2% of the total.

This is insanity.

Our home is on fire. Now is not the time to argue about how much water it’s going to take to put out the fire. Now is the time to open the hydrant wide and point the hose in the general direction of the fire. The water will do the rest.