Ask Rockridge: Fixated on Stimulation

We recently received this question about the economic stimulus proposals in the news:

"Sen. Harry Reid and Speaker Nancy Pelosi sent a letter to President Bush on Friday calling for economic stimulus policies that 'adhere to three simple principles: they must be timely, targeted and temporary.' Reid and Pelosi are right to call for economic stimulus, but using 'timely, targeted and temporary' as principles to frame it ends up sounding technocratic and uninspiring. How should progressives frame economic stimulus?"

Notwithstanding the ominous clouds that have been on our economic horizon for a considerable time, politicians seem suddenly concerned with the prospect of a recession and are offering proposals for all sorts of "stimulus packages." As the question notes, some politicians are discussing their proposals as being narrowly tailored and temporary. The language is uninspiring, but we don't think that's the fundamental problem.

The real problem with this kind of language is that it frames our economic problems as being susceptible to a quick fix: The system is sound; it just needs a quick shot of adrenaline. On a deeper level it accepts the conservative attitude that our problems, even those as wide-ranging as economic ones, are the result of direct cause-and-effect, which can be fixed with simple approaches.

We have structural problems in our economy that have resulted in the erosion of the middle class, the weakening of the dollar, the frightening escalation of our national debt, and more. These concerns are neither new nor simple. The factors that have given rise to them are not completely the fault of politicians, and they are certainly not the sole fault of either major political party. But they are very real. And they require a broad discussion of systemic solutions.

Some of our political leaders instead seem to be reacting merely to the economic crisis du jour. The artificially created housing bubble pops, as was long predicted; subprime lenders inevitably suffer the fallout; homeowners are thrown on the street; consumer confidence and spending fall; a stock market decline naturally follows. In response many of our political leaders propose band-aid fixes: tax cuts, rebates, short-term aid to the newly homeless and the poor. These may be fine, even necessary. But debate over the terms of this economic band-aid should not obscure the need for a broader debate about why we are in this fix and how to prevent similar crises in the future.

As we wrote in Thinking Points, progressives believe that markets function best when they are subject to government oversight and support. (See Chapter Five of Thinking Points, starting at page 70.) But conservatives have succeeded in steadily eroding this role of government. Progressive voices must call for a reinvigoration of government's role, including robust regulation of the lending industry.

These voices must remind us that a quarter century ago, we faced a savings and loan crisis that followed a period of lax or no government oversight of real estate lending practices. The national discussion must include returning power to unions and thereby restoring the economic power of the working class far more effectively than a small one-time rebate. Repeal of the draconian bankruptcy bill that penalizes the victims of unfair lending practices must be addressed. And how about a return to a fairer, truly progressive tax policy like we had during our great economic boom following World War II? A re-examination of our trade policies is an essential part of this discussion. And even before we invaded Iraq, we were spending more money on defense than the rest of the world combined. This issue must be a major part of the national debate.

And no meaningful discussion of our economic problems can ignore the impact of our Iraq spending. An upcoming book by Nobel Prize-winning economist Joseph Stiglitz will peg the U.S. tab at $3 trillion. It's difficult to conceive of that number, but it represents a full one third of our national debt. That debt adversely affects the strength of the dollar and the interest rates that we must pay on Treasury bonds.

Another way to look at the cost of Iraq is to consider all of the lost opportunities for those dollars: fixing our health care system; investing in our schools; repairing our infrastructure. These costs will be ongoing as long as we remain in Iraq and so long as we continue to support military bases there. Some are starting to call our current economic condition the "Iraq Recession." We will soon be writing more about the meaning of this.

Until systemic, long-term thinking takes center stage, we will continue to fall into the conservative trap of thinking that an unregulated market will ultimately solve our economic problems, when, in fact, the failure to oversee, regulate, and support the markets is a key contributor to those problems. By their language, some political leaders seem to be taking the possibility of systemic change off the table before discussions even start. We must not surrender these important options in advance. We must think beyond the immediate causes and go to the sources of trouble.

The failure to recognize systemic connections across issues inevitably overemphasizes short-term problems and objectives.

Bruce Budner
The Rockridge Institute

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