The Bigger Economic Fish To Fry

As stocks tank today on news of terrible retail sales that may only get worse right before the holiday shopping season, the reality that the greater economy is in terrible shape is starting to sink in. The market is especially jittery so that news is being more harshly reflected, but it's at least based in some truth. We don't make anything in America, and consumer spending props up the economy, and if jobs are slashed and you can't borrow against your home or your plastic anymore, those sales are going to drop, and that's the ballgame.

As Robert Reich says eloquently today, the problem is not people "living above their means" but wage stagnation which forced people to borrow just to maintain their lifestyle.

It's not as if the typical family suddenly went on a spending binge --- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

The "living beyond our means" argument suggests that the answer over the long term is for American families to become more responsible and not spend more than they earn. Well, that may be necessary but it's hardly sufficient.

The real answer over the long term is to restore middle-class earnings so families don't have to go deep into debt to maintain what was a middle-class standard of living. And that requires, among other things, affordable health insurance, tax credits for college tuition, good schools, and an energy policy that's less dependent on oil, the price of which is going to continue to rise as demand soars in China, India, and elsewhere.

In other words, the way to make sure Americans don't live beyond their means is to give them back the means.

What we need is a major stimulus program - bailing out the banks will not be enough. This is in direct contrast to neo-Hooverists like Ruth Marcus who think that a recession will somehow work itself out as long as you don't use the power of the federal government to do anything. That's blinkered thinking. Nobody will invest during a slowdown EXCEPT the government - nobody will create jobs, nobody will stimulate the economy, and nobody at all will look after poor people and give them the opportunity to succeed.

The question is whether Obama will listen to the clucking of the Neo-Hooverist chattering class or come up with a solution commensurate to the problem. He's been playing footsie with the Blue Dogs and talking about reinstituting PAYGO rules. Of course, they are already IN PLACE in the House, they just are routinely ignored, as they were during the bailout.

Did you get that part? The Senate has "more or less ignored" the few actual measures of fiscal restraint the Blue Dogs tried to keep in place. Kind of makes you wonder how such a group is still described as so powerful, if the few aspects of their fiscal retraint are "more or less ignored." In fact, one has to wonder how such a supposedly powerful group committed to fiscal responsibility has managed to co-exist with a federal government that has overseen the least fiscally responsible spending regimen in history.

Could it be that the power of the Blue Dogs is not actually in maintaining fiscal responsibility, but in threatening to throw their lot with the demographically compatible Republicans in a narrow divided Congress and pass legislation that will then be signed by George Bush? And, could it be that when that threat is no longer applicable--which it almost certainly won't be once the Congress is no longer narrowly divided and George Bush is no longer President--that their demands will go from "more or less ignored" to almost entirely ignored?

I should hope so. Austerity budgeting is not what we need right now - this is not 1993, the recession is much wider and deeper, there's still a financial crisis on Wall Street, and there are major public investments that are desperately required. We can argue about the form a stimulus package could take - I think it needs to be a lot bigger than the $150 billion dollar number being tossed around right now, and it needs to go to infrastructure like building a new clean energy grid, wiring America for broadband, high-speed rail and mass transit - but we cannot argue about its necessity.

There are of course questions about Obama. His policies are pretty middle-of-the-road and not necessarily up to the challenge of the moment. There is reason to be concerned. There is also over the last month a keen understanding that these are abnormal times. The question is how Obama will adjust. Will it be like this?

How does a liberal do these things? Well, first a liberal decides to take away the inflation problem, that whenever people get money they spend it on things that cause the demand for oil to increase. He does so by making a huge multi-hundred billion dollar investment in fuel efficiency by buying up all the least fuel efficient vehicles, by spending massively on public transit, by doing a massive fiber build-out and encouraging businesses to telecommute. He reduces the speed limit to 55 on all roads. He starts charging people for driving during rush hour. He encourages businesses to have workers work 9 hour days and take off a long weekend every two weeks. He massively invests in green energy. He sets up a program to refit every building in the US so that it uses as little energy as possible, or even produces energy. He changes the energy network so every American can sell power to the power company. In doing all these things, he actually reduces US demand for oil and increases its energy output. And all this activity creates jobs, a lot of jobs, which can't be offshored or outsourced.

And while the liberal may give a tax credit here, or a tax credit there, a lot of things he just has the government do, or has it spend the money directly. When you refit your house you don't get a tax credit, you get someone to come and do the work, then a government inspector checks it's done properly, then the company that refitted the house gets paid you get a reduced bill and share in some of the savings by actually receiving a check every month for as long as you live in the house. When new networks are set up, the government exercises eminent domain and encourages municipalities to set up their own networks. It forces large cable and phone companies to let anyone sell time on their networks, just like in the old dial up days and just like in countries like Japan that are far ahead of the US. Governments build the networks themselves, and run them themselves, since the major telecom companies have proven they wont' give the US good broadband [...]

Oh, I know all of this is a dream. Obama's not a liberal, despite all the screaming. That's not his fault, there's hardly a liberal left in America. As I like to joke, "Americans wouldn't know a liberal if he gave them universal health care". And some will say that if Obama was a liberal, he couldn't be elected, though frankly, after this campaign, I think that's a weak argument.

But, because Obama isn't a liberal, what he's going to do is do neo-liberalism, aka:Reaganomics, one more time. One more roll of the dice at the land casino. It won't work, and in a few years we'll be back here again.

And then we'll find out whether or not Obama can learn from experience. Most people can't, really, they just repeat the same mistakes over and over again. But some can. FDR did, he tried something and if it didn't work, he tried something else, and it was something genuinely different. Obama, it is said, models himself after the Kennedys, but I hope he'll learn something from FDR as well.

I'm not totally convinced of Welsh's argument vis-a-vis Obama, but he's absolutely right on the liberal response. There's a role to play for citizens who want to see a new economy, who want to grow up in a country with good paying jobs building things at home, who want advances in education and health care and the environment. There's a moment to push Obama to do what's needed.