Who Wants a Stimulus?

Based on the performance of the current Administration and Congress in countering the financial crisis, you could draw one of two conclusions:

1) They don’t know what to do.
2) They don’t really want to succeed.

Consider the evidence:

After announcing to the world that we were in the midst of a “credit freeze” because banks were loaded with “toxic assets” that were unmarketable, no one has done anything to actually make them marketable. No one has even defined or presented evidence of the existence of a “credit freeze.” The Treasury and the Federal Reserve have pumped money into failing banks on grounds that they are “too big to fail,” yet they have never explained what would be the consequences of a bank failure. They have urged the banks to increase lending, but businesses are not asking to borrow. The government is talking of additional deficit spending as necessary short-term stimulus, but much of the spending will come after the recession is projected to be over and the deficit will require spending cuts and tax increases.

What is wrong with the economy is that the recession has left businesses with excess inventories. That in turn has led businesses to cut production and lay off workers and they will not start to rehire until consumers return to the market and inventories have fallen back to desirable levels. What will make consumers return and businesses invest is rebuilding the loss of wealth associated with the falling housing market and the falling stock market. And the way to do that is to reduce taxes on corporate profits and capital gains. That would increase returns in the stock market, which would go a long way toward boosting consumer spending and encouraging business to invest. Because the housing bubble resulted in overexpansion in the housing stock, it will take a long time for that element of wealth to grow and spur consumer spending, and there is little that the government could or should do to boost home prices. Nothing along that line seems to be planned; on the contrary, all indications are that this Administration and this Congress will move in the opposite direction.

The ways of government are always mysterious. One can never tell from what an official says what he really believes and, when in power, what he intends to do. President Obama has said clearly that he views the financial “crisis” as an opportunity for action and he has said that he will use the crisis to transform the economy. Perhaps his statement is evidence in support of the possibility that he doesn’t really want the crisis to end.