INSTANT ECONOMY

I’m one of those who indulge in instant meals more than I should. It’s just too easy to wake up in the morning, pop a cup of water into the microwave, empty a package of instant oatmeal or grits into a bowl, add the boiling water and presto…breakfast is served. Just like everyone, after going twelve hours or so without any food, an instant hot meal cures all that is wrong. Plus, most of the time it provides the necessary nutrition.

That’s the way most of think a stimulus cure for the economy should work. We discover we need a recovery, we argue over adding billions of dollars of government spending to the economy, finally settle on an amount, pour some money into the economy bowl and presto…we expect our economic hunger to be solved. Here it is, a little over six months since we poured this hot stimulus money into the bowl, and we’re wondering why we’re still suffering…still economically hungry.

A couple of business and economic writers and experts wrote comments on the state of the economy this week…which by the way has stabilized, if not begun to improve.
Newsweek’s Daniel Gross noted the following in a story titled “A Birder’s Guide to D.C. …The deficit hawks squawk too much.”

The deficit grew from $248 billion in 2006 to $1.4 trillion for fiscal 2009, and Mr. Gross noted that much of that can be pinned on cyclical factors. Mr. Gross goes on to highlight that when the economy contracts two factors have a detrimental effect on the deficit. Tax receipts go down, and demand for government spending goes up in the way of unemployment benefits, bailouts and government stimulus.

It should also be of interest that spending rose 18% and revenue fell 16.6% in fiscal 2009. This contrary motion, of income and expense, was the worst decline for the United States since the 1930’s. However, the budget deficit predicted to be $1.84 trillion in May of 2009 actually came in somewhat better by fiscal year end at %1.58 trillion. The rally of the stock market, for all it hasn’t been for Main Street American, helped recover corporate profits, and coupled with the now expanding economy have resulted in higher than expected tax revenues. So, when the Treasury Department ended the country’s fiscal year in October of 2009 the final deficit was $1.42 trillion even better than in May and $138 billion less than the July prediction. As the late great Senator Everett Dirkson once said…”a billion here, a billion there and pretty soon you’re talking about real money.

Mr. Gross notes that historically “the consensus of economists and politicians has continually underestimated the strength and timing of the recovery.” As a result of the change of direction for the economy the Treasury announced it would need to borrow 42% less than expected in July…$276 billion less. “A billion here, a billion there…” So, we might be able to reasonably expect a 10% to 20% improvement in the 2010 deficit.

The sad fact about deficit hawks is they ignore the affects of the costs of health care and the improvement that a “robust” public option would do for deficit spending. Then, there are still those lingering problems caused by the Bush tax cuts, and the adverse effect they have on the deficit and entitlement spending. Our conservative adversaries still stupidly call for us to scale back the not-yet-spent stimulus funds in the name of fiscal discipline.

But, the “Quote the Day from Daniel Gross’s article was this: “Being obsessed with deficit reduction when the economy has suffered its largest setback since the Depression is like being obsessed with water conservation when your house is on fire.” This is rich and a quote worth remember when your conservative friends want to start preaching the gospel of fiscal restraint. Restraint, after eight years of a spending spree by the Bush Administration, that looking backwards, would have been a great time for debt reduction. Remember Alan Greenspan’s admonishment that we would damage the economy if we saved too much…and these Republican hacks stood there drooling like high school seniors standing at a craps table in Las Vegas.

The other notable opinion on the economy came from the November 13, 2009 Op-Ed page of the New York Times. This piece, by Nobel Economist Paul Krugman, compared the United States approach to tackling joblessness to that of Germany. Mr. Krugman advocates “policies that address the job issue more directly.” For example, the “New Deal style employment programs.” This article reminds us “that at their peak, the W.P.A. and the Civilian Conservation Corps employed millions of Americans, at relatively low cost to the budget. If you are interested in reading more about Great Depression era solutions like the W.P.A and the Civilian Conservation Corps I would suggest you read “the Return of Depression Economics and the Crisis of 2008” by Paul Krugman, and “The Defining Moment” by Jonthan Alter.

Paul Krugman’s article advocates that regulations that would discourage firing, coupled with incentives for hiring, or modifying working hours to prevent additional layoffs could help us with unemployment.

Mr. Krugman makes another poignant point…“right now, workers who lose their jobs aren’t moving to the jobs of the future; they’re entering the ranks of the unemployed and staying there.” Furthermore, the longer you’re out of job the harder it is to get another job. What Paul Krugman suggests, and we all should be able to agree, is that “we should introduce an employment tax credit” and a job-sharing subsidy which would help workers on the bubble keep their jobs.