THE BLOG
03/18/2009 05:12 am ET Updated May 25, 2011

Obama's Economic Paradox: Can You Have "Bailout" and "Stimulus" at the Same Time?

By now the next phase of the "stimulus-bailout" plan is ready to be implemented. This version totals around $800 billion, plus interest that brings it to over a trillion dollars. Republicans stand aghast in near-unison, lambasting the plan variously as "closet socialism," "larded with pork," and insufficiently stimulative (arguing in essence that "it could take a few years for any benefits to materialize"). President Obama and the Democrats argue (a la George W. Bush, ironically) that the package is necessary to avoid economic collapse. And thus off we go, once again, through the political looking glass...

Perhaps the centerpiece of the current bill (at least for people's pockets in the short-term) is an actual weekly paycheck bump to the tune of about eight bucks. This has been said to offer a few more dollars per person at the end of the week to spend on a movie, a meal, or at the mall. I'm actually betting on liquor sales seeing a spike from this, but no matter -- the money is meant to make its way back into the stream of commerce. This is accomplished in the form of a tax credit (Bush again?), and indeed the bill is laden throughout with tax cuts as a primary means of sparking a stimulus.

Naturally the Republicans are against the whole deal. A president claiming urgency to get a trillion dollar "relief" bill passed with tax cuts and credits all over the place -- yes, I can see how this would be objectionable to them, just as it must have been (or not) way back last October when the former president doled out about $1 trillion with near-apocalyptic "if not..." rhetoric, and how his entire two-term financial plan was essentially based on tax cuts. If, as Emerson once said, "a foolish consistently is the hobgoblin of little minds," the Republicans are sure at least to get the bogeyman vote in future elections.

Beyond Republican bugaboos, however, there is a deeper problem lurking here. Democrats likewise have their own forked-tongue issues on economic affairs, having stood idly by as Bush & Co. looted the candy store, but more to the point is the rhetorical conundrum of simultaneously proposing backward-looking (i.e. "bailout") and forward-thinking (i.e. "stimulus") packages. As Paul Krugman observes, "the Obama administration seems to be ... dragging down its pro-worker stimulus plan by creating a linkage in people's minds to the outrageous bank bailout." While the language of "Recovery and Reinvestment" (the stimulus bill's actual title) perhaps is intended to reconcile the past and future primarily by focusing more on the present, this approach has its own drawbacks of trying to do too much and risking the appearance of political chicanery in the form of a whopping $8 payout.

Yet still a larger paradox exists in all of this, namely the notion of (in the President's words) "turning crisis into opportunity." After Hurricane Katrina, Bush crassly termed his "recovery" plan The Gulf Opportunity Zone. Aside from creepy allusions to Iraq -- some of which were more deeply borne out with companies like Halliburton and Blackwater appearing there after the storm -- this titular turn also reflected the callous indifference to suffering that defined Bush's Katrina policies and seemingly created an even heavier albatross than Iraq around his political neck. While Obama's "crisis into opportunity" notion doesn't quite go all the way there, it's critically important not to be seen as capitalizing on the misery and misfortune of the many who have lost their homes, jobs, pensions, savings, and more in the downward spiral of the past few years.

And this brings me to the final and perhaps preeminent paradox in this whole mess. We seem to find ourselves in a situation where in order to save capitalism we have to abandon its principles; to maintain free markets we must heavily subsidize banks and investment firms; to foster lending we have to give money away. In short, to get out of the economic doldrums we must prop up the very same forces that blew us here in the first place, thus reinvigorating an unsustainable system with an infusion of capital to -- what? -- effectively sustain the unsustainable for a slightly longer period of time. It's like being on a lifeboat with one person bailing out water (aha!) and the other filling it back up at an equal rate, thereby keeping the water level in the boat fixed and the boat afloat in a short-term sense -- while in a broader view it's still sinking, just a tad more slowly.

Is this the best plan our best minds have come up with, to wit, the continuation of an inherently flawed scheme? Granted it's better than the Bush "let 'em rot on rooftops" plan, but it really misses a chance to do something more striking in the process. I suspect we're likely just "turning crisis into more crises slightly postponed" and aren't taking the opportunity to actually get to the root of the problems at hand. People are more open to fresh ideas right now than they've been in a long while, and delivering a "kinder, gentler" Bush Lite recovery plan isn't going to get the economy moving again or (perhaps more importantly) elevate people's spirits. We must, at the risk of being branded a turncoat, simply give up the capitalist illusion that has led us to this precipice in the first place.

Before firing off a nasty retort, consider that America has never actually been a free-market capitalist system, instead broadly devolving upon slavery, sharecropping, industrial serfdom, the welfare state, corporate subsidies, and a host of other un-free methods at various points in our history. While there is a semblance of supply-and-demand logic here that has led to numerous technological innovations and consumer options, the hyper-capacity to manipulate demand in the age of mass media has stripped away whatever "invisible hand" magic that may have taken hold. Entities that desire a "free hand" to pollute, discriminate, exploit, or decimate often couch their aspirations in free-market rhetoric, equating the same with the essence of the nation. But it just ain't so.

If ever there was a time to admit this and move along, it's now. Any remaining pretensions to free-marketeering are out the window with trillions in corporate welfare and a modicum of income redistribution, and we won't right the ship through subsidization alone. If it's opportunity we seek, let's convert the war economy to a green economy; let's give farmers and entrepreneurs incentives to keep their products local and regional; let's make education free and forgive student loan debts so as not to saddle the next generations; let's create a first-class health care system that is accessible to everyone without question or qualification; let's make housing a right and not a commodity; let's undo the damage of the so-called "war on drugs" and turn millions of unnecessary prisoners into contributing citizens; and let's unabashedly create a true public welfare system that provides support and sustenance without creating dependency.

We can and should vigorously debate such notions, both in principle and practice. But if you want to create a stimulus, any or all of these ideas would hold that potential. To the doubters, dead-enders, and deal-breakers, I'd simply point out that attaching oneself to the same processes and players that created this mess is a sure path to political oblivion. No one can claim to have all the answers or see the future, but as a people we've never been afraid to forge ahead regardless. This may in fact be the true American Way, sometimes for good and sometimes for ill, and in any event it sure as heck beats bailing water on a sinking ship. So let's scrap the Titanic and instead try something dramatic.