23 January 2008


Maybe we really are idiots. Probably. Presidential candidates have all sorts of advisors and pollsters and consultants to tell them how best to pander to the interests, insecurities and prejudices of us, the electorate. So they must be pretty assured that we’ll fall for the nonsense they’ve been feeding us.

Lately, with all the talk of recession, they’re competing to see which one of them can promise to toss the most money our way, in the belief that we will be deceived into thinking that will actually do something good for the economy.
And most of us will fall for it. We’ll take the 250, 400 or 800 bucks and cheerfully spend it on something, under the mistaken impression that we’re helping fix the economy by doing so.

And maybe that will stem the problem, briefly. It is possible to stop a leaking pipe with duct tape, at least for a little while. Which is what the presidential candidates are hoping to do. It’s a whole lot easier to run for office in what is perceived as a strong economy, than in a weak one. If they can put off having the economy tank until after November, the politicians will prosper. Even if we won’t.

The problem is, none of them are talking about real solutions to the real problems. When you wrap duct tape around a leaky pipe, you are simply putting off potential disaster.

Trying to fix the economy by simply handing out money is stupid. There are a lot of reasons for that. Two of them are fundamental.

• The money’s got to come from somewhere. The government can’t simply print some more to pass around, that would cause inflation. The government has no savings it can simply dip into for this rainy day. Quite the opposite, it’s already deep in debt. The only way to come up with the cash, is for the U.S. to go even deeper into debt. And that is going to happen at a time when the dollar is weak and borrowing terms are going to be high. Among the reasons we’re facing economic problems now is the size of our debt. We need to try and cut it, not add to it.

• The stuff we’re going to buy with the money the government hands out is mostly already made; it’s mostly made elsewhere (like China); and once we’ve spent the money that will be that, we’ll be some new sneakers or digital cameras or one house payment richer, but we’ll be right back where we started. What then? Another handout?

Unfortunately the really big economic problem for the U.S. is psychological. We think buying stuff is all that it takes to make an economy prosperous. And sure, consumption is one of the pillars of a strong economy. But at a certain point, if there isn’t much in the way of new investment, if it becomes difficult to start new businesses, if there’s a dwindling pool of savings to draw from, it all turns into one big potlatch. Instead of producing new wealth, everyone just trades what they already have with each other. Some people take bites out of each trade and get richer that way, and a lot of people are happy for awhile because they’ve got some new stuff, or at least stuff that’s new to them. But you can’t keep that up forever.

Didn’t most of our parents warn us about how if we spent our allowance on candy bars, no matter how sweet they tasted at the time, later on, when we wanted money to buy that new bike, or baseball glove, or video game, we wouldn’t be able to.

Like the proverbial shark, a healthy economy needs to keep moving. An economy based entirely, or mostly, on consumption, is sooner or later going to be dead in the water.

The foundations for a strong developed economy are investment and innovation. Simply handing people cash to spend doesn’t do much for either of those things. (I suppose it might if the money came with a requirement that it had to be put into the stock market, or at least a savings account for a minimum amount of time.)

The people who are trying to buy our votes are talking about handing out something in the neighborhood of $150 billion. Maybe what they really need to do is to invest that money in something that is going to actually benefit the country and the economy for years to come, rather than simply buying us a bit more stuff now.

The estimated price tag, for instance, for a new, super high-speed rail line running through California, from Sacramento, through the San Francisco Bay Area, to Los Angeles and on to San Diego and the Mexican border, is about $20 billion. The long term economic benefits of that, not just to California but to the entire country – since California is by far the most important economic component of the U.S. – would be worth well more than the required investment. The project would also pump a lot of money into companies all over the country that participated in it.

Our educational and public health systems are among the poorest in the rich world. What kind of long term investment could be made in those with that money? What kind of jobs could be created, and long term economic benefits accrued from putting dollars into those areas, rather than just a few extra bucks into lining our pockets?

Several recent surveys have cited the U.S. for decaying infrastructure; dangerously so in some areas. Fixing that would create jobs, opportunities and facilities for companies that would put a lot more than a few temporary dollars into wallets.

Why not use the money to double, triple, hell, quintuple the funds available for small business loans. Loans to new, small businesses are one of the first areas to really suffer due to the current credit crunch related to the sub-prime housing loan debacle. Small businesses employ more people and come up with more innovative new products than any other sector of the U.S. economy

But no, why not just give me four hundred bucks. At the moment I’m in Washington D.C. Only yesterday I walked underneath a ramshackle old railroad bridge. It was very picturesque even if trains can’t run on it anymore. I’ve got my eyes on a new digital camera. I’ll buy it online from a place in New York. It’s a Japanese brand, manufactured under contract by a Korean or Chinese company, with parts that are sourced from eight or nine different countries. I’ll use it to take pictures when I walk around. Hell, it might even be tax deductible. Even the IRS wants me to spend my money, rather than invest it. Maybe they know something I don’t know.

While I’m picking bones about the economy, or should that be picking over the economy’s bones?, I must admit to a certain amount of perverse pleasure over the past couple of days when the U.S. stock markets fell.

The day before yesterday, while it was a holiday here, stock markets around the world plummeted, supposedly on worries about the U.S. heading into recession. The Federal Reserve, looking for a quick fix way to prevent U.S. markets following suit when they opened this morning, announced it was lowering interest rates by three quarters of a percent.

That doesn’t seem to have worked. Maybe in part because it reeked of desperation and savvy investors are learning to distrust the financial maneuverings of the U.S. government.

Now don’t get me wrong. I like low interest rates as well as the next guy. I’ve got a mortgage (although I’m happy to say it’s locked in at five percent) and I own stocks (which look much more desireable when interest rates are low.) But if the Fed could drag us back a year or two to the much-missed era of low interest rates and booming housing prices, all that would do is exacerbate our current mess.

Nothing has been done to rein in predatory lending practices, or even just plain stupid lending practices in which lenders and buyers both look for quick, easy, cheap money by offering terms that don’t make any sense to anybody who understands the concept of there being no free lunch.

As soon as interest rates drop low enough, it’s all going to start up all over again. The very least that ought to happen is that loan documents should be required to be written in real, easy to understand, no small print English. Oh yeah, and banks ought to be required to actually make a reasonable stab at ensuring their customers can pay back loans. If the government doesn’t require all that, the shareholders of lending institutions ought to find ways to do it.

There have to be some long term, realistic solutions to these problems. Something better, at least, than the panicky lowering of interest rates. But none of the people in power really want that. In the same way that a bad corporate manager only sees as far as the next quarterly report, our politicians only see as far as the next poll, or this year, primary. They’d rather buy our votes with money. That’s easier and cheaper than coming up with the hard work and creativity that are necessary to actually solve any problems.

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