The gut has something do with how each of us would try to end a recession.
In the early 1980s, President Reagan allowed the Federal Reserve Board to restrict the money supply, squeeze out inflation and force the nation to adapt to new economic realities. At the same time, Reagan and Congress provided a modest “safety net” to the jobless – producing a federal deficit of $200 billion in 1983 -- and a tax incentive to encourage the unemployed to find jobs.
The policy worked, and kicked off 25 years of nearly-uninterrupted economic expansion (only a few short and minor recessions). But to my gut, the early 1980s felt harsh. And if you could not find a job or buy a house you wanted from 1981 to 1983, it was harsh.
Spend, spend. Today, despite low interest rates, the unemployment rate is about 9.5 percent, the same as it was in 1983. President Obama and Congress are doing nothing to adapt to the new economics of scarcer energy and international competition. They are doing nothing to prevent Congress from once again junking prudent lending practices at Fannie Mae and Freddie Mac. Instead, they’re spending hundreds of billions on a thick cushion of extended unemployment benefits and siphoning hundreds of billions more on expanded federal programs.
The federal deficit this year is expected to be $1.4 trillion, and the jury’s still out as to whether this Obama policy will work to get us out of the job recession. I have serious doubts, but I admit my judgment is partly from the gut.
Each of us makes an internal calculation, considering everything we know and feel, of how much spending, borrowing and taxing is too much. Considering the $13 trillion federal debt and the $50 trillion-plus of unfunded federal obligations for Medicare, Social Security et cetera, my gut tells me that any more federal borrowing is a high risk. And yet, to other people who claim to be smart, trillions more in debt is a trifle.
Rainy days. In a recession, higher taxes also are risky. Borrowing risky. Taxing risky. Which means higher spending in this recession is inherently rife with hazards. With nothing saved for a rainy day, the U.S. must borrow or tax more if it is to spend more. Some emergency spending is needed now, but considering our circumstances, the spending has to be done with extreme care.
That’s what’s lacking, extreme care. So far, the Obama administration has doled out “stimuluses” and “affordable health care” and financial bail-outs and corporate takeovers – a list of gifts so long it suggests we have a bottomless pit of cash to spend like madmen. But standing tiptoed at the edge of this recession’s deep empty pit, with a mountain of debt on our shoulders, we shouldn’t be taking on new loads without bracing. And yet we are taking heavier loads.
We should be aiding the jobless, mindful that unemployment benefits cannot be extended forever. Where we try to stimulate the economy, the spending should be targeted narrowly to activities that a broad range of economists agree have a good chance to create long-term jobs. We should be trimming Medicare benefits, using creative competition to boost efficiency and innovation enough to keep most existing benefits at existing prices. We should be trimming Social Security – even older Americans are demanding it in the name of reason. We should be in the middle of a massive program to expand clean, economical energy supplies. And we should be breaking up “too-big-to-fail” financial institutions and insisting that they not abandon safe and sound lending practices, even under pressure from reckless members of Congress.
Costly carelessness. Our guts are upset, but these failures upset more than the gut. Anyone with a brain knows the federal government has to act responsibly if we are to maintain the peace and progress of a free and democratic civilization.
Let’s hope this recession can be handled less harshly than the recession of the early 1980s. But let’s not pretend the sudden loss of hundreds of billions of dollars and millions of jobs will be reversed without pain. That would only increase and prolong the pain.
Your gut might define how much spending is reasonable to reduce the hardships. Your head reminds you that every move must be taken with care.
Frank Warner
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