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.
Why is employment flat? Obamacare. We were adding hundreds of thousands of jobs the month before it passed. The crisis had passed, most people realized they weren’t going to be fired, demand was starting to tick up. Afterward hiring was down to tens of thousands. Uncertainty returned, demand slumped.
There are literally thousands of regulations working through the approval system that will affect the cost of hiring employees. Only a idiot would make a business decision when the profit is questionable and the costs unknown.
Ordering a higher bell doesn’t do you any good if you haven’t weighed anchor. It also doesn’t help when half your shafts are spinning ahead and the other half spinning astern
The only addition I’ll make to Jeff above is what McConnell said about the Obummer’s plan, and I paraphrase, It’s not a jobs plan, it’s a re-election plan.
Lots of stuff here to consider.
First, let’s not blame the victims; even thought they were not entirely innocent. Homebuyers and owners were deluged with schemes to get them loans. Some of it was outright fraud. And it was greed. No-doc loans were known to be bad, so they were bundled together and passed on to another entity like a hot potato. They in turn passed derivatives to unsuspecting buyers to avoid the risk. Each time commissions were pocketed. The rating agencies were complicit. Then there was the investment banks taking on extraordinary and foolish risk for greed. And with the loss of Glass-Steagall, the government regulation to preclude some/most of the debacle was lost.
Politicians were less a victim of “rosy assumptions” than they were of two long and expensive wars funded entirely on credit with off the books, ‘supplementaries’.
That “burgeoning class of people who have remained persistently unemployed” makes it sound like they are perpetrators rather than victims. They remain unemployed because many of their jobs were outsourced overseas, and they are ‘persistently’ not coming back. They want work, but work is not their. If industry cannot provide jobs, and banks will not loan, then the lender and employer of last resort must! The alternative is the economic abyss. Pick your poison.
It was Keynesian economics and government spending that replaced Hoover’s tight money policy and brought us out of the Great Depression.
GM and Chrysler were not “nationalized.” Nor was theirs a true bailout. They were given loans to be repaid, and required to reorganize. As with any chapter 11 bankruptcy, yes some creditors were “stiffed,” while a major industry and thousands of jobs were saved. That is usually defined as success.
Small business owners are not worried so much about the debt or regulations. They are worried about demand, or rather the lack of it! No one will start or increase business without increased demand for his or her product and services. Moreover, even if demand seemed to be increasing, the lenders are still reluctant to lend. The unemployed provide zero demand. At least those who receive some meager unemployment benefits will immediately spend, creating some instant demand.
Finally, talk of “classes” is disturbing. Dividing society into classes was something our early Americans escaped from in the Old Word. When people start talking about productive classes I am disturbingly reminded of this, and its ramifications:
I am not sure how a “productive class” is defined or quantified. Is it the rich who have money in Swiss bank accounts, and buy gold, but provide no jobs? Or is it the large multi-national corporations that are making record profits after sending American jobs overseas, and pay little or nothing in US taxes? Or is it the dedicated teacher who spends heart and soul in trying to educate young minds for little pay? Or is it the former engineer who is now a short-order cook if he is lucky at one-third his former pay? We are losing our middle class – through no fault of their own – and with it our nation’s strength.
Like many, I am now a member of the non-productive class. But like the unemployed, I was not always non-productive. My income now comes from government pension and disability payments, along with Social Security for which I paid into for over five decades. My investments are not productive either, as they provide no jobs, just low taxed capital gains and tax-sheltered income to me. So does that make me lesser of a citizen, or a lower class of American? … or just a target for other, “better classes.”
flit:
I have colanders which have fewer holes than your screed. Someone in another thread said that you had been an F-4 driver, thank you for your service. However, I suspect that you may have pulled a few too many hard turns and the blood never returned to your upper extremity. You seem to me to be just short of that Wright fellow who rants on Sundays. You truly see the world through red (Marxist) colored glasses.
BTW, that bit about “classes” was truly hilarious, the irony is delightful.
Paul
“Politicians were less a victim of “rosy assumptions” than they were of two long and expensive wars funded entirely on credit with off the books, ‘supplementaries’.”
Flit, those two long and unfunded wars didn’t cost us 10 TRILLION dollars. They didn’t even coast us the 4-5 trillion that the debt increased during the Bush years. The accumulation of that debt spans several decades. Even during the Clinton years when there was a surplus it was only temporary. Had we continued with the Clinton budget we would have hit deficits again.
During the Clinton years those politicians that you call victims of the war spending happily forced the housing finance system (Fannie, Freddie, the banks, and mortgage companies) to make loans to poor people because they thought everyone should own a home, whether they could afford it or not. Yes, Wall Street bears some culpability for trading those bad loans, but those loans wouldn’t have existed without the coercion of the politicians. Here’s a reminder:
Hud Secretary
“As with any chapter 11 bankruptcy, yes some creditors were “stiffed,” while a major industry and thousands of jobs were saved.” Yeah, sure, except that the bankruptcy laws were tossed so that bond holders were subordinated to the UAW rather than treated as the law required them to be treated, as senior creditors. Why observe the silly law when the UAW might suffer.
As for who the productive class is, they are my employers who are very wealthy. They don’t have Swiss accounts or vaults full of gold. They reinvest their profits in the business, something I see first hand.
I’m the productive class. I have a great, steady, solid job. I am in a position to buy a house and a new car, financially speaking. But why should I saddle myself with a mortgage when the counties I would want to live in are on the verge of bankruptcy, the state is on the verge of bankruptcy, the Feds are on the verge of bankruptcy and all of them have to raise taxes or reform their tax codes, all of which could/would affect the value of the house underlying the mortgage? My wheels are 12 years old and I have my eye on an Audi S5. Why burden myself with a car loan when some environmentalist huckster might go and slam me with higher gas taxes or penalties for driving a gas car while they prance about the planet in private jets? So my capital stays in low yielding money market accounts and other liquid investments rather than going into the system via major purchases.
I’d go on but I have a train to catch.
Daryle – If your rich employers are reinvesting their profits in the business, they should be hiring more workers too. Are they? And if they are productive, are their wages keeping pace with their added productivity?
And where will the profits continue to come from, when the unemployed and underemployed and underpaid have no discretionary income at all to provide your employers with any profit, much less cash flow?
You may now be a member of this so called “productive class,” but you were not always, nor will not always be, even if your employers do not outsource your job. What will you be then, when you are retired, ill, disabled, or unemployed? When you suddenly go from, “I got mine,” to I don’t.” It happens to all of us… unless we die first. And that is not very productive either, is it?
You misunderstand, we are in Real Estate, we build buildings then rent them out and despite the down turn we are doing fairly well. We are building but not as quickly as before the downturn. We have hired a number of people. For a while our rents were down but we haven’t had any mass layoffs and I have no complaints about what I earn. BUT, Obama wants to raise taxes on my employers. That will decrease the money they can use to build their business? How is that money better spent, by my employers who will invest in a new $150 million high rise residential or office property or by the Feds giving it to a teachers union that didn’t require full funding of the promises made to them as part of their contracts?
You said “Is it the rich who have money in Swiss bank accounts, and buy gold, but provide no jobs?” My point was that the rich DON’T do that. They reinvest in their businesses like my employers do. Increased confiscatory taxes prevents that and reduces their ability to do so. Nor are the fabulously wealthy the only member of the the productive class you deride. Nor are they rolling around in piles of gold coins. The productive class are those who are working, or trying to work, or building businesses, even retirees like you. However there is a growing segment of the population that neither tries to do any of the above or who think they shouldn’t have to contribute to the tax stream. That’s how we get 50% of the population, who earn some income, not paying any income tax.
Some of the other reasons that I am not buying a house or a new car or anything else other than a dream vacation to Italy next month (put off for years BTW) is that I am putting every penny I can into stocks, cash, and other securities to provide for myself when I can no longer work. I’m 45 and I’ve know my entire working life that Social Security will not be available to me at any age. I’m throwing away almost 8% of my salary. I don’t think we should scrap SS or Medicare but we do have to reform them, starting with means testing, tort reform, and investing those collected funds in something other than T bills. Unfortunately, any mention of those thing results in Liberals lying and screaming about fear mongers throwing granny off a cliff.
I think a citation is needed for your statements about small business not being worried about regulation or debt. I will accept that demand would need to tick up in order for the small business owner to consider expanding. Businesses do not exist to create jobs, rather jobs exist because businesses are profitable. Spending tax dollars on welfare programs for the unemployed is good in the short run, but unless you can get people off of those welfare programs, you will start a death spiral of fewer taxpayers paying taxes to fund more recipients. Eventually you will run out of tax money…..unless you raise tax rates on individuals and “wealthy corporations”….but that increases costs to hire people and makes moving the jobs overseas more attractive…..hmmmmmm. Did you think your cunning plan all the way through?
Flit, I’m sorry, but your continued, terribly flawed ideologic processes just keep on coming, it seems. Thankfully, PLQ and Daryle have pretty much pointed out the major points I was going to make, probably far better than I would be able while my head was trying to explode.
Alen – “I think a citation is needed for your statements about small business not being worried about regulations or debt.”
Ask, and you shall receive:
“Regulations, taxes aren’t killing small business, owners say”
flit:
McClatchy newpapers!?! Your citation would carry a bit more weight if it were from someone other than certified liers.
Paul
Employment Vicious Cycle
“When employment drops, incomes fall. When income falls, sales fall. When sales fall, production falls. When production falls, employment falls,” said Lakshman Achuthan, managing director of Economic Cycle Research Institute.
It’s a tough cycle to break.
“You can scream and shout, you can be the President, you can be the Congress, you can be the central bank, you’re not going to stop that once it gets going,” said Achuthan.