Sunday, June 21, 2009

Economic Nonsense

For the most part, I avoid opining on the financial crisis at any detailed level because I don’t really know enough about it. I do know enough about it that I get tired of Congress critters repeatedly saying that we have to accept whatever Treasury proposes because the whole subject is too complicated for anyone other than Timothy Geithner to understand it. My response to that little piece of sophistry is that if a Congressman doesn’t understand the bill in question, then he should recuse himself from voting on it.

I also know enough to reject the fond idea, embraced even by Barack Obama, that the economy will recover and all will be well if we can just get banks to resume lending and persuade consumers to start buying again. Once those two things happen, all of the unemployed will, apparently, in some magical fashion become employed.

Oh wait, I forgot the 150,000 jobs that have already been “created or saved” to replace the six million lost jobs and the ongoing 400,000 jobs being lost every month. I also forgot the untold jobs that will be created by the high-speed rail projects in the Stimulus Bill; projects which will be built at some yet-to-be-determined place in a yet-to-be-determined year.

Banks, having learned something of a lesson, are not going to lend money to people who are unemployed or underemployed; nor are they going to make loans secured by products and real property that is declining in value.

Which leaves getting consumers spending, and the only engine for that is by “restoring consumer confidence in the economy.” That project is actually going rather well, and consumer spending is increasing by fractions of a percent every month, which is enough to bring the stock market roaring back to levels almost equal to thirty years ago.

Paul Krugman is, of course, still saying that the government needs to directly stimulate the economy with spending that directly creates immediate jobs. The public, believing the dulcet tones of its president however, has gained so much confidence in the economy that it is willing to ignore the still-increasing job losses, and is now much more concerned with the federal budget deficit, ala’ 1935.

At least in 1935 they waited until unemployment was no longer rising, had dropped from 25% to 15% before they started prating about eliminating the simulative spending and balancing the budget.

Today, unemployment is a “a lagging indicator” that will magically reverse itself once we get banks to resume lending and persuade consumers to start buying again.

2 comments:

  1. In case you haven't noticed, contractors are already at work on infrastructure projects funded by the stimulus on roads, bridges, public buildings, and elsewhere near you. Furthermore, just 4 days ago the Obama Admin. and the DoT released their guidance for applications for the $8 billion in high speed rail funds, with the first grants to be awarded in September - most likely to projects along the California High Speed Corridor and the Chicago Hub Midwest Regional Rail Initiative. Government spending on these kinds of projects boosts consumer spending, increasing business's cash-on-hand and restoring confidence in them from the financial sector.

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  2. Indeed, Obama is doing the best he can to relieve the situation, and I applaud his efforts. I am also in favor of trying to maintain as positive a view as possible.

    But cheerleading the situation, such as talking about the high speed rail projects as if they were already contributing to the economy, to the point that public opinion turns against further attempts at solution is counterproductive.

    "Okay Mabel, disregard the flames in the living room. The bedroom is not on fire and the forecast is for rain, so we can cancel the call to the fire department."

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