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Joe Biden had a July 26, 2009 op-ed in the New York Times hyping Obama’s economic plan. Biden is the titular head of the Administration’s $787 billion stimulus. He says that when he and Obama took office the country was on the brink of depression.
The actions we took — passing the Recovery Act, stabilizing the banking system, pressing to get credit flowing again and helping responsible homeowners — brought us back from the precipice.
The nation’s banking system has not been stabilized. Its insolvency has just been swept under the rug. Its management remains the same group whose bad choices and fraudulent activities created this whole mess. Proposed regulatory reform has been laughable. Geithner’s programs the PPIP and modified TALF were DOA. The Administration has helped almost no homeowners and the most recent iteration of its program for them was a malevolent con. It was a plan to refinance underwater mortgages without cramdowns and turn non-recourse loans that homeowners could walk away from into recourse ones where they couldn’t. Banks aren’t going under because they have been backstopped by trillions of dollars of taxpayer money (most of which we will never see again short of nationalization) and because they have been allowed to overvalue their assets and write down their debts, i.e. cook their books.
The precipice is still there. But with all the government money that has been laid out we just aren’t running quite as fast toward it, for the moment.
Biden says, “Monthly job losses are down, financial markets are improved, and economic contraction has slowed.” Job losses are down from 700,000 to 400,000 a month. The problem is that the day when we break into substantial positive growth numbers is nowhere in sight. It’s a little like the Executive Officer boasting that the ship isn’t sinking as fast. Financial markets aren’t improved. What we are seeing is a bear market rally, also known as a suckers’ market. Stock and commodity markets are being buoyed up by speculators, like Goldman. This does not reflect improvement in the economy but successful manipulation. Note that Biden says that the contraction has slowed not reversed. And even this is illusory, the results of the previously mentioned paper activities not real events in the wider economy.
But where Biden truly goes all goofy is in his explanation of how the stimulus is being spent. Again he boasts that 1/3 is going to tax cuts like this is a good thing. It is an open question whether he stupid or ignorant. Tax cuts are not stimulative. In fact, they have a mildly negative effect on growth. You can approve or disapprove of these tax cuts. The point here is they aren’t stimulative. The second third Biden tells us is going as direct relief for state governments and individuals. The budgetary condition of the states is dire. This portion of the stimulus does not reverse that. At most it slows loss of state jobs and services a little, but it is not a job creator. Aid to individuals like extending unemployment benefits is stimulative as well as wise social policy. Help with health insurance coverage is also a good idea but is not stimulative since most of this money goes to insurance companies and healthcare providers who have been less affected by the downturn. The last third is for infrastructure projects. This is both stimulative and creates jobs. These projects though take quite a while to get started.
On top of this, another Biden boast, 70% of the stimulus will have been spent by September 2010 (the government’s fiscal year begins in October). So let’s do some math.
70% of $787 billion is $551 billion. Knock off a third for non-stimulative tax cuts. We are down to $367 billion. Aid for state budget deficits isn’t stimulative since it only replaces money that the states have lost. Of this second third or $183.7 billion, most of the stimulative effect is in the unemployment and other benefits, about $60 billion, so subtract another $123.7 billion. We are now down to $243.3 billion. Most of the last third is stimulative infrastructure projects so this is almost our bottomline figure. The stimulus covers 2 years. Dividing by 2 gives us $121.7 billion a year in stimulus. This is a pittance compared to what the banks have received. It is only about 1/8 what we need in real stimulus (about $1 trillion a year) to address our shortfall in jobs.
This is what is so ridiculous about Biden’s position. He is trying to tell us that the Obama stimulus is going to be effective when, in fact, it isn’t even a blip on the screen. So much of what is happening around us is all tied up with math. We don’t know with absolute precision the numbers or their effects, but by the application of some simple addition and subtraction we can tell if we are anywhere close to being on the right track. We aren’t. Joe Biden can’t add.
2 Comments
Nice analysis, Hugh. And apart from what you’ve covered there’s a likelihood that the recession will be a double dipper and that the second dip will come with a new wave of foreclosures caused by the wave of state cutbacks we are now seeing. The state employees losing jobs, coupled with the Administration’s failure to do anything real about stopping mortgage foreclosures will add to them in the coming months. This will remind everyone of the toxic assets they hold whose value they are now able to hide, and it will add to the volume of these toxic assets as housing prices continue to fall. Bank stocks will then continue to remain low and banks will continue to be reluctant to lend, and business will continue to be flat. The Obama Administration went the wrong way on the big Banks. It needed to take them into receivership and spin them off to the marketplace after cleansing them of the toxic assets and breaking them up. This would have avoided the confiscatory rise of credit card interest rates, opened up lending, and avoided the outrageous compensation incidents we see continuously.
The Administration can keep spinning the economy all it wants. But when the election of 2010 rolls around I’m afraid we’ll all pay a very big price in the form of a Republican comeback, perhaps in Congress and probably at the State level as well. I fear the Administration doesn’t have much more time to turn around its failing policies. And the longer it is in denial about what is happening the less chance there will be to do anything about it.
What we have is a Democratic Congress and President elected to carry out a Democratic agenda who have decided to continue a discredited Republican agenda instead. It is incredibly wrongheaded but also suicidal. I wish we in the progressive movement were out recruiting progressive populist candidates for Congress in 2010 and 2012. But I don’t see this happening. I said before the 2008 election that after that election we really should be trying to form a progressive party with real progressives as candidates. As Jane’s current whip campaign shows there are precious few progressives in Congress and even fewer that can be counted on to fight for progressive causes and solutions that work.