Too Soon to Cry “Failure”

by Keith Cooper

From Broader View Weekly, July 17, 2009

Since the bleak June unemployment numbers were announced recently, there has been a race to declare the stimulus package and the Obama administration’s economic plan as a whole a failure. “Aha,” say its critics, “the spending and taxing the Democrats always want is not working.”

Never mind that it has been less than six months since this administration inherited an economic crisis worse than most had anticipated. And never mind that the previous administration failed to act in time to lessen the effects of a combination of factors that many economists and advisors had been predicting for some time. And never mind that the U.S. had been shedding jobs during most the last two presidential terms with net gains in unemployment rising from four per cent to over seven per cent. And never mind that the spending during those terms was less than conservative and that concurrent cuts in taxes turned a fiscal surplus into a growing debt.

Yes, the stimulus package has its problems. Most of the funds have yet to be distributed and for whatever reason, the bulk won’t be spent until next year or later. I’m not sure why this is but I am certain that opponents of the administration would have a field day if prompt dispersal led to fraud and misuse of taxpayer dollars.

The recent buzz in the media is that with most of the money unspent the administration is gearing up to push for a second stimulus. It is true that some economists and pundits (among them, Warren Buffet) have suggested that more spending is necessary. But there has been no official statement from the administration seeking such action and Democrats in Congress have come out publicly against seeking another plan before this one has played out. All of this has not prevented the leadership of the minority party from frequently bringing up the subject in a desperate attempt to rally the faltering GOP behind something.

The truth is things are bad. Unemployment rates are much higher than anyone wants them to be. Other indicators such as credit flow and consumer spending, which economists watch, leave them less than optimistic.

But this recession is deeper than others in recent history, and has global implications. Recovery won’t look like it did in most past trends, with indicators following a pattern we have seen before. Perhaps this is a good thing because a typical recovery may not be what we need.

Consumer spending and consumer debt has been the engine that drove much of the economy in the United States. Unfortunately, as we have seen, basing an economy on credit can have catastrophic results. And a consumer base that is seeing a spreading gap between wealth and poverty can ill afford to bear the burden. Allowing unfettered capitalist pursuit and greed to drive the economy is also dangerous and unsustainable. The days of business as usual are over.

So too, are the days when politicians could continually tout the benefits of giving huge tax cuts to the wealthiest and corporations as a prescription for whatever ails the economy. “Let’s make Bush’s tax cuts permanent,” they would say, “and stand back and let the power of capitalism work.” Well, that philosophy left us with a deep recession, high unemployment and a weakened financial structure. So what is called for is a different strategy.

Perhaps, our recovery will look something like a new GM. General Motors was forced into bankruptcy and is emerging as a different company. Through a painful process (for all of us) has come the old GM, which is selling its assets to the new GM, which seems to be a complete restructuring of the company with new attention to the customer and new visions. In fact, even radio personality Sean Hannity, who has condemned Obama for taking over the auto industry (among other things), has recently been using his show to praise the new GM and its upcoming products.

The restructuring of the economy will be slow even as the economic decline was gradual. It took decades for unfettered greed, propped up by flimsy credit-based financing, to bring collapse. It will take more than a few months to climb out of the hole we are in. I don’t know if the current administration’s policies will bring about prosperity. But, it is certainly too soon to declare them a failure.