This is an extraordinary moment, requiring adult leadership and adult followership. I am concerned about whether we have either.
Acknowledging with total humility that I have no special expertise on the matter, and that much-better-positioned journalists are following every bounce of the ball in Washington and on Wall Street, I offer a few facts, thoughts and questions.
We are told that the stakes right now are so high that references to the Great Depression are appropriate.
I have no idea if the stakes are really that high today. I assume that no one really knows. We deal with threat inflation all the time in our current political culture. A few weeks ago, the high price of gasoline was being discussed as if was almost an existential threat to the American way of life. At a time like this moment, it is regrettable that we allow shrill voices to scare us so often that we’re not sure when something truly frightening is at hand.
For the record, the Depression that began in 1929 was the greatest economic calamity in U.S. history. The unemployment rate rose to 25 percent and remained above 20 percent for four years before starting to subside. The GDP shrank by about 10 percent a year for the first three years after 1929, then bottomed out and slowly began to grow. But full recovery didn’t occur for more than a decade.
The fact that the soberest titans of the economy speak in these terms, makes me want to shake off my cynicism about all the previous threat inflations and take this very seriously. But it also makes me want to stay calm. The country survived, and achieved its greatest days, after the recovery from the Great Depression. Are its greatest days still ahead? Ask me in 20 or 30 years.
I assume that the smartest and best-intentioned people in the world don’t really know, for sure, what is the best way to minimize the danger to the economy.
We need to be realistic about that fact and not look for a messiah. But we have no choice other than to accept the leadership of the smartest and best-intentioned people in the picture. Whom do you trust?
Only about 20 percent of Americans can name the two U.S. senators from their own state. The idea of an informed electorate is a shibboleth. But even among the best informed, the kind of people who read MinnPost for example, very few of us have the economic skills to assess the proposals for ourselves. Certainly this humble scribbler isn’t one. In reality, even the best-informed Americans rely on trusted leaders and thinkers to sort out questions like this.
Right now, I want someone I can trust in charge. I don’t know who that is but I know it is not President Bush.
It is sad, maybe tragic, that it comes to this. This is one of the reasons we have a president, and it is natural to look to the Oval Office for leadership that will rise above ideological blinders and partisan advantage. I don’t doubt President Bush’s patriotism or his good intentions, but he has long since spent all of his credibility with me and I suspect with many other Americans.
I have actually wondered over the last couple of years about the wisdom of our system, which virtually guarantees the president (absent an impeachable offense) a four-year term even if he has lost the confidence of the public and the Congress in the first year or two. Parliamentary systems have a quicker way to deal with such situations. This is not a moment to consider structural change, but it’s worth discussing someday.
Instead, we have a titular leader who enjoys the confidence of roughly 20 percent of the nation. For leadership in this current travail, we must look to a large group of people most of us barely know — a treasury secretary and a Fed chair, leaders of Congress, chairs and ranking members of normally obscure committees that regulate banking, and in some collective sense, the whole Congress itself, replete with nobles and knaves. I sincerely hope they are doing their best work right now with as little partisan advantage-seeking as they can manage.
I have written this before but I wish I had written it 10 times more often: The national debt is no joke, but it is treated as a joke.
There is plenty of blame to go around for that. There are only two reliable ways to reduce the deficit and, ultimately, the debt: raise taxes or cut spending. We need to do both. We do neither.
We are spending money on ourselves and charging it to our children’s credit cards. This is a moral issue but is seldom treated as one. The political class seems to be unanimous that they will be punished politically if they ask us for any sacrifice on the taxing or the spending side. They have looked into our hearts and the political commandment they see there is: Pander to me, run up the debt for my grandchildren or face my wrath.
I’m not saying that it is in our children’s or grandchildren’s interest to allow the U.S. economy to collapse for 10 years by failing to take action now because of an excessive faith in the invisible hand of the marketplace. That, I gather, is what Hoover did.
I know little about Keynesian economics, on which, I gather, modern fiscal policy is sort of based. But it’s supposed to go something like this: It’s OK to engage in deficit spending, when necessary to deal with a crisis or stimulate the economy. But then you are supposed to pay down the debt during good times, so that you will be in a position to borrow again when the need arises.
Now that we are in a position where we may have to put $700 billion to $1 trillion on our kids’ credit card all at once, I ask this question: Has there been no time over recent decades when times were good enough that we could have reduced the debt to get ready for this moment?
(I know that the budget was technically balanced during the late Clinton years, and the debt actually declined very slightly. The leaders who made those decisions in the 90s deserve some credit, although the success of that period depended overmuch on the tech stock bubble, which burst. The progress was not sustained.)
I dream of a candidate who has the guts to tell us that the tax cuts and new programs we are always being offered are going on our kids’ charge cards. And I dream of an electorate that will not sentence that candidate to political death. Instead we have two major-party nominees running on fiscal programs that will both raise the deficit. Team Obama boasts that all independent analysts agree that his tax and spending proposals will increase the deficit less than McCain’s will. I gather this is true, and a shame on McCain who claims to be the fiscal conservative in the race. But it is a hollow boast. Don’t increase the deficit less. Decrease it and put us on a path to reduce the debt.
Again, this is not a moment to revisit past tax and spending decisions, but a reasonable time to lay down a marker for a serious discussion of what fiscal conservatism used to mean. I leave this subject by noting that the absolute most sacrosanct item in the federal budget (and the fastest growing, I believe) is the interest on the national debt.
We could cut the military budget in half and still have, by far, the strongest military in the world. As unthinkable as this would be politically, Congress could, in an emergency, reduce Social Security benefits. It would cause some suffering and make a lot of seniors angry, but the Earth would not crumble.
But if we were to miss a payment on the debt, it would cause a dollar crisis that would make the current worries look small. The beauty here, if you choose to look at it that way, is that we can pay the interest on the money we have previously borrowed with new money that we have recently borrowed. But is that a long-term plan?