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Most of us know why we’re here — debt, subprime mortgages and George Bush seems to be a popular refrain. Reading economic papers and forecasts from the beginning of 2008 is like reading a review of 2008’s economy from 2009’s perspective — all that’s needed is to change the papers into the past tense. Everything bad that was supposed to happen actually happened. Gas prices surged — a fairly reliable precursor to United States recessions since World War II. The mortgaged-backed derivatives and securities that were making Wall Street firms and banks terribly rich were just as useless as we feared, but far more prevalent. Unemployment has risen steadily, and the whole Bernie Madoff Ponzi scheme was the icing on the “Wall Street’s profits are about as real as the Badger men’s basketball team’s chances at a Final Four berth” cake. Murphy’s Law reigned supreme.
The only one that’s hiring, it seems, is the federal government. So I guess that would imply that for the first time in a generation, a political science degree may be the most valuable degree outside of engineering. Meanwhile, Florida and Texas sported temperatures below freezing over the past week. Hell is rumored to be hovering somewhere around 35 degrees.
There is, however, hope. The House version of the economic stimulus plan promises to plug a $1.2 billion hole in Wisconsin’s state budget. That would get us down to about $4.2 billion. In all, Wisconsin’s cut of the stimulus pie will total $4.3 billion, according to the Wisconsin State Journal. The funds are much needed to help Wisconsin and other states in the midst of a considerable fiscal mess. The infrastructure, health care and education spending garner thumbs up from this aspiring economist.
But make no mistake. This stimulus package is the economic equivalent of changing a flat tire on a run-down 1980 Buick LeSabre. As someone who has driven the aforementioned vehicle extensively, allow me to say from experience that the problem isn’t the flat tire. It’s that you’re driving a 1980 Buick LeSabre.
The problem was and remains that Americans are continuously finding ways to make exorbitant amounts of money without having to produce or sell a tangible product. We lurch from economic bubble to economic bubble, trying to make as much profit before the bubble bursts. The recent crash has revealed that what Wall Street and our economic taskmasters value wasn’t a product, but a stock price.
The tech bubble burst back at the changing of a century. Dotcoms appeared and disappeared. Business plans that quite literally laid out a path to insolvency were rampant. Billions changed hands based off of promises, not products. It allowed people to make millions from selling ideas — not products. Much of the fervor and profit was based off of stock prices and day trading.
The current housing bubble has been bursting over the past year-and-a-half. Numerous firms bought securities and derivatives backed by mortgages that simply would never be paid. To quote a National Governor’s Association paper from January 2008, “Experts are increasingly concerned that significant portions of securitized mortgage debt are worthless and must be written off by financial institutions.” Worthless — how applicable.
Too much of what we make money with is worthless. Our grandparents weren’t nearly as smart as we are, but they were sure a whole lot more productive.
In its prime, our nation was about the only industrial nation with the productive capacity to meet the world’s nascent demand for products. Primarily because much of our competitors were digging themselves out from World War II’s rubble. Much has changed. A good thing can only last for so long. We are trapped in a vicious cycle of trying to find not the next big thing but the next big nothing — trying to make as much money as we can without having a product to sell to make it. That’s the American economy.
Meanwhile, the American people wait with bated breath for a $1 trillion bailout. A silver bullet, if you will, with the consequences of our economic tomfoolery playing the part of the werewolf. The one from the extended Thriller music video. YouTube it.
Only it won’t really fix the problem. The problem is that our economy is like a suicidal prisoner. You can keep a watchful eye on it for only so long. But it’s only a matter of time before it tries to kill itself again.
Greed has been masquerading as a good thing. It kept the profits coming in and the company thriving. Turns out, as then-Arizona Cardinals coach Dennis Green once insisted about my beloved Chicago Bears, greed is exactly what we thought it was. Bad.
Gerald Cox ([email protected]) is a senior majoring in economics and Asian cultures.
IP hash: a7314500
I wouldn’t just blame Bush. I’m not so sure about Obama. I can’t believe he actually helped Bush get the second half of the bailout money into the banking system’s hands. There’s no telling what the banks did with the first half. Why trust them again?
Obama’s first 100 days are just beginning, so I’m withholding judgment, but he’d better have some more tricks up his sleeve. And he’d better use them soon. If unemployment goes up one more percentage point between now and April 15th, I’m not gonna pay any federal income taxes. If I’m still working, I’ll pay it to Wisconsin, otherwise I’m hanging on to it. Start the next great depression without me.
IP hash: 83b6c53e
“The POR (Pelosi-Obama-Reid) Economy: Tanks a Lot!” http://pajamasmedia.com/blog/the-por-pelosi-obama-reid-economy-tanks-a-lot/
This turndown has been much more severe than it should have been because of a serious breakdown in “the rules of the game.” Why invest in, start up, or expand any kind of business if there’s a realistic possibility that the government will aid your direct or indirect competitors, or otherwise radically and whimsically alter the playing field? This uncertainty has also taken its toll on consumers. Despite having billions of extra dollars available thanks to energy price drops and lower interest rates, their spending appears not to be ramping up proportionally.
The solution from Washington? More bailouts, leading to more uncertainty across the board. Another bigger “stimulus” and a less effective one at that. While tax “rebate” checks such as those sent out last year are not as effective as across-the-board rate cuts, at least they put money into consumers’ pockets quickly. But the new “stimulus” package evolving in Washington is dominated by public “investments” that, even if justified, would take much longer to make their way into the economy.
Roosevelt tried massive public works programs during the Depression. All he did is prolong it for seven years. Japan tried government stimulus for 10 years running in the 1990s. It only resulted in “the lost decade.”
What Pelosi, Obama, and Reid should do is expand the tax cut element of the stimulus plan to include all incomes, ditch almost all of the alleged “investments,” open up oil and gas exploration, and, eventually, watch the royalty money pour in. I know; that’s way too much to “hope” for.
IP hash: 6fabc93d
“Dotcoms appeared and disappeared.” No, Gerald, some disappeared, but some are profitable and are here to stay. The nice thing about the dotcom bust is that we still have a useful remnant. The banking crisis only left us with worthless paper.
I hope the next busted bubble leaves us with something as useful as the internet. Perhaps a green energy grid would be something for us to invest in and subsequently lose our shirts from.
IP hash: 7f305983
“Too much of what we make money with is worthless. Our grandparents weren�t nearly as smart as we are, but they were sure a whole lot more productive.” False.
Sorry Gerald, but for an aspiring economist, you appear to have little grasp on a few key economic concepts.
Productivity: Per worker, Americans produce far, far more today than our grandparents’ generation did. Per capita consumption is way higher than it was 50 years ago. This is only possible because productivity per worker has improved so much.
Manufacturing: Our manufacturing sector today produces far more than at any point in the past. As a percentage of GDP, manufacturing has fallen, as has the number of workers in the manufacturing sector (declining as a percentage of the population since about 1979). This is a good thing. As our economy has shifted from goods to services, Americans have achieved a higher standard of living. You seem to lament America’s decline as a manufacturing power in the world. What you don’t realize is that America’s manufacturing industry produces about 2.5 times what China’s does. I did not make that up. (http://www.freetrade.org/ManufacturingQuiz)
Greed: Greed is neither inherently good or bad. Institutional incentives determine whether greed is good or bad. When you have an institution like the market, greed drives economic growth and social utility, because greed is only satisfied in a market when an individual or company produces goods or services that others want to buy.
On the other hand, when governmental agencies (such as HUD or Fannie Mae or Freddie Mac) encourage banks to make bad loans by implicitly guaranteeing losses, greed leads to the situation we’re in now.
Blaming ‘greed’ alone for the crisis we’re now in is like blaming hunger for starvation.
-Corey Sheahan
IP hash: 6fabc93d
Dear 8:39, you have no idea what you’re talking about, but you play a good parrot.
Drilling for oil is not worth the cost when it’s worth $40/barrel. Bush’s tax cuts have so far not been worth the cost either.
IP hash: 9c771276
The economic disaster is one of the few disaster that Bush CAN NOT be blamed for.
Look to the Democrats who wrote the laws forcing banks to lend to people who couldn’t pay the loans back.
IP hash: ad806902
Republicans and Democrats can both be blamed for the economic crisis. They both enacted policies that helped contribute. Many of the causes were also the responsibility of the Federal Reserve’s management of our monetary policy. Something that both parties share equal blame for.
IP hash: 010f641a
Corey: Americans are more productive because of technology, not necessarily some inherent quality within us that our predecessors did not have. Further, your point that Americans manufacture more than China is well taken. However, manufacturing JOBS are decreasing and will continue to do so. Further, our exports lag behind our imports tremendously. Certainly our productive capability is for more robust than in our ancestors’ time, but the problem is that that is not equating to increased wages for American workers, just bigger profits for a wealthy few.
And to the Anonymous guy who rejoiced over the dotcom bubble: The tech bubble did not give us the internet. I could joke that Al Gore did, but I won’t. The internet was well established by the time the bubble I refer to came around. That’s like saying the silver lining in the bursting of the housing bubble is that it gave us houses. The internet was simply a tool misused in the bubble I refer to.
-Gerald Cox
IP hash: f1934080
Obama’s choice for Treasury Sec was in charge of the New York Fed bank - the Fed Bank charged with looking after the banking system. Great job he did there, eh?
Oh, he’s also a tax cheat, but maybe that’s good training since he’s now in charge of the IRS.
No real change here, just the same old BS politicians.