by Mike Kimel
Stop Acting Surprised
It seems a lot of Democrats seem surprised that Obama is willing to give up on what they view as core principles. On the Republican side, there seems to be an implicit understanding that pretending the economic mess and spending began under Obama’s watch, and thus the policies that they favor (most of which Obama has continued, whether they admit it or not) bear no responsibility for where we are today. As a reminder that reality is what it is, even if memory is weak and feeble, I’d like to repost something I wrote a few days after Obama was elected in its entirety below:
Is Obama Starting Poorly?
One of the things that worried me about Obama was that he (like McCain) supported the ridiculous bail-out bill. As I noted when it passed, it wasn’t going to work, and the net effect would be this:
…shady, undeserving characters will be enriched, young versions of the idiots who got us into the mess will launch successful careers (can you say “Kashkari”?), and the promised benefits to the American public, the schmucks footing the bill, will never materialize.
We now know the banks are not loaning out money which was the thing this whole bail-out was supposed to accomplish, but Goldman, Welfare, Queen, & Sachs (to borrow a term from Lambert Strether left at the previous post) has made out like the proverbial bandit, Kashkari’s career is made, and the American public would be better off being beaten with a stick than having to pay for this garbage.
Sure, the idea for this was rammed down everyone’s throat by the administration and Bernanke, but the Dem leadership guided it through, and Obama voted for the bail-out. To me, it was the financial equivalent of invading Iraq because Osama hit us on 9/11. I can understand that at the time, many people thought something absolutely positively had to be done. Even many smart people who aren’t crooks – just folks who are too decent to be cynical enough to anticipate what this administration will do when you let them, felt the gubmint had to act, and act fast. So I can understand Obama voting for this piece of $%^&.
But, now that we know the thing not working, and Paulson isn’t even pretending it was intended to work as advertised, isn’t it time to pull the plug? Shouldn’t the President-elect be out there, demanding an end to this waste of money? Shouldn’t he be calling on Congress to pull back the money that hasn’t already been thrown away? Shouldn’t he be proposing some other alternative? (If the problem, as we were told a while back, is that banks aren’t loaning money, and they’re still not loaning money, why is it worse for gubmint to loan money directly to people and corporations that need it than it is for the gubmint to find all sorts of ways to help Paulson’s former employer?) Instead, there’s all this talk about spending even more money on even more undeserving people and companies in a wider variety of industries, and Obama is not saying anything to discourage any of this.
I understand that the man hasn’t even been inaugurated yet, and I stand by what I wrote not long ago – I’m willing to give him a chance. (Heck, I voted for him.) But this bodes ill.
Now, its been a few years, and we still have a problem. There’s no demand. Consumers are sitting on their hands. Companies are sitting on their hands. Banks are sitting on their hands. Which leads to a second post I wrote a few days later, which I’m also reproducing in its entirety:
How To Bail Out the Economy – A Less Wrong Way
Regular readers know I’ve had post after post explaining why a bail-out would be a bad idea and would not work, dating to long before the bail-out began. I predicted that the end result would be the further enrichment of some of the very folks who brought us this mess and junior versions of the same folks who were too young to get in on the original crime spree, but otherwise, we’d have nothing to show for the trillions that would get spent.
The supposed “rationale” for this bail-out is to make sure that companies that are willing and able to produce goods and services that consumers wish to purchase are able to do so, and that in turn consumers are willing and able to purchase goods and services that companies want to bring to market. The story line is that this can be accomplished by giving money to the financial sector, that sector of the economy that for the past few years has specialized in selling squirrel meat as fillet mignon. Give those talented folks some money to make up the massive losses pulled off in the past years and they will happily loan money to producers and consumers, we are told.
Its becoming obvious even to the likes of Henry Paulson that no matter how much money gets paid to Goldman, Welfare, Queen & Sachs and Citi and Countrywide and the rest of ’em, the “financial system” of old is gone forever. Compensating buyers of squirrel meat is more than enough burden on the taxpayer, but it seems we’re expected to make Goldman, Welfare, Queen & Sachs whole for paying the exorbitant salaries of folks like Henry Paulson in the past, and the current and future generations of Henry Paulson to boot. Clearly this is not only a very, very, indirect way to keep companies producing and consumers buying, its also adding a bunch of layers of unnecessary expenses.
So… if the goal is to stimulate production and/or consumption, why not cut out the unnecessary layers of exorbitant expense? I’m not sure I see the reason for bailing out car companies, but say that was the goal for some reason. In that case, the government could simply buy a $20K car for every single American, every single one, and spend less than the $7 trillion that’s been committed so far. That’s well over 30 times as many cars as GM made last year. Worldwide. You could bet the car companies would tool up for this, and it would employ a lot of people, and it would stimulate the economy. Additionally, we’d all have another car thrown in. Sure, it might be a GM vehicle, but its still something, which is more than the nothing we’re gonna get from pumping it into the Goldman, Welfare, Queen & Sachs black hole. Heck, it doesn’t have to be cars – the gubmint could simply commit to spending $20,000 on something, anything each of us picks. You could take your 20 G and spend it on a menu of American made options.
Preposterous, you say? Inflationary, you say? Jingoistic, you say? Sure, I say. Its a stupid idea and I don’t like it all. But I think its a much better idea than the current bail-out approach, which I think is worse than taking (for now) $7 trillion and setting it on fire. Giving the money to the likes of Henry Paulson’s former employer is simply rewarding bad behavior and sending the wrong message, not to mention preposterous, inflationary, and jingoistic.
So… to summarize a few things that seemed obvious to me a few years ago and yet which I’m finding today aren’t part of the narrative any more:
1. The government response to the problem began long before Obama took office.
2. The government response to the problem wasn’t going to have any positive effect since it addressed a non-existent problem (i.e., poor decision making on on Wall Street) and didn’t address the actual problem (i.e., weak aggregate demand on Main Street).
3. The government response to the problem was going to have a negative effect since it was extremely costly.
4. By the time of the 2008 election, the sitting administration had abandoned the rationale for the government response, but maintained that response regardless.
5. By the time of the 2008 election, Republican and Democratic leaders, including Barack Obama, knew the sitting administration had abandoned the rationale for the government response and yet were continuing that response regardless, and nobody complained.
In a sane world, the folks who let things get where they are, including pretty much all our esteemed members of Congress and our esteemed President, would not be allowed to be involved in “solving the problem” now. Most economists who had some input into the previous “solutions” or who cheerleaded for them would also be shown the door. But that’s not where we are.
The solution to our current mess is obvious, and was obvious a few years ago. Equally obvious is that we won’t be going anywhere near that solution. But if you’re wondering what the world would look like if we did follow the obvious solution, just remember… the last time the economy took a tumble like this, and was further exacerbated by bad policy response was 1929-1932. In 1933, four years after the proverbial doo doo first hit the fan, the correct policy response was finally implemented. Real economic growth rates for ten of the next 11 years exceeded 5% a year. Real economic growth rates for nine of the next 11 years exceeded 8% a year. Real economic growth rates for five of the next 11 years exceeded 10% a year. (Data here.)
It has now been almost four years since the doo doo hit the fan this time around. Does anyone expect we’re going to see that kind of performance this time around?