George Santayana, philosopher, essayist, poet and novelist, famously said, “Those who cannot remember the past are condemned to repeat it.”
Thanksgiving Eve, November 25, 2009 In the wake of growing doubts about the President’s handling of the economy, doubts fomented by his political opposition, Treasury Secretary, Timothy Geithner, was grilled last week by Conservative members of the Joint Economic Committee, grilled and asked to resign over his “mishandling” of TARP and economic recovery funds.
To many Americans, this criticism would seem to be justified. Obviously, many bailed-out banks and Wall Street firms have not used tax payers’ dollars as intended, i.e, to make badly-need loans to struggling small businesses. Then too, despite the Treasury’s stated “strong dollar” policy, we have witnessed the dollar suffer historic declines against foreign currencies in recent weeks. Even though the stock market is soaring, the jobs picture grows worse day-by-day despite the holiday season’s temporary jobs. And just to make matters worse for the Administration, bogus jobs data were discovered last week on the White House’s Recovery Act website.
Welcome home from the Asia-Pacific Economic Cooperation summit in Singapore and your four-country Asian rim tour, Mr. President. Too bad you couldn’t get our biggest trading partners, China and Japan, to agree to more equitable terms. But, did you really think they would? Maybe they’ll grow softer after we grow more firm; afterall, we’re still their best customers.
Hmmm… it seems to me like there’s something wrong with this scenario, which is why I’m on the sidelines now with my brokerage account.
There can be little doubt that this economy, the worst since the Great Depression, isn’t going to turn around on a dime anytime soon. In fact, we likely won’t see any real improvement on the jobs front until after next year at best, and housing values may take a decade or more to recover to last year’s levels – if ever indeed they do. So, here we go again – no psycho talk here, folks, just history which has a funny way of repeating itself.
Herbert Hoover and a Congress controlled by Republicans got us into The Great Depression. Yes, despite conservative claims that New Deal program spending actually delayed recovery, things got worse in 1937 after Congress turned-off the money spicket. So it took WWII to get us out of that economic money-pit. Then, after decades of economic expansion, Ronald Reagan put us on the path to this, The Great Recession, by reducing taxes and massively increasing spending. Yes, he did break the back of the Evil Empire with his spending, but we are paying the price in spades for this today. George H. W. Bush, too late, tried to increase revenues to curtail deficit spending and paid the ultimate political price for a Republican by failing to honor his promise not to increase taxes. Bill Clinton increased taxes and refused to let Congress spend more than the government collected. But he contributed in his own way to today’s recession by negotiating Free Trade agreements without “fair” trade protections for American industries.
Then came George W. Bush who, like Reagan before him, reduced revenues with promised tax cuts to get elected then allowed Congress to increase spending. Both acts were politically smart but economically foolish. To his credit, though he probably had no idea of what he was doing at the time, he started moving us away from recession by declaring the War on Terror. But rather than putting Americans back to work producing tanks, landing craft, airplanes and aircraft carriers, he mostly threw money at bankers by promoting an Alan Greenspan proposal that banks should make high-risk mortgage loans (adjustable rate mortgages) to marginally credit-worthy families. Rather than asking Americans to make sacrifices to pay for the war through higher taxes or with war bonds, he and Congress authorized unprecedented borrowing year after year.
Now, more than eight years later, we are in the middle of the worst economic slump since 1938 and we all better hope that Obama can fix it because, without aggressive employment of economic accelerators afforded by both fiscal and monetary policies, we could indeed experience depression-era conditions once again. Deficit spending is never desirable, but now it is unavoidable. Unfortunately, as in the Great Depression, Congressional Conservatives would rather see the economy crash and burn than see Democrats succeed.
George Santayana, philosopher, essayist, poet and novelist, famously said, “Those who cannot remember the past are condemned to repeat it.” How right he was. Unfortunately, they — those who cannot remember the past — could well drag the rest of us with them back to the worst of times.
To illustrate the facts presented above, please consider the following graph provided by ZFacts.com:
Lesson planning for my AP Macro class and preparing my upcoming lesson assignment challenge for students on balancing the nation’s budget, I have researched on-line the actual, historical values for Gross Domestic Product (GDP) and our National Debt Outstanding by year from Treasury Department records. Calculating the ratio of national debt to GDP in Excel, looking just at values for every five (5) years from 1950 to the present, I was able to almost exactly duplicate the ZFacts graph. If you doubt my sincerity or my honesty, you may download my Excel spreadsheet to check data sources, my calculations and my conclusions by clicking this hyperlink.
Okay, so how do we get out of the mess that has been left for us by the trickle-down, buy-now/pay-me-later crowd? The main thing to remember is that, with consumer spending down, businesses are going to continue laying people off — not hiring them. You can’t blame businesses for doing this. It’s just a vicious cycle that the economy gets into. And you can’t blame consumers for not wanting to spend in bad times. So, the only way out of this, if we don’t want to wait forever for the “free market” to recover on its own, is for the government to spend, pay unemployment insurance, and/or give tax breaks to people who will spend, and this doesn’t include the rich; their propensity to save rather than spend is much higher than the majority of taxpayers. Additional recommended measures, the seven things I think we need to do, follow:1) Stop bailing-out Wall Street and just take over failing banks, investment and insurance companies. Once they’re working again under reasonable oversight regulations and enforcement, they can be sold back to the private sector. 2) Don’t wait for the Bush tax cuts to expire after 2010. Roll them back now for those at the top who most benefited. This will help defray the cost of sending more troops to Afghanistan. While in the process, pass corporate tax reforms favoring companies that create jobs for Americans rather than doing business by exporting jobs to other countries. 3) Plan and work toward organized withdrawals from both Iraq and Afghanistan soonest. Money spent overseas in vain attempts to avert future terrorist attracts rather than spending it here at home on jobs and social goals for Americans just contributes to further weakening of the U.S. dollar and to al Qaeda’s goals. Dollars flowing overseas is “leakage” from our own economy. 4) Pass healthcare reform legislation this year, reform that improves the availability and quality of care while reducing future costs. Failing to do this will result in the government’s default on legislative safety net promises and fiscal bankruptcy in our lifetimes. 5) Pass Cap and Trade legislation mandating reductions in carbon emissions. This will generate new, good paying construction and manufacturing jobs for Americans, jobs that cannot be exported. This will bring down energy costs ultimately and reduce the trade deficit. We cannot continue borrowing from China to buy Canadian, Mexican and Saudi oil indefinitely. As a side benefit, this will inspire other nations to join with us in measures necessary to save the planet for posterity. 6) Prioritize educational reforms based on tried and proven solutions rather than on failed political priorities. Single-size curricula do not fit all and the fastest growing student demographics are poor inner-city blacks and Hispanics with limited English skills. These are tomorrow’s workers. 7) Pass new anti-trust legislation and begin the rigorous enforcement of regulations against excessive financial risk-taking and oligopolies’ (near monopolies) abilities to reduce free market competition through mergers that concentrate sector control over production and thereby prices.
Once we’re out of this particular money-pit and the economy is once again expanding on its own, we’ve got to somehow find the resolve as a nation to stop spending more than we take in.
Pity the demise of Big Banking, Big Oil, Big Pharma, Big Retailer, and Big Insurance company’s profits if you wish, but they have been gorging themselves from the economic vitality of this nation, common men and women, for years. In 2004, according to the Federal Reserve Board, the top 5 percent of this country controlled more wealth than the rest of the nation combined. After nearly nine years of tax cuts favoring the rich, surely this imbalance is even greater. This relentless capillary rise of wealth from those who do the work to those who direct the work cannot continue indefinitely. These are conditions that spawn revolution.
All seven of the above measures pose short-term economic and political costs since many Americans are entrenched in principle-based, what’s-in-it-for-me political thinking and have an unhealthy disregard for the lessons of history. They fail to see beyond the ends of their noses. However, failing to act in the long-term interests of this country risks the economic if not physical survival of future generations. Our national preeminence as a super power has already been substantially diminished.
In spite of it all, have a wonderful Thanksgiving . We still have much to be thankful for.
I invite your comments, pro or con.