In the wake of the financial/housing meltdown, both the American people and the American government found themselves over-extended. The former had over-spent, some of them re-mortgaging to”taking out money” on bubble valued housing stocks, or else – sitting atop a pile of perceived but non-liquid wealth, spent lavishly on credit. When housing prices collapsed – mostly due to the inability of the last fools in to meet their obligations – people that could trimmed their fiscal sails and paid down debt, killing demand. People that couldn’t afford to pay walked away from their purchases or were evicted, further depressing housing values. In response, employers, bankers and investors with money left it on the sidelines, declining to deploy their capital on risky new loans and acquisitions while reducing redundant labor, further killing demand in a vicious cycle.
Politicians, on the other hand, always ready to do the kind of “good” that gets politicians re-elected, found themselves unable to afford to pay the bills generated under more rosy economic assumptions. Government now faces the rising cost of paying unemployment compensation to a burgeoning class of people who have remained persistently unemployed, a parallel vicious cycle of its own. Rather than follow the people into belt-tightening, government – acting under the dicta of Keneysian economic dogma – threw a trillion dollars of debt atop our children’s shoulders, somehow hoping to replace the absent demand in a $13 trillion economy. They did this while nationalizing automakers (and stiffing senior creditors), promising to raise taxes on the most heavily taxed and productive classes just as soon as it is politically possible, and rolling out new and unaffordable social reforms, all of which served to make out-year risk calculations increasingly cloudy for employers.
Whether that stimulus “worked” to prevent another great depression by limiting bottomless damage, or whether it failed entirely is conjectural. What’s indisputable, having listened to our presidents job speech to an extraordinary joint session of Congress, is that the debt remains at historic levels and that our president wants to increase it further: Whatever the necessity of government sponsored demand might be, contra President Obama, it most certainly isn’t “paid for”:
Obama did not spell out exactly how he would pay for the measures contained in his nearly $450 billion American Jobs Act but said he would send his proposed specifics in a week to the new congressional supercommittee charged with finding budget savings. White House aides suggested that new deficit spending in the near term to try to promote job creation would be paid for in the future – the “out years,” in legislative jargon – but they did not specify what would be cut or what revenues they would use.
Essentially, the jobs plan is an IOU from a president and lawmakers who may not even be in office down the road when the bills come due. Today’s Congress cannot bind a later one for future spending. A future Congress could simply reverse it.
So here what we know for certain: People and businessmen – classes that make their economic decisions based on horizons longer than the next election – are aware that we are collectively about to incur nearly another half trillion in debt, even as we struggle to pay down our own. Small business owners are aware that new and incalculable long term obligations are being paired with short term tax breaks. We are about to subsidize a class of people – some of whom have been unemployed for nearly two years – another year, leaving their prospects for real employment very much in doubt as job skills atrophy. And our most productive classes are aware that, the instant the economy turns around, legions of tax consumers and class warriors stand ready to eat them.
And here is what we don’t know: Whether it will work in the real economy, rather than in 2012 election.
Give President Obama credit at least for fulfilling this campaign promise: We are left to hope for change.