Tag Archives: economists

With $700B, I’d Like to Buy Belgium, Greece, and Ireland, Please

UPDATED (2/5/09): First, the government decided that “bailout” wasn’t all that PR-savvy, so instead, $700 billion became part of the Troubled Assets Relief Program (TARP). TARP then went to Wall Street, where it funded employee bonuses and baseball stadiums. Instead of creating liquidity in the markets, the Wall Street banks hoarded their TARP money, perhaps to save up for corporate jets, Vegas getaways, or 19th-century credenzas. Now, with a new year, a new president, and a new bailout package, we’re hoping for a different result. With BusinessWeek already deeming the original bailout a “bust“, I’m looking back on what I wrote when the TRAP (sic) was first proposed. After all, with $825 billion or more at stake, a call for prudence may find a receptive audience today.

ORIGINALLY POSTED (9/25/08): By now, most of us know that our economy is struggling. Credit is scarce, banks are teetering, and President Bush finally came out of his batcave on Wednesday to make a sobering speech. Giving a concise summary of how our economy began its precipitous freefall, the President conceded that this doomsday had been building “over a long period of time”… meaning, before his eight years in office.

However, as much as I found myself agreeing with some of the President’s assessments, I could not help but feel disturbed by the hastily-constructed $700 billion rescue plan, and the President’s intentions of pushing it through as soon as possible. Haven’t we heard the same act-now-or-forever-lose-your-peace spiel before (cough, cough: Iraq)? Except this time, instead of peace, we’re losing our houses, our money, and our material possessions. I could not help but be amazed at the President’s staunch conviction: warning of imminent recession and homelessness, he appealed to the same sense of urgency with which he implored Congress to start the war five years ago. “Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold. More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet….Millions of Americans could lose their jobs….And, ultimately, our country could experience a long and painful recession.”

But, isn’t this the administration that gave us the Patriot Act, a trillion dollar oil quest, and an economic stimulus check that was supposed to prevent things like this from happening? Needless to say, the President has not had a favorable track record in times of crisis (or, for that matter, in times of peace). And the impact of this decision has consequences not only for our country now, but globally for years to come. So instead of a call for action, this should be a call for prudence. Instead of asking for our money, the President should be asking for our patience. Economists demand it. Congress needs it. Everyone knows that we can’t prolong the decision on this bailout, but we can’t just pound it out in less time than it takes to buy a ficus from Amazon.com.

In the end, the Bush administration’s proposed $700 billion plan may be the best way to get us out of this turdburger. But if that’s the case, I hope that our lawmakers will have come to their conclusion after setting emotions aside and considering all other options. After all, $700 billion is a lot of money: that’s 778 Big Macs per person, 4 brand new Mac laptops per household, or 833 million Maxim yearly subscriptions for life. And so if this bailout goes through, and Americans are forced to give up either food, computers, or our trashy magazines, whoever wins the upcoming election will have to deal with some pretty angry (and hungry) constituents.


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Lipstick, Politics, and the Economy

There are many political issues that preoccupy us on a daily basis. Some care deeply about issues like climate change and environmentalism. Others are concerned about healthcare costs and the future of Social Security. On John McCain’s website, McCain describes his stance on 19 vital issues, including the second amendment, the space program, and the “sanctity of life”. Not to be outdone, Barack Obama lists 23 issues on his site, although blindness caused by small text does not seem to be one of his major concerns. However, while recent news headlines have revolved around another investment bank possibly going under, the takeover of Fannie and Freddie, and our highest unemployment rate in 5 years, the candidates have been arguing over… lipstick.

After spending four years studying economics in college, I would like to think that the economy is more newsworthy than another story about Sarah Palin. But even while we hear about it all the time, the economy is often difficult to understand, and even more difficult to explain. The complexity of today’s economy can lead smart people to different conclusions with regards to policy… thereby confusing the rest of us even more.

For simplicity’s sake, I would argue that the difference between Republicans and Democrats is that Republicans focus on the macro aspect of the economy, while Democrats focus on the individual. From a macro perspective, we judge the economy based on indicators like the stock market, consumer confidence, the unemployment rate, and GDP growth, to name a few. As individuals, however, our perception of the economy is colored by our own experience: Do we have a job? Can we afford to buy things? Do we have money in the bank? Conservatives promote free-market ideals, lower taxes, and less government–sometimes at the expense of unskilled laborers and people who have fallen into misfortune. Liberals, on the other hand, advocate for an active government to temper the market’s unpredictable and unequal consequences on its citizens–sometimes at the expense of productivity and efficiency.

Then, determining good economic policy may ultimately depend on one’s beliefs and values.

My personal opinion is that while conservative economic policy may lead to greater productivity and wealth, I do not believe that increasing wealth is the only source of fulfillment for most people. The Darwinian inclination of the market can create an unhealthy focus on accumulating wealth as the benchmark for success or happiness, and can lead us to lose compassion for anyone less fortunate. We also know that a rising tide does not lift all boats, as inequality in America is just getting worse. I would rather live modestly in a community where I feel safe, than lavishly in a place where I’m constantly looking behind my shoulder.

An interesting take from RFK on our measure of the economy:

Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities…. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.Robert F. Kennedy, Kansas, 1968

Of course, the reason why most economists are conservative is because it’s difficult to measure the joy of children’s play and the behavioral reaction to growing inequality. For a conservative perspective and more technical tidbits and interesting facts about the economy: http://gregmankiw.blogspot.com/

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