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Are conservative Christian theology and liberal politics compatible?
Saturday, 21 March 2009
Why the Presdient's recovery approach makes better sense
Topic: Political and economic

I hosted an official event supporting the President's budget today, but nobody else came.  I'm not going to be very effective canvassing on my own.  So, instead I'll do something I do better--I'll write about it.

President Obama's recovery approach, which includes his very large budget, may not be perfect, but it makes much better sense in terms of economic theory than his predecessor's approach did.

When faced with the imminent collapse of the finanacial markets--which should have come as no surprise (I predicted collapse eight and a half years ago, while Bill Clinton was still President, and others have made similar predictions in the interim)--former President Bush responded by hastily pushing through a "bailout" plan.  He simply created a huge amount of money, mostly out of nothing, and gave it to the very financial firms that had created the mess in the first place, with very few strings attached.  He assumed that, once these firms had averted disaster, they would promptly use the funds to make credit available to support capital investment and job creation in the United States.

President Bush's bailout plan contained some rather obvious and serious flaws.  It assumed that the firms were interested in supporting Capital investiment in the United States, where the last 40 years of U.S. history show that they are mostly interested in capital investment in Mexico, China, India or some other place where labor is cheap.  It assumed that the firms were interested in job creation anywhere, when they are only interested in their own profits.  Jobs will be created, or destroyed, based on where a good labor pool is most easily and cheaply exploited.  It assumed that the firms would show some restraint in using the funds to line the pockets of their control groups (when, as we all know now, they do not know how to show any restraint in this area).  And, finally, it assumed that the firms bailed out would start to realease the funds to U.S. industry relatively promptly, rather than sit on them to use them as a weapon against us later.

This final point is important.  Most of the Bush bailout funds seem simply to have disappeared.  This doesn't mean that they no longer exist.  It means that they are being held unused.  Since they were created out of nothing, if the funds were released all at once, they could create a disastrous inflation.    More particularly, if they were released suddenly through foreign or multinational firms to buy critical commodities--e.g., food or oil--away from the U.S. for foreign use, hyperinflation with shortages and even famine could be produced artificially in the U.S. very suddenly.  The threat to our government is, in fact, starkly clear.  If the U.S. government now departs too far from doing exactly what our multinational owners want done, former President Bush's bailout money will be dumped suddenly, destroying the U.S. economy, starving millions of Americans just to make the point that we are all now foreign property, and then buying outright whatever is left at fire sale prices.  

President Obama's recovery plan and budget represent a theoretically more sane approach.  Yes, he is also creating a lot of new money to fund the first few years.  But he is not just giving that money to the rich and trusting that they will use it for the country's benefit.  Instead, he is spending it on a lot of specific things, many of which represent capital investment in the traditional sense (building infrastructure) and most of which directly create jobs.  The fact that the money is being spent on goods and services, most of them not in direct competition with consumer goods, will lessen the short-term inflationary impact of the new spending. The capital investments in infrastructure will increase productivity, again reducing the inflationary impact of adding a lot of new money to the system.   The President is also right to be focusing a major part of his effort on infrastructure changes to increase productivity in the healthcare sector, which has become a major weight on the economy, and on education.  

Will the President's efforts succeed?  It's hard to tell.  The problems are really very severe.  He also has the continuing threat of ambush by President Bush's vanishing bailout funds to contend with--a mtter which is, unfortunately, mostly out of his control.  

But his plan makes sense, and he deserves a chance to make it work, for all our sakes.

I support what he is doing.     

 


Posted by ian_j_site2 at 4:11 PM EDT
Updated: Saturday, 21 March 2009 4:19 PM EDT

Tuesday, 16 June 2009 - 9:48 PM EDT

Name: "Ian Johnson"

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