Monday, February 9, 2009

You Can Take It to the Bank

President Obama is calling on Americans to get behind the stimulus plan:
WASHINGTON — President Barack Obama pushed for his emergency economic stimulus with an urgent one-two punch Monday, addressing the nation in the first prime-time news conference of his presidency after taking his campaign directly to recession victims in hard-hit Indiana. "Doing nothing is not an option," Obama warned during a town hall meeting in Elkhart, Ind., where unemployment has passed 15 percent.

Speedy passage of legislation to pump federal money into the crippled economy, once seemingly assured with bipartisan support, has become a much heavier lift and a major test of Obama's young presidency.

On the day that an $838 billion version of the legislation cleared a crucial test vote in the Senate, Obama warned darkly of the consequences he contended would result from inaction. By a 61-36 margin, the package was advanced toward a vote on final Senate passage Tuesday -- with all but three Republican senators opposing it.

"Our nation will sink into a crisis that at some point we may be unable to reverse," he said. Officials have frequently suggested the current recession, which has catapulted the unemployment rate to 7.6 percent and erased 3.6 million jobs, is the worst U.S. economic crisis since the Great Depression of the 1930s. But no one has been suggesting the economic downturn could be permanent.

Doing nothing is not an option? Not so, says Robert Higgs:

As we wait to see how the politicians in Washington will alter the stimulus package the Obama administration is pushing, many questions are being raised about the measure's contents and efficacy. Should it include money for the National Endowment for the Arts, Amtrak, and child care? Is it big enough to get the economy moving again? Does it spend money fast enough? Hardly anyone, however, is asking the most important question: Should the federal government be doing any of this?

In raising this question, one risks immediate dismissal as someone hopelessly out of touch with the modern realities of economics and government. Yet the United States managed to navigate the first century and a half of its past – a time of phenomenal growth – without any substantial federal intervention to moderate economic booms and busts. Indeed, when the government did intervene actively, under Herbert Hoover and Franklin D. Roosevelt, the result was the Great Depression. [...]

Federal intervention rests on the presumption that officials know how to manage the economy and will use this knowledge effectively. This presumption always had a shaky foundation, and we have recently witnessed even more compelling evidence that the government simply does not know what it's doing. The big bailout bill enacted last October; the Federal Reserve's massive, frantic lending for many different purposes; and now the huge stimulus package all look like wild flailing – doing something mainly for the sake of being seen to be doing something – and, of course, enriching politically connected interests in the process.

Our greatest need at present is for the government to go in the opposite direction, to do much less, rather than much more. As recently as the major recession of 1920-21, the government took a hands-off position, and the downturn, though sharp, quickly reversed itself into full recovery. In contrast, Hoover responded to the downturn of 1929 by raising tariffs, propping up wage rates, bailing out farmers, banks, and other businesses, and financing state relief efforts. Roosevelt moved even more vigorously in the same activist direction, and the outcome was a protracted period of depression (and wartime privation) from which complete recovery did not come until 1946.

I'm a big believer in the idea that there is no problem so bad, no crisis so terrifying, that the combined bungling power of hundreds of Congressmen and women along with thousands of federal bureaucratic officials can't make it much, much worse. So I'm sympathetic to what Mr. Higgs is saying; in fact, few people I've spoken to expect the huge bailout to do more than the last huge bailout did. It's easy to forget we've already, under President Bush, passed a plan to spend as much as 700 billion dollars; since there's "only" $350 billion of that money remaining, we're told, we urgently need this new plan to spend about $900 billion more.

Unfortunately, in politics illusion is often more important than reality. If President Obama doesn't get his stimulus package passed, it's entirely possible that the gloom-n-doom media will spook the markets as easily as a lightening bolt spooks a herd of cattle, and the resulting rush to the cliffs will, indeed, be blamed on the president's supposed inaction. From the standpoint of a man who has already voiced public concern about his legacy, this is a no-brainer: if the first infusion of taxpayer-supplied cash doesn't do the trick, there can always be more stimulus plans, given ever more creative titles to remind us of how important they are to our national well-being; and so long as some important benchmarks are passed, victory can be declared and credit taken by President Obama for whatever good seems to be coming from throwing money at the problem.

But doing nothing is almost certainly going to lead to criticism, at least in the short term, and there is thus a risk that Obama's legacy might be tarnished by the naysaying voices of those who insist that if only the President would have made Congress spend more of our money...

Congress is, of course, always ready to spend more of our money. But Congress also wants to have someone to blame it on if things go badly; you don't get re-elected if despite (or because of) bailouts with a combined total of sixteen billion dollars or so, your constitutents are increasingly unemployed, broke and angry--and they blame you. So in the event of bailout failure Congressional Republicans can take the virtuous high road of having not supported the second bailout, and Congressional Democrats can hope everybody forgot about the first one and talk about their misplaced trust in the young and inexperienced president, and both can achieve their ultimate goal of being elected again and again to serve in Congress.

So President Obama shouldn't relax about that legacy just yet. If the stimulus package spin can make enough people believe we're on the road to recovery, we might just end up there, and he can take the credit. But if things don't pan out quite that way, his legacy might end up tarnished after all--by the people on his side of the aisle, who will drop their involvement in passing the stimulus package like a hot potato should it start to smell even remotely like a political liability.

1 comment:

Scott W. said...

Chomsky wannabe Naomi Klein coined "Shock Doctrine" or "disaster capitalism" to describe when capitalists use societal upheaval to ram through otherwise unpopular economic policies in third-world countries.

Something tells me we will hear nothing but crickets chirping around her if we suggest this is a blatant attempt at disaster socialism.