Deez Steeles

Sara and I watch the Daily Show on Hulu.  Tuesday’s guest was Austan Goolsbee, chief economist of Obama’s Economic Recovery Advisory Board.

Goolsbee made one point that I thought was really interesting, and clearly shows my misunderstanding of macro- vs. microeconomics.  Gooslbee said that earlier this year we were on the verge of “Another Great Depression” and that we NEEDED the Stimulus Package — “when you’re looking in the face of the next Great Depression, that’s NOT the time to tighten the belt.”

One the one hand, I sort of get it.  Left to its own devices, the housing crisis, credit crunch and other economic factors were leading us to a huge Great Depression like problem, so we had to do something to change courses.  On the other hand, I’m not sure I understand how simply spending tons more money really fixes the problem.

Like John Stewart, I can only compare it to my own finances.  If our family was massively in debt, facing creditors, etc.  I couldn’t simply say, “well I’m going to ratchet up my spending to get out of this hole.”  No way, the banks and other creditors would come after me and say “you’d better pay us before you go on your spending spree.”  The only difference might be if I was making some strategic investment, like going to school to drastically increase my earning potential.  Still, that would require me making an arrangement with the creditors…something like “Ok, I’m going to get a new degree, and I’ll be making an extra 20K/year.  So let me do that, and you’ll start to see some of what I owe you in like 2.5 years.”  Hmm…still dubious I’d be able to pull that off.

I think the Obama Administration would argue that the Stimulus/Recovery Act is a means to 1) inject money into the markets in the short term to stimulate economic activity, but more importantly 2) stimulate activity in long-term, strategic investments (energy, environment) so that we can remove the  problems that caused the economic downturn in the first place.

One might argue that the Health Care reform is another long-term, strategic investment in a healthy American workforce that will improve future productivity.  I’m not sure even I  buy that, especially when the Congressional Budget Office says it is not cost effective to invest in widespread preventative care and wellness services.

So, again from my limited economic knowledge and experience, the best we as a country can do is say to our creditors, “we’re working on it, we’re making some changes and we’ll have your money.”  And just hope and pray that they don’t force us to liquidate stuff in order to pay them back.  Not great.  The only saving grace is that in today’s global, networked economy, our creditors want us to buy their stuff, so they have a vested interest in seeing us succeed.

Discuss

The New York Times is doing a series of articles exploring the causes of the current financial crisis. I just read this article:

 The Reckoning: White House Philosophy Stoked Mortgage Bonfire

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

I’m glad that we still have some companies that take the time and effort to support investigative journalism.  Can’t get this kind of reporting from the blogosphere.  Yet, anyway…