George Harris KC Star Reader Advisory Panel 2008
Those who are still financially solvent are getting pretty sick of paying taxes to bail out banks, homeowners in default and car companies.
And now it appears that the president’s stimulus package will again reward states that increase their welfare rolls, undoing reforms made during the Clinton administration.
So the obvious solution is to let the marketplace have its way and let the irresponsible sink or swim on their own merits. Right?
But what happens to my home value if several of my neighbors’ homes go into foreclosure? They vacate their houses, and there goes the neighborhood and my home’s value.
If GM goes belly up, auto workers and employees of supply chains to all car companies, foreign and domestic, end up on unemployment. They get unemployment compensation, but it’s not enough for them to make their house payment. And there goes the neighborhood again.
The article in Sunday’s Kansas City Star , A Full-Time Quest, detailed the lives of people in Kansas City who have lost their jobs. One family in the story was reported to have a $2,400 per month mortgage, a $715 per month car payment and a classic car in the garage worth $28,000...but only $20,000 in savings.
Good grief, what were they thinking. If this family’s mortgage goes into default, should taxpayers really have to help them out with a restructured loan so the neighborhood doesn’t suffer?
As much as it irks us for tax dollars to bail people out who have made bad decisions, it’s often difficult to differentiate the irresponsible from the unlucky victims of an economic downturn.
And if we refuse out of principle to bail out anyone or any business, do we set in motion an economic collapse that leads all of us to financial ruin?
This is, I think, the dilemma facing the new administration. I’ve listened to the theories of a dozen or more highly respected economists advising what should be done, and they all seem to have different opinions.
I lean toward encouraging government to help critical businesses and homeowners in danger of default, knowing that some of these businesses and homeowners have made bad decisions and really shouldn’t be protected. I lean this way not because I think government should rescue them but because I fear the consequences if it doesn’t.
It’s not altruism but self-protection. Maybe everything would work out better if we just let the foolish pay the price of their decisions. That’s not the consensus of the economists, as nearly as I can tell, but their explanations of their recommendations aren’t all that convincing.
Here’s hoping President Obama can run an economy as intelligently as he ran a presidential campaign.
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There are people who don't
There are people who don't agree with bailing out GM. It's just that we don't need federal government forcing us to invest in them with our tax money. As far as I know, GM's best car right now is the Cadillac CTS glow plug, but GM has no idea on how to market the car properly.
Don't know much about History...
Not sure I agree with you. For example, plenty of people who have had no military experience have weighed in on military matters that were actually good weigh-ins- Lincoln, Goldwater- come to mind quickly.
I'm not sure what bona fides one would have to be able to make sense out of the mess we're in now. Supposedly most of Enron had MBA's from Harvard...
Anyway- reading theories on how the economy works- especially theories that encapsulate a generalized, macro-level over-simplification don't impress me that much. If it were that simple, then we probably would never have a recession.
Unfortunately- in my opinion, the economy is much too complex to just prime it with borrowed money. As some critics have pointed out- in a few years our GDP will be lower simply because of the higher interest we are paying on all this new debt.
Keynesian insights aside, I find it hard to believe in the fundamentals of borrowing at the macro-level to buy your way out of a crisis caused by borrowing too much at the micro-level. But I guess we'll see how it goes for 5-10 years- maybe I'm wrong.
Classic song/ classic problem
Great song, Tom- thanks!
I read a review of a book yesterday, by Thomas Woods (""Meltdown: A Free Market Look At Why the Stock Market Collapsed, the Economy Tanked and Government Bailouts Will Make Things Worse") which basically says that there are business cycles that just happen- and there's little we can do about it. But, when government steps in and tries to dampen the effects of those cycles, they actually make things worse.
So, for instance, when the US government didn't step-in to "help" in 1920/21, the cycle corrected itself in a short amount of time. When the US government DID step-in, in the 30's for example, both Hoover and FDR turned the normal cycle into an 18 year Depression. Likewise, Japan tried the same routine in 1990 and ended up making things worse: an 18 year recession.
The idea does resonate, since it seems intuitive that if you encourage debt you create unsustainable purchasing. Eventually you will fall- the question becomes how far will you fall. If you prolong the fall, you will fall further.
The questions I have are: all this money that is being pumped into the economy now is a one-time deal. It isn't sustainable. How will this "priming of the pump" become a sustainable force? Won't the economy just crash harder later as we go back to the same level of spending prior to the "pump-prime"?
And lastly, if I am a financier who made it through this mess with government help- what will keep me from making outrageous bets in the future that have the possibility of reaping me huge rewards and if they fail- the possibility of government help? I somehow get the feeling that this is like giving my kid a lollipop when he hits his brother- and expecting him to stop that behavior.
- Grant Martin
Midwest Voices Guest Columnist, class of '09
Fish further upstream
You've got two basic choices if you want to find your way to El Sendero Luminoso of economic reality, Grant.
First, you can start at the beginning, Econ 101 textbooks (as I assume you have already in school) and work your way forward to, say, junior or senior level econ.
Or you can read non-technical economic works to get a fast overview without having to become even minimally expert in economics, as I have to do with astronomy or physics. Or military matters, for that matter.
The problem with the latter choice is that you have to learn to vet what you read very, very carefully. In this case, start with Woods' bio: http://en.wikipedia.org/wiki/Thomas_Woods
Notice something? Woods wants to talk about economics, but he's got no academic training in economics. He taught at one point in a community college, but nowhere else. He now works for the Mises Institute (and check THEM out if you're not familiar with their brogue), who published his book.
He might very well have some deep insight into the economic process economists don't have. I might well have some deep insight into cardiac function that cardiologists don't have. Want me to take a look at the ol' ticker? Probably not.
Briefly, the Keynesian insight is that if you give people at the bottom of the pyramid a paycheck for some kind of work, they spend it all immediately on rent, food, and clothing. The landlord, grocer, and clothier now have a reason to invest, because they perceive demand has risen. The grocer hires a new bag boy, who spends it all again, and so forth. This puts the economy back to doing what it's supposed to, rather than wallowing in a liquidity trap. It works, as long as as little money as possible goes overseas.
ya
Edith, can you write that in laymen terms. You're so freaking smart.
Keynesianism?
"Better get them cables, Luther, that battery ain't gonna jumpstart itse'f."
Then the engine fires again, and, most important, the generator (shows how old I am) starts charging the battery again so it can work on its own.
You've now had three semesters of macroeconomics.
thanks
Then the engine fires again, and, most important, the generator (shows how old I am) starts charging the battery again so it can work on its own.
You've now had three semesters of macroeconomics.
Awesome. Now me and Obama are equals on understanding macroeconomics.
Shorely
Now all yew haveta dew is get you one-a them coom-loudies from Harvard and yew can be Prezydunt two.
Americans move
While we look to government for solutions and salve, American citizens able to move will move in many ways, on many levels. They will find work and move to the job. They will streamline their material existence to meet their means and move to another tax bracket. They will acquire new skills and move to a new career field. They will move from the suburbs to cities where they can live without a car. They will move to the suburbs where housing prices look affordable for the first time. They will shift, adapt, move, resettle, and live.
While this looks to be a time of economic crisis, in another way, this time is one of transformation for the economy. Businesses will move and change as well.
For example, soon McClatchy will file for bankruptcy. The KC Star may become a weekly magazine like “The New Yorker” and news will move here on the web and to our Television portals.
Americans move, even when it seems that there is no frontier left.
http://www.youtube.com/watch?v=RFUFWda25Hk
Tom Ryan
The Crossroads
Kansas City, MO
I submit to you Troop Train Chaser
That Bush's multi-billion dollar debt pales in comparison to Yoyo's multi-TRILLION dollar debt...wake up and smell the deficits....also smell inflation and a greater risk of terrorist attack..
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rouge, maybe you should learn to listen
Osama didn't say he was going to terrorize us into surrendering, he said he was going to bankrupt us. In the face of the multi-TRILLION dollar bill for the Iraq Farce and the multi-TRILLION dollar bill to clean up Bush's disastrous presidency, the loony right's insistence that we've beat Osama because nobody's flown any more planes into buildings is pretty effing stupid, because Osama didn't say he was going to try to do that. He said he would bankrupt us, and Clueless George jumped right to attention and did the best he could.
More "Change You Can Believe In"
http://www.detnews.com/apps/pbcs.dll/article?AID=/20090223/AUTO01/902230327
Please post a list
of cars made in the USA. Since Hondas are made in Tennessee and Fords are made in Mexico, and NONE of the cars supposedly made in the US are composed entirely of parts made in the US, this whole 'Buy an American car' nonsense is just a talking point.
Seems like it would be smart to actually make things here in the US again before we insist on buying American made goods.
Even Hershey is leaving for a foreign country. So better stop buying chocolate!
Charisma
The Big 'O' has come a long way with charisma and he is in a position to use that skill to lead the country into making sacrifice. Borrowing your way out of debt and spending your way to prosperity has never worked. Taxing the rich plays to the 'have nots' but that has never worked yet either. The rich have ways of protecting themselves and even though they collectively seem to have enormous wealth, there are just not enough of them to pay the bill. Sacrifice on a national level in the nature of the WWII American war effort can do the job. Will the Big 'O' ask Americans to do that. I haven't seen any sign that he is going to do so.
That's not the question, eurasmus
The question is not whether we can borrow our way out of debt. I don't think anyone's suggesting that the purpose of the recovery program is to pay down George Bush's multi-trillion dollar runup in the national debt. The question is whether this country can survive simply waiting for the economy to restabilize.
Remember that in Kansas City, undoubtedly because Kansas Citians are much more hardworking and virtuous than people in other cities, we've seen almost nothing of this recession. We're not looking at entire subdivisions with 25%-50% foreclosures, nor double-digit unemployment.