Where Do We Go From Here?

There seems to be three popular plans for dealing with the current economic situation. The plan coming from the right calls for lots of tax cuts. The idea is that the people who receive the tax cuts will use this savings to invest and these investments will spur business growth and this growth will create jobs and generally help the economy. It seems to me that the savings we are talking about is really money that people already have and that there's nothing preventing them from investing it right now. Also, let's assume that some people are reluctant to spend this money because they might need it to pay their enormous tax bills. If we lower those tax bills there is no guarantee that they will go out and spend that money. They could sit on it just like they are doing right now. Obviously, I am not a big fan of this plan, so I will leave it to others who do support it to explain it better.

The plan coming from the left calls for lots of government spending. The idea is that the government, instead of lowering taxes, takes the money it gets from taxes and spends it in all kinds of ways. I like this plan because it guarantees that the money is actually spent. Now there are good ways to spend money and there are bad ways to spend money. It seems to me that the government could very easily spend lots of money without creating very many jobs. However, that could easily be said about any investments made by those receiving tax cuts. In fact, as I've already noted, there's nothing preventing the recipients of the tax cuts from sitting on the money, or worse investing it in foreign business where it would create few if any jobs at home. By having the government spend the money directly, we have a chance to legislate how the money is spent. It seems to me that rather than arguing whether the government should spend money or arguing how much it should spend, the congress would be much more effective if they spent their time arguing about how to spend the money. They can argue over whether the money is spent on infrastructure or construction, or on education or energy independence, or anything else. Pick something. Pick them all for all I care, just get the money out there.

So, where do we stand? One would think that there would be little chance of a tax cut plan making its way through congress. In fact, the Republicans did offer an alternative to the Democrats' stimulus bill, but as TheHill.com reports, the

Republicans had far less than unified support for their own alternative, which lost on a 170-266 vote, with two Democrats and nine Republicans voting against their party leaders

However, that doesn't mean that tax cuts are off the table. In the Senate the Republicans have insisted on changes to the Democrats' bill and the Democrats obliged as John Nichols reports:

In order to get the votes of two Republican (Maine's Susan Collins and Pennsylvania's Arlen Specter) and perhaps another (Mainer Olympia Snowe) that were needed to undermine the threat of a GOP filibuster, Reid surrendered $86 billion is proposed stimulus spending. In doing so, the Democrats agreed to cut not just fat but bone, and to warp the focus and intent of the legislation. The Senate plan is dramatically more weighted than the House bill toward tax cuts (which account for more than 40 percent of the overall cost of the package). This is despite the fact that there is a growing consensus — among even conservative economists and policy makers — that tax cuts will do little or nothing to stimulate job creation in a country that lost almost 600,000 positions in January alone.

Not only is the Senate version full of tax cuts, but it's short on the kind of spending that will actually help. Paul Krugman writes in the New York Times,

The plan should have been at least 50% larger. Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out. My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

It seems that the problem is that President Obama is determined to be post-partisan while some members of congress on both sides are still playing politics as usual. Again, Paul Krugman writes,

many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate. Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate. Mr. Obama’s postpartisan yearnings may also explain why he didn’t do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said — that increasing spending is the whole point of the plan. And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal. In the Senate, Republicans inveighed against “pork” — although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill’s total. And they decried the bill’s cost — even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that’s right, $3 trillion in tax cuts over 10 years. So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh — not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.

So, what about the third plan? Well, it's not really a plan so much as an idea. The idea is that the current economic system is permanently broken and rather than trying to fix it, we should come up with something different. James Howard Kunstler wrote in his blog,

All the old mechanisms that enabled our way of life are broken, especially endless revolving credit, at every level, from household to business to the banks to the US Treasury. Peak energy has combined with the diminishing returns of over-investments in complexity to pull the "kill switch" on our vaunted "way of life" — the set of arrangements that we won't apologize for or negotiate. So, the big question before the nation is: do we try to re-start the whole smoking, creaking hopeless, futureless machine? Or do we start behaving differently?

The idea is that we admit that capitalism is dead and replace it with something that works for everyone. Writing about the economic collapse in Iceland, Rebecca Solnit said,

Last fall, major financial newspapers were already headlining "the end of American capitalism as we knew it,""capitalism in convulsion," "the collapse of finance" and "capitalism at bay." The implication: that something as sweeping as the "collapse of communism" 19 years earlier had taken place. Since then, the media and others seem to have forgotten that the body in question was declared terminally ill and have focused instead on how to provide very expensive first aid for it. This avoids the question of what the alternatives might be, which this time around are not anything as one-size-fits-all and doctrinaire as old-school socialism, but a host of existing localized, grassroots, and mostly small-scale modes of making goods, providing services, and serving communities — and remaining accountable.

It means change, real change, not the kind of change the politicians sold us during the last election, but real, fundamental change. Again, James Howard Kunstler wrote in his blog

The attempt to restart "consumerism" will be equally disappointing. It was a manifestation of the short peak energy decades of history, and now that we're past peak energy, it's over. That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money. From now on people will have to buy stuff with money they earn and save, and they will be buying a lot less stuff. For a while, a lot of stuff will circulate through the yard sales and Craigslist, and some resourceful people will get busy fixing broken stuff that still has value. But the other infrastructure of shopping is toast, especially the malls, the strip malls, the real estate investment trusts that own it all, many of the banks that lent money to the REITs, the chain-stores and chain eateries, of course, and, alas, the non-chain mom-and-pop boutiques in these highway-oriented venues.

This sounds great, but how does it come about? Change like that won't be legislated. Congress can hardly get a stimulus package together; it would be near impossible for them to enable this kind of change. So how does it happen? If it's going to happen, the people themselves (ourselves) will have to make it happen. Rebecca Solnit wrote,

The big question may be whether the rest of us, in our own potential Argentinas and Icelands, picking up the check for decades of recklessness by the captains of industry, will be resentful enough and hopeful enough to say that unfettered capitalism has been monstrous, not just when it failed, but when it succeeded. Let's hope that we're imaginative enough to concoct real alternatives.

I don't know what to hope for. Should we hope that President Obama and the other Democrats stop messing around and start playing some hardball or is the system too far gone? Is our political system broken as well as our economy or can our government still put the pieces back together again. I don't know. What do you think?