How to Build a Better Stimulus Package

I have been hostage to recent banter in the media about the ailing economy and the need for a rapid stimulus package so I decided to invest some time in airing my views about the situation.

The below diatribe I put together in response to an article written by PETER S. GOODMAN and LOUIS UCHITELLE on Jan 25 and it is titled Critiques of Spending Plan Retrace Old Debate.

Obviously no one really sees the stimulus being talked about as making all our economic magically disappear and yet I do think there is a problem in understand the depth of the economic problems that are now causing this slowdown.

More Band Aid Solutions from the Out of Touch and Arrogant Beltway Insiders
The problem is not whether the lowering of the 75 basis points by the Fed and a stimulus package and all the soothing talk about the economy coming out of Washington will work, it very well may work. The real is whether or not a serious discussion will be initiated to consider the possibility that we need real and fundamental change in how Washington and Wall Street does business. Without this any stimulus package is basically a meaningless waste of time and money, because it does not address the core problems of the American economy.

I recall an economist wondering why so many Americans feel bad about the economy, when they have it so good. To me that exposes not only a problem with decision-makers and opinion leaders being out of touch with the people, but of their being out of touch with the facts of economics and the idea that a strong economy is not just about economics but many other factors as well.

Americans appear to have an almost an intuitive sense that something is very wrong not just with our economy and more deeply with regards to our society. Yet that because they can’t articulate it and of course are really not listened to by the policymakers (except on a very superficial level), the need for real change goes unheeded. The change needed to address their concerns is of course difficult to put forward because it is controversial, visionary and risky and no one in the corporate/institutional world likes risk.

How to do a Stimulus Plan Right
The right Stimulus Plan can have an impact on the short term reducing the scope of the economic downturn as well as start to right some of the issues discussed here. The issue here is do we have a leadership in place that can make those kind of well thought out and visionary decision to get the American economy back on a firm footing.

The Challenge is that it takes some planning and we have to consider the context of the particular situation America is in now and some of the possibilities that the underlying issues:

1. Low rate of savings,
2. High levels of imports
3. High rate of debt

These trends which Greenspan was aware of, but basically swept under the rug for many years may be finally coming to a head. A stimulus plan that ignores these underlying trends will not be effective in addressing the long term trends that may be currently impacting the economy.

Capitalism and its Influence on Society
The influence of capital can distort the fundamental reality of the economy through subtle pressures and influences that dominant market players exert through various means as discussed in detail by leading leftist theorists from Marx to Chomsky. We don’t have to agree with everything they say to conclude that there is a shred of common sense truth in what they say. Regardless of the complex theories discussed within academia, we can observe and catalog the many ways in which the influence of money can distort people’s perceptions. In addition, a case can be made that this can sometimes adversely impact the long term public interest.

Economic Nationalism and the Myth of America’s Economic Supremacy
It is commonly repeated in the media about this incredible legacy of our American Economic Juggernaut and yet I wonder if the media could not be trusted to report accurately about companies like Enron or the Housing Boom that it would get this issue of the general state and direction of the economy right either. Economic nationalism is this idea that the American economy is somehow special and exceptional to the rest of the world. The terms commonly used are American Economic Juggernaut. There is no debating that the recent performance of the American economy has been impressive over the last 20 or so years. Yet what if the people responsible for this did not do this by making the fundamentals, but rather were very clever at plugging the holes in that American Economic Juggernaut?

Canaries in the Coal Mine
The Iraq War and also Hurricane Katrina are significant barometers of the country’s overall health and they expose a deeper crisis in American society. Those who are making very important decisions are not making very good ones about very costly things like wars and protecting our major cities from unprecedented natural disasters. So why would we expect them to make an informed decision about the economy when say we were at a pivotal time such as possibly right now? Not only were there issues about the preparation for a hurricane raised (unfortunately though after the fact) and also with regards to the immediate response but also with regards to the long term recovery. Indeed I would have liked to have something in the stimulus package that addressed both the need to finally clean up the mess of Katrina and make sure the flood walls are in place to prevent this from happening again.

Yet the point is that American has lost not only its moral compass but its common sense practical and pragmatic ability to make wise and informed decisions about how to move into the future. Is a stimulus package going to solve this?

Global Climate Change = Limits to Growth?
The mainstream media often in times of great challenge does not ask the tough questions about the sustainability of our economy. And I mean this not in the one dimensional way that most economists see it (despite the fact that everyone is talking Green) as merely relating to the economic fundamentals of sustained growth. Rather I am talking about the often complex and interrelated impact of global environmental and social issues on economic growth and visa versa. The WWF has noted that as economic growth has skyrocketed over the last 100 years natural systems and natural capital has suffered unprecedented declines. Obviously this is not sustainable, so then one might as a critical and informed citizen question this idea that America as one of the world’s most wasteful nations is really that much of an economic juggernaut. Yet there is not much we can do to change this overnight because there is such a fear about publicly talk about the growth dilemma and politicians cant touch that. However much could be done to design an economic stimulus package that could be a Marshall Plan for more green (sustainable) development and renewables to reduce our green gas emissions.

Recessions are a Fact of Life: Get Over it
I would argue that Recession is not really a bad thing Life is a cycle and so why would we assume that economies and societies grow forever? Economic Common Sense (many of those mainstream economists that the media cites in their reporting seem to be lacking in this) tells us that a recession is a valuable tool to balance out markets. Within sectors we have seen numerous times over the years in dotcoms and now in housing that if you have a time of irrational exuberance it has to be balanced out with a time of decline and a thinning of the chaff. Yet postponing a cycle and preventing a recession at all costs I believe is quite similar to the US Forest Service’s Smoky the Bear fire policies. Because they instilled in people that all fire was bad they create the perfect storm in that now the fires burn so fast and hot that they really are bad. And yet if they had just allowed fires to burn naturally it might have prevented the most devastating ones by control the fuel loads in the forest. Recessions and corrections in the economy have a similar effect. Recessions are a necessary albeit painful part of a sustainable and healthy economic cycle.

Fundamental Economic and Social Change is needed to Create Sustained Prosperity for America
How this country acts now may determine its destiny for a long time to come. A severe long term recession could be lurking that could alter the future of a whole generation like say the generation that went through the Great Depression. While we may not be headed for Depression or even a severe recession, the case can be made that there are some major decisions that need to be made by our society and our government about what kind of direction we want to take in this next century with regards to technology, growth and the impact of these on the make up of our society and also on the ecology.

I am not optimistic right now that we are ready to make those decisions but I believe that if enough of us do overcome our fear of speaking our voices about what we see as the fundamentals of why this country is headed in the wrong direction and how we can correct that, that we can reverse course and create in the 21^st century an unprecedented era of prosperity for ourselves and the world.