So what are Obama and Congress doing about all this? Not much. Obama proposes an anemic jobs bill that Congress cannot pass, new action to extend unemployment insurance is stalled, and there is pressure among deficit hawks to cut government spending now, well in advance of the economy sustaining itself. It seems as if the lessons of John Maynard Keynes have been lost as many rush to join Hoovernomics. Soon I bet we will pass a new version of Smoot-Hartley and we will be completely back to Depression era economics.
It is bad enough that the individual states are hurting recession recovery by cutting spending in order to maintain balanced budgets. These moves, while they sound fiscally smart, actually counteracted the federal stimulus law adopted last year. Instead of creating new spending they merely forestalled state budget cuts which are now coming in force this year.
These cuts will undo or undercut whatever good the federal stimulus did. Now with pressure mounting on the federal government to tackle deficits first, any effort to stimulate the economy at the time it most needs a second bounce will also be damaged. The assumption seems to be worries about inflation and belief that cutting spending and taxes now will free up capital for the private sector to grow. This is still the same old pie in the sky supply-side economics hope and belief that has not worked in the past.
There have been too many roads not taken since 2008 to help the economy. First there was the $150 or so billions stimulus in the spring, 2008. That measure failed as it was too small and too diffuse. I argued then the $150 was a waste and measures should have been taken to directly help the residential mortgage market.
TARP helped banks but did little to address the underlying problems with the mortgage market that caused all the problems. We have yet to address mortgage speculation, subprimes, defaults, and falling or negative equity. Both the short term and long term health of the economy needs to stabilize this market. Several times I have argued that this is a core issue and there still seems to be no clue or effort to address this problem.
The weak housing market is paralleled by a weak jobs market. There is no question that a real job bill (not just milk toast tax breaks for businesses) are needed. My laundry list of legislation for both the mortgage and labor market includes:
- Immediate moratorium on residential foreclosures for one year
- Require banks to renegotiate loans
- Federal support to reduce principal on many residential mortgages
- Federal jobs bill that consists of direct hiring for public works projects (A WPA for 2010 that is not just roads and highways).
Alas, if we do not do this, as I suspect we will not, we will remain trapped in Hooverville and in the economics that exacerbated the first Depression and which is in danger of doing the same here.