No Easy Buttons, No Magic Bullets

Cut the deficit fast or risk losing a viable currency states the President’s bipartisan panel on the deficit. Freeze and cut federal workers’ pay, cut the number of defense contractors and reduce the defense budget by more than double what is proposed, increase taxes on gasoline, kill Congressional earmarks, delay retirement dates for social security benefits and eliminate home mortgage deductions (particularly for loans over $500,000), but reduce the marginal rates to make up for some of this. Do you really think most of this is possible? Do you think the reduction/ elimination of the home mortgage deduction will leave the crashed and burned real estate market untouched, even if your mortgage falls below $500,000 (remember there is a chain of moving up and down for homeowners that has been a traditional pattern for decades, so that all real estate values are interlinked)?

Foreign nations are screaming at the Federal Reserve’s pumping an additional $600 billion into buying more moribund securities off the books of financial institutions in an effort to loosen credit and make U.S. exports a better value; they see this as crass currency manipulation and tend to side with the deficit reduction panel crying for austerity. But where austerity measures have been applied, as in the recent cuts in the United Kingdom, instant and massive job loss was the immediate result. Is that the message mid-term elections sent to lawmakers? Cut government, cut jobs, impose austerity measures? What exactly was that message?! Was there “one” message, anyway? And with so many states having massive budget deficits themselves, are the feds simply going to let the state go bankrupt? And exactly how does a state file for bankruptcy , since this massive failure has not been contemplated under our bankruptcy laws?

Austerity = contraction. Stimulus = expansion. Deficit stimulus = currency devaluation and eventual inflation. But where the only source of a stimulus is increasing the deficit, exactly what does our economic leadership do? Further, since the miscreants who gave rise to trillions of dollars of losses – Wall Street financiers – are precisely the special interests who have wormed the tax code in their favor, manipulated the stimulus policies to benefit them perhaps at the expense of the rest of the economy, but are also in the perfect “extortion seat” since their collapse does indeed take down the rest of the nation, is there any way to make them fork over a much bigger slice of their pie, particularly since they seem to be the only consistently profit center in our economy? Ah, but if we could do that, they wouldn’t be powerful special interests who buy elections with secret (and legal) campaign contributions through fancy organizations with patriotic names. And unfortunately, they are.

Free market? I haven’t seen that in my lifetime. Anywhere. And the world is particularly wary at what Americans call a “free market,” blaming much of the global economic collapse on American financial practices and the trend of some major nations, like the U.K., to adopt the same philosophical and debt-heavy trading and financing structures. “Once a core policy commandment of the so-called Washington consensus and held dear by the United States Treasury, the International Monetary Fund and global investment banks, the belief that unfettered capital flows are a boon for everyone — including the country on the receiving end — has been dealt a major blow… Short-term investment is now increasingly viewed as something that needs to be controlled… ‘The world has learned about the perils of free market finance — global financial liberalization just does not work as advertised,’ said Dani Rodrik, a political economy professor at the John F. Kennedy School of Government at Harvard.” New York Times (November 10^th).

Which brings to two seemingly clear choices we can make, one to reduce profoundly unproductive waste and the other to invest in long term asset and value growth when stimulus funds are paid. We seem to be reaching the conclusion that Afghanistan is not going to be tamed to follow our dictates, particularly if we are unable to stop the growth of radicalism and safe havens in our purported ally, Pakistan. Time to get out and stop wasting money on a war that only hurts us to continue the fight. That the Administration has leaked that it will probably continue that military effort at least through 2014 is most troubling. And in terms of making America more competitive, able to earn more money in the future to deal with the deficits, clearly stimulus expenditures which increase infrastructure efficiencies and educate people to higher skills is a solid investment with strong revenue projections for future growth.

I’m Peter Dekom, and wouldn’t it be nice if we could purge “easy button” slogans and replace them with a strong dose of reality laced with common (maybe not that common) sense?