Archive for November, 2009

Fixing the Economy: Beyond Bailouts and Stimuli

November 14, 2009

As the year draws nearer to an end, and as economic data about the last several months has recently been released, there has been a plethora of critiques about the various federal efforts to turn things around. Analysts are all over the spectrum, from those who are convinced that the federal actions have prevented the crisis from becoming much worse, to those who feel that the programs have been entirely inconsequential—except for ballooning the budget deficit, to those who declare that the federal recovery efforts have deepened and prolonged the slump. Who is right? Beats me. I’ve seen very compelling arguments on all sides. I can’t pretend to grasp all the economic minutia enough to know for certain, and I don’t think anyone truly can.

I very cautiously and reluctantly wanted to support the various economic policies which were part of the stimulus package. I’m never fond of corporate welfare, but many of the arguments seemed potentially valid. While hardly unanimous, there was a fairly broad consensus that action needed to be taken, with a plenty of Republicans and conservatives jumping on the bandwagon. Reagan economic advisor Martin Feldstein enthusiastically supported the stimulus bill, as did Tony Blankley during the several months during which the stimulus was being debated—albeit far more cautiously—on the NPR show Left, Right, and Center, just to name two. While Mike Huckabee’s warning is well-worth considering (“when someone is in a hurry to pass legislation, you’d better slow it down because the reason to hurry a law is rarely urgency to help the citizens, but urgency to get it passed before people find out what the heck it really is” ), it is conceivable that without quick action, the economy would have plummeted into chaos. As distasteful as the notion of bailing out these bloated corporations was, it might be that without those bailouts, the financial markets would have collapsed, taking the rest of the economy down with it. It is very possible that the building and infrastructure projects funded by the stimulus will ultimately put people to work, providing them with the money necessary to rebuild demand and jumpstart the economy, and provide us the long term-resources necessary for future success. Heaven knows that there is a great deal of critical infrastructure in serious need of upgrading and maintenance due to years of neglect.

All of that is in some sense beside the point. Not that the ever ballooning deficit is irrelevant; I respect the grave concerns which many people have about the deficit and it’s potentially disastrous consequences. But even if I grudgingly accepted that the stimulus might be a necessary evil, I never saw it as any more than a bandage, a stop-gap means with which to keep the economy on life support while the nation re-evaluated the way in which the our economic system is constructed, determining the roots of the problem and make the necessary fundamental changes to our economy and financial system to prevent this sort of catastrophe in the future.

While not terribly surprised, I’m bitterly disappointed on that count. Little has been done to get at the heart of the economic problems. Obama campaigned on change. How is this sort of corporate welfare any different than the bailouts promoted by his predecessor? How are his economic policies any different from the largely corporatist policies so in vogue with both parties since the Reagan Revolution? If we should be looking to the future rather than back to the Clinton era, as he not-infrequently implied when campaigning against Senator Clinton, why is his economic team lead by Clinton administration retreads who are perpetuating the same basic policies?

Libertarians like Ron Paul have pointed to the actions of the Federal Reserve as a primary cause of the economic turmoil, advocating it’s abolition. I’m not yet convinced their argument is entirely correct, but they make some very compelling points. What harm could it possibly do to conduct a thorough investigation of that institution to see if the criticisms have merit? What could possibly be wrong with holding that institution accountable through the rigorous audit proposed in HR 1207 and S 604?

Our financial system suffers from a bizarre concoction of overlapping and competing regulatory agencies (for a good investigative report on the subject, listen to “The Watchmen” from This American Life, 06-05-2009; or read the transcript). Rather than adding yet another regulatory layer, we should overhaul the entire regulation system. We need robust regulation, but it should be streamlined and consistent, so that the financial players cannot so easily find holes in the system. The walls separating the different sorts of financial services which were destroyed by the Gramm-Leach-Bliley Act must be rebuilt. And we must ensure that the resulting regulatory entities maintain the funding necessary to remain vital, and prevent the sort of defunding under the banner of “small government” which has render them impotent over the past few decades.

Many of the problems we face may have been caused in part by the very nature of the corporate structure. The corporations which were bailed out because they were “too big to fail” are bigger than ever. We should introduce mechanisms into the corporate charters which prevent them from becoming so large in the first place. Those already bloated to the point of reliance on the government should be broken up into smaller units. The legal principle of corporate personhood should be emphatically overturned. Originally, corporate charters were granted by the state in very specific circumstances, with very defined limits, and with provisions for public accountability. We should revisit that earlier form of incorporation, consider whether it is more appropriate for keeping these powerful entities in check.

I doubt there will ever be a better time for fundamental changes. The public must demand more than staggering amounts of debt and some rearranging of deck chairs in response to the economic crisis.