I nostalgically wish to hear my father’s perspectives on today’s challenging economic environment. Having endured through World Wars and the Great Depression, Dad shared Warren Buffett’s sunny disposition: “America’s best days are ahead.”
On the other hand, Father could spot future problems. He wryly joked about my sister’s boyfriends, “Like bad nickels they always show up.”
I share the frustration of our policymakers. While on balance they possessed the best intentions in trying to solve our myriad economic potholes, President Ronald Reagan might have been right: “Government is the problem.”
What is our current report card? Our grades are bad. Unemployment has jumped to more than 8 percent, consumer confidence has plummeted to post-World War II lows, and most economic forecasts indicate a postponement in economic growth until late 2009 or 2010.
Have we done enough? We have certainly given it the old college try. We have spent or guaranteed close to $10 trillion since the crisis unfolded. Foreign governments think we have gone overboard. They fret about fiscal forecasts of $1 trillion deficits as far as the eye can see. The G-20 nations rejected American calls for massive stimulus. China questioned the safety of its $1 trillion holdings of American securities.
Why have we not been able to “connect the dots?”
The government has been inconsistent. Although the White House says that saving the banking system and stabilizing housing are essential to rebuilding our financial system, the government has not provided a detailed policy blueprint for addressing these issues. Instead, the Obama administration continues to maintain that we can do many things in addition to fixing the economy in such areas as education, energy, and the environment. “The economy is first, the economy is first, the economy is first,” he said recently.
Government policy has scored uneven results. Positively, the government made some bold and innovative actions such as guaranteeing money market funds and asset-backed securities. Other decisions were colossal blunders.
Allowing Lehman Brothers to fail or the rescue efforts surrounding AIG and Merrill Lynch reflect prejudice or favoritism. The administration’s defense that “there was no legal precedent to save Lehman Brothers” has a hollow ring. The Lehman failure led to a global financial meltdown. Providing billions of dollars to AIG took place within days of the Lehman failure. The obstinacy by Federal officials over releasing the names of AIG’s derivative creditors undermines faith that “we are all in the same foxhole.”
During December the government treated U.S. automobile companies far differently than financial institutions. Highly publicized congressional hearings focused squarely on The Big Three’s 30-year business mistakes. At the same time, the government secretly ordered Bank of America to consummate its proposed merger with Merrill Lynch — a failing company. The government promised bailout funds to Bank of America that far surpassed the automakers’ requests.
Government officials promoted the $750 billion TARP program to purchase “toxic assets.” Nevertheless, the administration used TARP funds to buy preferred stock in the holding companies of banks. Congressional critics now charge that these holding companies failed to fulfill the TARP objectives of making loans. Instead, the banks made acquisitions, improved their balance sheets and disbursed some pretty hefty bonuses such as the recent $36.6 million payment to Kenneth Chenault, the CEO of American Express.
In an interview printed in Barron’s in October, Anna Schwartz, co-author with Nobel Laureate Milton Friedman of “A Monetary History Guide of the United States,” made the following observation: “If I regret one thing, it is Milton Friedman is not alive to see what is happening today. It is like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it is not working. Professor Friedman would have enough stature to get them to listen and stop pooh-poohing any notion of possible inflation.”
In 1994 Christina Roemer, currently chairwoman of the Obama administration’s Council of Economic Advisers, wrote, “Our central conclusion is that monetary policy alone is a sufficiently powerful and flexible tool to end recessions.”
Nevertheless, Roemer now calls for both massive fiscal policies such as tax cuts and stimulus measures in addition to expansive monetary measures. Over the past year, the government has gone “all-in,” spending and guaranteeing trillions of dollars.
In pursuit of wishes, we have thrown too many nickels into the fountain.
Originally published in the Sarasota Herald-Tribune
