Responding quickly to save us from tumbling into a recession, President George Bush and House leaders have proudly unveiled an economic stimulus package worth some $150 billion. If approved, the plan will distribute checks to households across the country this summer. The resulting spending spree will spur the economy into a new era of prosperity.
Yeah, right.
The problems with the American economy run deeper than that. Huge overseas trade deficits, a shrinking dollar, federal budget deficits (except in the Clinton era) and incessant consumer borrowing are taking their toll. The chickens are coming home to roost.
We have transitioned from an agricultural economy to a manufacturing economy to a service economy while much of the world still lies in poverty. As a result, it’s cheaper to have paperclips made in China and imported to the United States than to hire American workers to do the job.
While that may keep consumer prices low, it also keeps Americans out of work, and fuels foreign economies that compete for market share. A recent U.S. Business and Industry Council report showed that only five of 114 U.S. industries gained market share against import competition between 1997 and 2006.
Foreign investors, flush with currency from selling paperclips to Americans, have been buying U.S. Treasury notes, in effect financing our budget deficits. But the same interest rate cuts approved by the Fed to stimulate the economy also make the purchase of Treasury notes less attractive to foreign buyers. At some point, those foreign investors will decide U.S. Treasury notes and assets are no longer safe havens, and will either quit buying or start selling them, investing their money elsewhere. At that point, the value of the dollar will plummet and the value of other currencies like the euro will continue to rise.
Meanwhile, we all know the government has been running record deficits, passing our responsibilities to future generations. After the Bush administration’s tax cuts for the super-wealthy, our government only collects enough non-Social Security revenue to cover two-thirds of the government’s non-Social Security expenditures, including a frivolous war that has cost $1 trillion so far. And, of course, the Republicans want to make those tax cuts permanent. That tax policy gives millions of Americans — an entire generation — the message that it’s all right to borrow from the future for instant gratification. That’s not a good message to send. Borrowing another $150 billion to spit in the wind doesn’t help.
It’s clear we need to cut our budget deficit and improve our trade imbalance. But American consumers are hobbled with stagnant income growth, rising energy prices and nagging consumer debt. They consequently shop for the best bargains available, which fuels the demand for cheap foreign goods, and the cycle continues.
The fact is that for most Americans the refund will vanish into the black hole of their everyday bills. Much of that burden consists of high interest rates on credit cards and consumer debt, and even higher rates on heavily promoted payday and signature loans. As consumers become more desperate to stay afloat, a greater percentage of their available cash goes simply to interest, which produces no goods and no real economic benefit. The consumer loan and credit card industries have mushroomed in the past decade, largely unregulated thanks to millions of dollars in lobbying spent to curry favor with Washington under the “pro-business” banner.
CNN’s Lou Dobbs, who has one more Harvard economics degree than I do, says the Fed rate cut and stimulus package are “nothing more than bandages for a hemorrhaging economy.” He’s right. The economy is hemorrhaging because people don’t have enough disposable cash to buy American, thereby putting Americans to work and fueling the nation’s economy. Sure, American goods cost more in part because American workers make more money than Chinese workers. But a Chinese worker isn’t likely to buy American, employ an American or pay U.S. taxes, and it’s that type of demand that’s needed to bolster our economy.
Instead of a token one-time drop in the bucket, consumers need long-term relief. We need to abandon the foolhardy Bush tax cuts to generate additional tax revenue and rebalance the budget. But Congress also needs to direct the Federal Trade Commission to get serious about curbing usurious interest rates and predatory lending practices. That will put real dollars into consumers’ pockets, month after month, with which they can afford to buy durable goods from American manufacturers. The dollar will consequently strengthen, the home mortgage foreclosure rate will drop, and our trade deficit will shrink without excessive inflationary pressures.
The solution therefore is not a hot check from Washington, but sound fiscal policies that help consumers revitalize the U.S. economy for the long haul.
- Edmond (OK) Sun, February 1, 2008
- AP photo
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