Last night I attended a Town Hall meeting with our Congressman, David Price of North Carolina. He is holding meetings this week in the district to talk with people about the current economic recession, to explain as best he can what is happening in Washington, and to listen to what his constituents have to say. To open his talk he showed this chart to help everyone understand just how serious the situation is right now.
The blue line in the chart represents the job losses we experienced in the 1990 recession, and the length of time it took us to get out of the slump. The red line shows the same information for the 2001 recession. The green line shows the job losses during the current recession and the slope of the decline. In 1990 the economy lost more than 1.5 million jobs. In 2001 we lost more than 2.5 million jobs. So far in the current recession we have lost 3.5 million jobs, and the trajectory and rate of job loss is clearly catastrophic. We are losing more than 10,000 jobs in the United States every day right now. North Carolina has unemployment rates of 8% right now and we are one of the 8 states with the fastest increasing unemployment rates in the country.
What do you think happened at the Town Hall meeting? The people who turned out mostly were angry Republicans and Libertarians who had come out to express ideologically driven outrage that Congress actually did something to try and slow this train wreck. They were outraged...Outraged!...that they voted to extend unemployment benefits for people losing their jobs, to expand food stamps, to help people losing their jobs pay their Cobra payments to keep their health insurance. How dare Congress shore up the safety net! What happened to self-reliance they asked? Is there no longer a role for the private sector? Accusations flew that Congress was nationalizing health care, the banks, eliminating private enterprise and taking actions no where authorized by the Constitution. There were even ridiculous claims that the FDR New Deal programs and relief efforts caused the Great Depression and prevented the economy from recovering. The Party of Just Say No was out in force.
Look at the chart. We all have our ideologies, our beliefs, our own points of view. There is a time and a place for trying to live according to deeply held convictions, for standing up for what one believes. But this is not that time. Ignoring facts and realities is not only stupid, it is dangerous. One speaker last night claimed that the entire economic meltdown was simply a result of an accounting rule (Marking to Market) which he called a "gimmick" and argued that none of this would have happened in the first place if that rule had not been there. The implication is that none of this is real, it is all just a mirage and if we do nothing people will settle down and things will start "getting back to normal" if we just let the private sector handle it. Of course, arguing on the one hand that the market is all powerful and can sort this out if left alone and in the same breath asserting that requiring assets to be valued according to their actual worth in the marketplace is a "gimmick" struck me as ironic at the time.
I know we have all gotten used to the gridlock in Washington and that the idea of Congress doing something seems novel and strange, but the reason we have them is to be there when something needs to be done that no other individual or institution can do alone. The General Welfare and Commerce clauses of the Constitution have been interpreted by the courts to provide the authority to take actions like the one they took this week. For my part, ignoring the plight of 10,000 people losing their jobs every day makes no sense. Letting the housing crisis continue to spiral out of control without trying to stabilize home values and keep people in their homes makes no sense. Sometimes staying out of the fight would be the right thing to do. But this is not that time.
10 comments:
Wow, that was enough economic handwaving to fly one transatlantic.
Arguing that free markets can't fix these problems is senseless because our country has never tried it. Hoover doesn't count and Bush certainly doesn't count, as both were highly interventionist and highly regulated.
The people you're disparaging weren't just popping off at the mouth to hear themselves talk, as you seem to think. They're making the case that irresponsible monetary policy on the part of the Federal Reserve gave the scumbag CEOs of Merril Lynch, Bear Stearnes, and the other investment banks at the heart of this crisis the ammunition they needed (loose credit, artificially low interest rates) to start us on this downhill spiral.
You seem to feel this is some kind of misplaced faith in free markets without any kind of logic or facts to back it up. It isn't. It's a school of thought called the Austrian Theory of the Business Cycle, developed over more than a century by some of the most respected economists who ever lived. Current-day adherents to this school of thought predicted this crisis over a decade ago, while the Keynesians like Nobel prize-winner Paul Krugman were crowing about the new paradigm of enternally-rising home prices.
If we're looking for people with irrational faith in a faulty theory, I'd suggest examining the logic of the folks (such as Price, Krugman, and practically everyone in the Obama administration) who are convinced that MORE credit expansion and government spending can correct problems brought on by...credit expansion and government spending.
I made the last comment. It also occurred to me, after the fact, that arguing that "now is not the time" for open and honest debate is pretty intellectually dishonest and, frankly, undemocratic. Just because things are grim and we're in the grips of a crisis is no reason to fall victim to panic and groupthink. It seems to me that it wasn't so long ago that a prior presidential administration urged Americans to have exactly that reaction to a percieved external threat...something like, "You're either with us, or you're with the terrorists." Obviously THAT president didn't feel that debate or careful consideration was warranted, either.
I'd urge you to consider your words carefully. It'd be awful embarassing to defend the same behavior you almost certainly condemned just a few years ago, simply because the official encouraging it has a "D" next to his name instead of an "R". Discouraging an honest exchange of ideas is wrong, no matter who's doing the discouraging.
Wow, it's great to get some feedback. My point is that this is a time for pragmatism, not ideology. Doing nothing in the face of this crisis won't fix anything. What I saw at the town hall wasn't debate. It just sounded like people saying we shouldn't try to do anything. Doing nothing while the ship sinks just leads to drowning. In my opinion. What I would like to see is for the Republicans to offer to participate in fixing things, not just taking an opposition position. I'd like to hear some of them admit that Phil Gramm was wrong and that complete deregulation was a bad idea, and then offer concrete suggestions on regulations they could support. But reject gridlock and acknowledge there really is a crisis, and start offering to be part of the solution. We'd all be better off for it.
But, you're wrong, Apex. First and foremost understand that the US economy is on the verge of collapse because it has been stretched out of shape (artificially warped) to the point of breaking.
Stretching a rubber band until the point of breaking, realizing it's about to break, and then saying "we can't just do nothing, we have to do something to save the rubber band" so you push more until it finally snaps.
The market must contract as quickly as possible, for recovery to begin. Recovery cannot begin until the market first contracts to it's actual value. The faster the market contracts to it's proper value, the faster recovery and job growth can begin.
By doing everything in their power to hold up the artificial valuations with these stimulus programs; they are further stretching the rubber band; and most certainly not allowing the market to contract as it desperately needs to.
Or, to try and explain the analogy a bit more clearly; if you have an overworked, overheated, overstretched rubber band; then the answer to saving it's integrity is just to let it go. Stop stretching on the thing and let it return to it's natural shape. Only then can it 'heal' or restore elasticity.
Likewise the economy has been warped beyond reason in the transference of wealth generally from the American public into the hands of a very few through the agency of Federal Reserve Bank stimulated inflation.
The whole idea of these stimulus plans have been, in one way or another, to stimulate inflation and continue the upward transfer of wealth.
So every plan being proposed, including the two that have passed, is like treating a knife wound with a gunshot.
Apex,
Okay, here goes. Phil Gramm is an ass. A statist, corporatist shill. Despite not knowing specifically what statement of his you're referring to, I feel pretty safe saying that yes, he's wrong.
Complete deregulation of our banking system IN ITS CURRENT FORM probably IS a bad idea. The key part of that statement, though, is those four words in caps. Our current banking system is one based on fiat currency, which simply means that the paper dollar isn't backed by a commodity with inherent value. That's a problem mainly because it allows the Federal Reserve system to print pretty much however much money it wants to for the purposes of creating credit. The reason firms like Merrill and Stearnes were able to invent phony financial instruments like default credit swaps and mortgage-backed securities is because Greenspan and Bernanke had nothing stopping them from printing up the cash to give to the banks to then loan out to unsuspecting average Joes.
So yes, a banking system using funny money HAS to be regulated somehow.
However...
...a banking system like the one the Founders created for us, one with a currency backed by gold or silver, could not be manipulated in such a way. By requiring each dollar to be backed by a set amount of a commodity with inherent value, the money supply would be self-limiting, and it would be impossible for banks to overextend themselves the way they have now. To be sure, individual banks would still fail here and there due to bad decisions, but it would be impossible for the ENTIRE system to become interdependent and overextended to the point of complete collapse, which is what we're facing now.
You're probably saying, "Yeah, that's great, but that's coulda/woulda/shoulda, you're not offering ideas for what to do NOW."
The solution is very simple. Repeal current legal tender laws granting the Federal Reserve system exclusive legal right to control our money. Grant gold the same legal status as the dollar (removing sales taxes from the purchase of gold coin or bullion). Allow private companies or non-profits to introduce commodity-backed mediums of exchange to compete on the open market with the dollar. Once people began to realize they could exchange paper dollars for gold, protecting themselves from inflation, a peaceful, smooth transition away from the tottering, debt-ridden system could begin.
Make no mistake, though, there would still be pain. There would still be people upside-down in houses they bought under the delusion that it was an investment instead of a purchase of a depreciating asset (just like a car). Unfortunately, the only thing the government can do for those people is give them money it either printed (which devalues the money in YOUR pocket) or money it borrowed (increasing YOUR share of the national debt) or money it took from someone else through taxation. In my opinion, theft is theft, and it doesn't really make any difference whether the thief has a schnazzy title and a badge or not.
We as a nation have lived above our means for far too long. Certainly, not everyone is to blame, and certainly, citizens were given a HORRIBLE example to follow by our government (and both parties have an equal share of the blame in this). But the solutions being offered by Congress and the administration use the same strategies that got us here. The old adage that there is no free lunch, and you can't have something for nothing are old adages for a reason. They're true. There is no way out of all of us enduring the pain that is a consequence of irresponsible policy and irresponsible banking practices. But the recovery will happen quicker if we allow prices to fall, allow the unsustainable businesses to go out of business, and transition to an honest monetary system. That way, when the recovery comes, it will be sustainable growth, rather than more bubble-driven insanity.
-Adam
David Price is a Professional Liar.
Notice when he brought up the student loan in response to the one question about government dependency- he never mentioned what happens when there are no jobs for the graduate to pay back loans.
He consistently votes to fund the war while constantly spouting anti-war rhetoric.
The fact that he voted for legislation that he never read should be offensive to every one of his constituents.
He also lied regarding the Federal Reserve question. It CATEGORICALLY is a banking cartel, run by unelected, unaccountable individuals. Webster's definition of a cartel: "a combination of independent commercial or industrial enterprises designed to limit competition or fix prices." In this case, it is a commercial bank. Do your research.
"Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism."
(Karl Marx; Das Kapital, 1867)
"Never forget that everything Hitler did in Germany was legal."
-Martin Luther King, Jr.
You know, this has been great. I really appreciate reading all of your perspectives. I have a totally different take, but it is at least interesting to contemplate what you are all thinking.
For my part, what I guess I would say is that we used to have a gold standard economy, and the 1873 depression lasted multiple decades in part because of it. The Austrian School theories have been evaluated by lots of economists over hte past 80 years, and it really seems like that ship has sailed. Their main gripe was with centralized monetary policy, and every government in the world has some level of involvement in manipulating monetary policy. Given the interconnectedness of everything and Milton Friedman's conclusions after looking seriously into the merits and problems with the theory, and his conclusion (both times) that the theory was false gives me serious pause about pulling that out. And, since 64% of people in the district voted for Congressman Price and 66% of Americans support the stimulus, it seems to me that most people think this plan is at least better than doing nothing, which I also agree with. But I'm really glad so many people even read the post, and responded. I'll think about this for some time.
Hi Apex,
I would recommend reading this article by Thomas E. Woods.
http://www.campaignforliberty.com/article.php?view=15
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