It's Time For The Bitter Truth

If you want to find an economist who advises that the country should spend more money on education as the best way to solve our economic problems—they are out there. Ross Perot made that argument in the March US News & World Report and many economists agree with him that this would be a sound step to take to prevent slumps as bad as the one we are currently experiencing.

Anyone who looks deeper into our economic sphere of movers and shakers can also find experts who advocate raising taxes as the best solution to our current downturn. Oh, they have their different takes on which taxes to raise and what methods to use to get the money. They say everything from let the Bush tax cuts expire to increasing taxes on social security to taxing special segments of society based upon income level.

There are also experts who recommend focusing on changing our national energy policy in such a way to spur development of new green industries which they say would simultaneously create an entire industry of new jobs and move America away from the energy guzzling, glutinous consumer society that we have been for the last few decades.

But in his speech to congress and the nation last night, Obama stated he wants to address them all. Ah…let us focus on the big picture, please! He made several valid points during his 58 minute speech, not the least of which was the fact that he and his staff are going through the entire budget, line item by line item, looking for frivolous expenditures to slice away from the books in order to get the money to pay for the spending that he believes must occur for the country to get moving on its own again. Surprisingly, they found $2 trillion so far, and they expect to find much more as they plod through the ridiculously long budget list.

Although Obama will undoubtedly meet with resistance from farm belt legislators when he cuts money from certain farm subsidies, he did say in his speech that all members of congress will have to take cuts in things they may consider to be important. And let’s be realistic, please. You can believe there are plenty of non sensible if not outright stupid line items on the current budget list that amount to gaping holes in the economic integrity dike which desperately need to be plugged.

When the system is leaking money and the powers that be don’t even consider fixing the leaks, the system will hobble along like a wounded economy no matter what else is done to make things run smoothly again. Truthfully, it is about time we had a president who tells us the bitter truth about the books. His new budget will have the war costs on the declaration sheet, which until now has been treated as a multi-billion dollar afterthought.

When we have troubles making ends meet at home the first thing we do to get a handle on things is take a good hard look at our own books to see what we can actually afford and what we cannot. Those things we can’t afford we don’t buy. If we have needs that must be met, our only choice is to cut other things to make sure we have the money for those needs—and that is exactly what Obama is telling us our government needs to do. The major difference between what he has to deal with and what we would deal with at home is that the nature of government is to compromise to achieve those goals—we at home don’t have to deal with that so much. We can simply make the cuts. At home there aren’t a dozen people with an opposing philosophy and their own personal agendas arguing against making certain cuts. If we can’t afford it, we can’t afford it.

So whether you agree with his stimulus package or not, his message about how bleak the situation is hits the mark. And his ideas about how to come up with the money to pay for it make sense. He does, however give himself stretch goals. On top of all of this, he wants to cut the deficit in half by the end of his first term. It is an amiable goal and it would surely be good for the country—now let’s hope he pulls it off.

With Stimulus Here, Let’s Hope The Fix Is In

Many of us here in the blogosphere know that the banking meltdown was caused by the loosening of lending regulations and the promise of a government guarantee on what has become known as B paper loans. These loans were basically unsound business decisions that never would have been made under the normal lending practices of the time had not the government jumped in and guaranteed the loans. In laymen’s terms, B paper loans were given to people who could not have qualified for the money until the government guarantee changed the formula.

Within a few years interest rates had gone up significantly, the fixed period of the teaser rates on many of the adjustable rate B loans expired and the interest rates on those loans began to escalate. Many of the borrowers on those loans were unable to handle the new adjusted payments and found themselves in default. Suddenly the banks have large portfolios of foreclosed properties and a new position on staff that didn’t exist during better times. Now they have a Vice President in charge of REOs. REOs are “Real Estate Owned” or repossessed properties. These are properties that are just sitting there with no active loan attached to them producing income for the bank, hence they are non-performing assets.

At this point we have our credit crisis, which hit us at roughly the same time that we as a nation were footing the bill for the extended wars in Iraq and Afghanistan. Talk about bad timing. So then the plane that is our economy had its proverbial wing shot off by the two bullets of our credit crisis and high war costs and then started hemorrhaging money—big time. This sent the plane on a downward spiral toward crash city, and the dominos began to fall. The next thing we know we are losing jobs right and left and families are going from deciding what to do for fun this weekend to what regularly scheduled costs can they shave off their budget so they can keep the house without drastically cramping their lifestyle.

The entire country began restricting the way they spend money. Small businesses began losing revenue and began to close. Restaurants, contractors, specialty stores and service providers began having troubles staying open. More jobs lost. Car dealers, theatres and mini malls saw dwindling revenue. Again, more jobs down the drain. Families are left with next to nothing after just paying their bills and buying food. Large mainstay companies like Caterpillar, Home Depot, Sprint and the airlines have massive layoffs. National companies like Circuit City begin shutting down. Where, we wonder will it end? The government decides to do something about it and comes up with the stimulus package.

At first Obama proposes a package that will create millions of jobs in the next few years by building bridges, upgrading our highways, fixing our broken healthcare system, injecting money into ailing state government coiffures, retrofitting our government facilities to be green operations and providing incentive for environmentally friendly energy projects aimed at changing our dependence upon foreign oil for our energy needs. At $300 billion, it seemed to Republicans that the package was too ambitious and represented way too much spending on things that ultimately would not create that many jobs.

At one time the package grew to $900 billion but by the time it was on the way to the president’s desk it had been pared down to $789 billion. Democrats are saying the package is too small and Republicans are still saying this will be too much blind spending to do the economy any real good. (It is interesting to note that the Republicans, who only favored tax cuts as a means to turn the economy around ultimately got over $276 billion of this package dedicated to tax cuts which represents over 92% of the size of the original proposed package.) So now Obama has a bill on his desk awaiting his signature, which he will certainly sign. Shortly thereafter, $789 billion will be on its way into the mainstream of American money thought to solve our problems.

In order for things to turn around as intended it will have to spur more activity than just the projects itemized by Obama in his speeches. Yes, activating all of the previously mentioned projects will certainly get many people working who are currently idle. But for the stimulus to have its intended affect the entire economy will have to be jumpstarted into motion again. That means that when the projects financed by the stimulus package are completed the economy will have to be running on its own well enough for the people who are working on those projects to easily be absorbed back into the economy without the nation suffering a huge jump in the unemployment rate. Let’s hope that this huge spending effort will not only be a temporary fix for those out of work today, but will result in growth industries that will foster a vibrant and growing economy again.

Nothing More Necessary Than This Compromise

So the economic stimulus package keeps getting pared down by the necessary negotiation that has to occur between the Democrats and Republicans in order for things to move forward and for our economy to get its much needed injection of money. The Republicans hold fast to their belief that the entire package is merely an effort to spend more money on useless things that won’t create jobs—and because of that, will not stimulate the economy in the right way needed to cause real growth. Their position, of course, is that only tax cuts for those who really invest will encourage the type of spending that will actually create jobs.

The Democrats, however, are trying to spend money on projects that will result in contracts for small businesses which provide the services needed to upgrade our infrastructure. Both strategies are correct and both will create jobs. Many questions remain, not the least of which is: Where will these jobs be created? Without changes in our tax laws many large corporations with profits made in foreign markets have no incentive to spend those profits in the U.S. because of the tax penalties placed upon returning foreign earned dollars. Tax cuts to those corporations without an accompanying change to the tax code will only result in investment in cheaper foreign labor markets that are not burdened with American styled regulation.

On the other hand, to ignore our crumbling infrastructure and our ailing healthcare system would be folly. With our economy in such a weakened state, now is the perfect time for the government to spend money on those things. Never mind the objections the Republicans have concerning spending money on education and the healthcare system at a time when those sectors are not losing jobs. Our education system needs to be revamped so we can better prepare our next generation. And the healthcare system is broken, and fixing it now would go a long way toward relieving the burden felt by many families who have mounting healthcare costs while at the same time experiencing a shrinking family income.

Still it is wise to recognize that both parties had valid arguments during this recent fight. The Democrats are right to push for money for education and healthcare as part of the overall package. And the Republicans are right to try to rein in the spending somehow. It is after all the largest spending bill to ever grace the floor in either house of congress. Without the clash between parties over the details of this bill the entire project could have taken on such a scope that once initiated, everything in motion in our society would be a government project. In reality, that wouldn’t be a permanent fix. And it is a permanent solution that we really need.