Sorry, America, There's No Quick Fix

If the economy weren't such a mess, it would be fun to just laugh at the howling of diametrically opposed views every day on how to fix it. (Well, okay, it's still fun, but if it would be more fun if the topic weren't so serious).

For example, today:

On the right, Stephen Moore of the Wall Street Journal applauds Ayn Rand's Atlas Shrugged suggestion that income taxes and the government be abolished and bemoans our culture of bailing out mediocrity. On the left, Paul Krugman pronounces Barack Obama's $775 billion stimulus woefully insufficient and suggests that we balloon government spending and the size of the deficit.

Perhaps someday some company will create virtual worlds in which we can implement Moore and Krugman's prescriptions to the letter, accelerate the action for 100 years, and see what happens. In the meantime, in the real world, the response will obviously be somewhere in the middle.

And the fix will take time:

* Even Obama's people project that, if his stimulus plan is adopted, unemployment will remain at the current level (7.3%) for three years.

* Consumers still have way too much debt, and they're now losing jobs at an accelerating rate. We're not going to suddenly jump back to irresponsible debt-fueled spending growth, especially with banks and credit-card companies tightening lending standards.

* House prices are falling at almost 20% year over year. Markets that big don't turn around on a dime, no matter what you do.

* Even after the collapse of house prices and stock, prices are only now in the realm of their long-term averages (stocks are a bit undervalued, houses are still a bit overvalued). If past is prologue, they'll keep falling and eventually spend a decade or so below their long-term averages.

* After financial crises of this magnitude, economies tend to struggle for years, regardless of what you do.

So enjoy the armchair quarterbacking. Because that's all it is.

See Also:
Jobs Numbers Much Worse Than You Think
Ayn Rand For Treasury Secretary
Paul Krugman For Treasury Secretary

Comments

[JackC12700]

Ayn Rand NEVER suggested that government be abolished. She thought it was absolutely essential to have objective, written rules for how the government would protect our lives and rights. It is unbelievable how much criticism is heaped on her by so many who don't have a clue about what she wrote.

[research]

Rand just wanted that government to be weak enough for corporations to drowned in a bathtub

[Shammie2000]

Did the rethug's on talk radio blame this mess on Obama yet or will they give him 7 more days.

[guruglenn]

What the so called economy experts believed was that our good times would never end when in reality it was a bubble that was destined to burst. With the waxing and waning of fear and greed playing their cards we are now in the grips of fear.

As your article states we just have to wait it out because it takes time for the pendulum to swing back the other way. It has happened before and will definitely happen again in the future. Maybe next time we will have learned how not to let greed get the better of us.

Glenn Smith Author of Lotus Petal, A Parable To Help You To Overcome The Fear of Death

[lunchbag]

The fix will come as it always does, the growth of money in the economy.
The suggestion that a stimulus package will make this go away quickly is not going to work as expected. It will be spent however, due to public pressure.

Stimulus packages will focus on 3 primary facets, along with other elements.

1) trianing
2) govt assistance
3) infrstructure spending.

The economy to get out of this mess, needs jobs that create wealth more so then, jobs that maintain wealth.

Training in general will pay an individual to take the course, lasting several months to a years length. Since those with the same training and experience are being laid off of, and not till the economy surges forward, will the trianing pay off. The money to the trainees will allow them to survive, pay expenses, spend minimumal. One can call this wealth maintenance.

Govt assiatance simply will allow the individual to pay their bills and survive, and very little discretionary spending. Again maintenance of wealth.

Infrastructure, will be small pockets throughout the country. While it lasts in an area, it will help stores survive and the economy to be boasted as workers purchase cigs, gas, chips, so on. And even construction materials, boosting the local economy to some degree.

[lunchbag]

To contnue from my post above, due to word limitatio........

But, when the job is over, the purchases disappear and the area goes into a decline. The short bubble won't last long enough and will go away. The building of a new road or repairing it, a new bridge or repair, park or library, so on, won't create new wealth long term, but allows the business to function perhaps more effecient and quicker delivery of goods, but not more goods or increased markets.

Job wealth creation, is jobs as: Henry Ford and his automobile company, by putting together what others had to some degree toyed with, he made it work and the job and wealth explosion was enormous and lasts to this day. The computer industry when Bill Gates and IBM got together, exploded into a job creating market and wealth generation by creating a whole industry based on micro computers. These type of job creations which are in decline will not be boasted by a stimulus package, Stimulus will only maintain the economy as it exists now, in it's decline.

[JBS]

First of all, we have to agree on what constitutes a FIX.

A return to the status quo ante, where a few Wall Street insiders rake in millions tax free while the rest of us mortgage our futures in the face of falling wages and rising prices is not a FIX.

If there are no good paying PERMANENT jobs, there is no future.

[laucarlson]

Tariffs. We need to go back to a government (and manufacturing sector) supported by tariffs. Global trade is a scam, larger than anything Madoff envisioned.

[YouDisgustMe]

really? how so?

[Bjarni]

We have Tariffs to thank for High Fructose Corn Syrup being used in place of sugar. There are high tariffs on sugar imported from abroad (lobbied by the Sugar Lobby in Washington), due to those high tariffs that cause the price of sugar to be higher than what it should be, and government subsidy of corn, price of corn is low and thus cheaper to use HFCS for sweetner in sodas/candies rather than sugar. HFCS is a major contributor to our obesity problem, countries that use sugar rather than HFCS as sweetner have alot lower obeseity and diabeties rates.

What's to guarantee that other tariffs will not resault in other horrible situations?

[PlugINCarsRule]

The high cost of fuel this past year did serious damage to our economy and society. After a brief reprieve gas prices are inching back up again. Our nation should not allow other nations to have such power over us and our economy . We have so much available to us in the way of technology and free sources of energy. WE seriously need to get on with becoming an energy independent nation. We are spending billions upon billions in bail out dollars. Why not spend some of those billions in getting alternative energy projects set up. We could create clean cheap energy, millions of badly needed new green jobs and lessen our dependence on foreign oil all in one fell swoop. I just read an eye opening book by Jeff Wilson called The Manhattan Project of 2009. It would cost the equivalent of 60 cents per gallon to drive and charge an electric car.If all gasoline cars, trucks, and SUV's instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. Why don't we use some of the billions in bail out money to bail us out of our dependence on foreign oil? This past year the high cost of fuel so seriously damaged our economy and society that the ripple effects will be felt for years to come.

[JBS]

Gasoline prices are not "inching" up.

They jumped $0.24 in one day this week ... 16.11% increase in the cost of gasoline in less than a week.

[joebaggadonuts]

Financial types don't always read the NYT opinion pieces. This one by Rich is a good one for an enumerated list of wrongs that got us to where we are today.

http://www.nytimes.com/2009/01/11/opinion/11rich.html?em

[ObjectiveRealist]

Thanks for the tip, Joe.

quote:
What"s most remarkable about the Times article, however, is how little stir it caused. When, in 1971, The Times got its hands on the Pentagon Papers, the internal federal history of the Vietnam disaster, the revelations caused a national uproar. But after eight years of battering by Bush, the nation has been rendered half-catatonic. The Iraq Pentagon Papers sank with barely a trace..
The $50 billion also pales next to other sums that remain unaccounted for in the Bush era, from the $345 billion in lost tax revenue due to unpoliced offshore corporate tax havens to the far-from-transparent disposition of some $350 billion in Wall Street bailout money. In the old Pat Moynihan phrase, the Bush years have "defined deviancy down" in terms of how low a standard of ethical behavior we now tolerate as the norm from public officials.
/quote

[January]

We are hearing from elsewhere in the world that the economic slowdown is all the fault of the US, or at least the industrialized West. The other side of that is that the economic prosperity of the post WWII period is also our *fault.*

Well, the free ride is over. We played the roles of world policeman and world debtor for so long that we are now exhausted. We hear a lot about the evils of protectionism, and certainly to be foolishly protectionist is evil. But other nations have not hesitated to protect their essential industries all during this period of "free" markets. So do not hesitate to protect agriculture, manufacturing, health, and whatever else it takes to keep our people at work.

Nobody can do anything to stop world capitalism, so it does not need protecting. International finance can take care of itself. Right at the moment, it is buying up US resources, since if the price is right, Americans would sell their mother.

Our national priority is to agree on priorities. We cannot please everyone but we can take good care of ourselves. "Come home, America" is what George McGovern called for in his loss to Nixon pre-Watergate. Isn't it time to listen?

[curiousasheck]

Don't worry guys the next generation of K Mart shoppers was born beginning about 2000 and are currently in training.

As for the rest of us no further comment.

[joebaggadonuts]

Henry,

I agree with your last statement. It's all armchair quarterbacking.

However, this IS something Americans are good at.

As for something useful to say....

We have run out the game of consumer is the economic driver. The consumer has proven itself to be not quite smart enough to run the economy by itself. Exhortations to GO SHOPPING by the pResident are fools errands if viewed in light of the current financial/economic fiasco. What we need is some industrial policy, some good regulation and enforcement, and good pay for jobs or work done.

The destroy the worker game is over too, see "consumer is the economic driver"- (game over). There are simply not enough yacht and mansion workers to power the economy to strength and health. Again, the answer is industrial policy.

Only government can use tax incentives and spending policy to drive the economy toward sustainability. That's what we elected these guys to do. Unfortunately there are more than a few 'dead enders" in the halls of American Power. They want to see the dead hand of Ayn Rand rule over and give the invisible middle finger to our voter's intents.

I hope we have learnt our lesson. But we seem to be about as smart as a field mouse.

[Peter007]

Its interesting to note that when things are doing well, economists talk about future profits, higher earnings, better times. When the economy headed south, than all the talk is about the great depression of 1933. Lets wait a few months, I think change is coming.

[drkazmd65]

The one true constant in life is,... after all,... change.

Change for the better, or change for the worse,... short vs long term,... those are the questions,...

[Chaimirija]

what they are talking about finally in the media has been going on for awhile...it'll turn around soon

[cylindar]

House prices are more than a bit overvaluated, they are way over the top. The reason it is going to take so long to normalize is that most people and the banks don't want to admit the fact that their homes are not worth didly. Whatever, they will feel the pain as they should because people who are stupid enough to try to fool themselves deserve the kick they are about to receive. Americans, for too many years have lived way beyond their means. They did not deserve this wealth as they did not work for it, they simply extended their credit and thought that they were somebodies. It will be interesting to watch the former somebodies and now nobodies pass by my window and maybe provide material for a book. On the other hand I do not think the situation is quite as bad as some people are saying as I do not see enough people around me who are suffering very much. I do not know anyone who has lost a job, and as a matter of fact no one has even mentioned the economy to me in passing conversation. So I guess everything is just peachy.

[Peter007]

The real estate market I work in is in New Jersey. There are still places here that have not fallen very much in value. The prices are still high and people continue to buy. As interest rates drop, there is no reason to believe that values will fall. They may even go up in tight markets. Other parts of the country ( Stockton Ca. ) are not in the same boat.

[aweissnet]

I lost my job.

[jake106]

Ok.

[xmontreal]

Prohibit municipalities from isuing new home construction permits for 3 years and watch how fast housing prices firm up. I don't know if the Federal government can legally do this--it might be a states rights issue.

[DuganS1]

New construction permits have been at post WW2 lows for some time already.

[KillTheMessenger]

The solution is NOT to drive market prices up. All that does is to make people take on more suicide loans and banks will, after the shock is over, gladly issue them, again.

The solution is to create an urban and financial infrastructure system that can get America through the first half of the 21st century. This will mean more AFFORDABLE condominium buildings close to good schools and less McMansion suburbs. It means urban density close to jobs and functioning public services, not a pseudo-back to the prairie with a strip mall and a daily trek a hundred miles to work attitude.

I know that structural change is against the American mindset but tweaking any one number of the current system to what we want it to be won't cut it any longer. Either we change or we perish.

[DuganS1]

Families with children don't want to live in condos. Mostly young singles and empty-nesters live in condos. Good schools are in the suburbs, near the McMansions.

[cylindar]

Haha they would not have to do that as there will be no money available for building anyways.

[Peter007]

Its not needed. The government need not be in the business for setting house prices, gas prices, carrot prices, sugar prices, car prices, milk prices nor real estate commissions. The market always sets the price. Places that over built are dropping in price, places that have not over built are doing fine.

[TJCole]

All it takes is vision, leadership and will...

And change, remember "change..?"