Everyone now knows that President Obama faces an economic crisis unprecedented in recent times. What was less apparent is that he confronts an equally severe political crisis. The interaction of these may amount to more than the sum of the parts.
Unemployment is increasing at alarming rates despite enactment of the stimulus package. That package should be labeled stimulus lite. Respected NYU economist Nouriel Roubini remarks: Of the $800 billion only $200 billion will be spent in 2009 with most of it being back-loaded to 2010 and later. And of this $200 half is tax cuts that will be mostly saved rather than spent as households are worried about jobs Thus, given the collapse of five out of six components of aggregate demand (consumption, residential investment, [capital] spending, business inventories and exports) the stimulus from government spending will be puny this year.
Obamas bank rescue proposal also seems geared primarily to saving investment bank management and aiding those who profited from toxic securities. (Paulson II?) The plans below-market-rate loans to purchasers of these assets may allow some money to trickle into future loans. Nonetheless, the system as whole will remain effectively insolvent, much public money will be squandered on pampered speculators, and government activism of any sort too easily given a bad name. Roubini also puts this case nicely: The debate on bank nationalization is borderline surreal: with the US government having already committedbetween guarantees, investment, recapitalization, liquidity provisionabout $9 trillion to the financial system Thus, the US financial system is de-facto nationalized as the Fed has become the lender of first and only resort rather than the lender of last resort and the Treasury is the spender and guarantor of first and only resort. The only issue is whether [these] financial institutions should also be nationalized de jure. But even in this case the distinction is only between partial nationalization and full nationalization: with 36% (and soon to be larger) ownership of Citi the US government is already the largest shareholder of Citi. So what is the non-sense about not nationalizing banks? Citi is already effectively partially nationalized; the only issue is whether it should be fully nationalized.
Once fully nationalized, the managers who created these problems can be removed. Stockholders can be zeroed out and bad assets taken over by the government. The healthy remnants can then be resold to new private investors. Once the economy begins to recover, even those bad assets would gain some valuefor the public who are footing the costs of the rescue.
The presidents portrayal of stimulus lite and Paulson II as setting us on the road to recovery invites public backlash and criticism. Conservatives are already complaining that government spending wont work and busts the budget. They recommend already discredited tax reductions and an utterly destabilizing freeze on government spending.
Nonetheless, if Obamas limited package fails to restore economic momentum, their views may begin to resonate with voters. That Republicans have a steady media platform says something about our political landscape. Eight years of tax cuts for the wealthy and coddling mega investment banks have left us huge deficits and an imploding economy. Yet CNBC remains a virtual megaphone for conservatives. The network attacks Obamas purported war on wealth, but has hardly a word about the role of investment banks in destroying the wealth of ordinary citizens.
A broader study of media presentations on the stimulus showed that the vast majority of guests were either for the limited Obama package or thought it was too large. Those who worried it was much too smalla view held by even such eminent conservatives as Martin Feldsteinwere not invited to offer their views.
Obamas program and rhetoric lack the boldness our situation requires. Those who support him must soon fill the void. In future columns I will discuss some labor and activist interventions that may be appropriate if the crisis deepens. In the meantime in our conversations over the back fence, in letters to the editor, on our blogs and emails we must remind Americans that wage stagnation, coddling investment banks, attacking unions and worker wages, and neglecting our infrastructure created this crisis. Only actions that eradicate these pathologies can restore our economic health.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email email@example.com.
From The Progressive Populist, April 15, 2009
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