In 2008, we witnessed the first serious fallout from deep structural flaws in the relationship between the nation’s public and private sectors, a relationship which fell short in every conceivable area from Wall Street regulation to the basic social safety net. The biggest economic stories of 2009 will be about how President-elect Barack Obama’s administration repairs—or fails to repair—that connection.
The first step in rebuilding a government that actually responds to problems before they reach the bailout stage will be Obama’s highly anticipated economic recovery package. As Dean Baker notes for The Huffington Post, the failure to date of Congress to pass meaningful stimulus legislation has been beyond negligent. Several Congressional leaders are cautioning that a bill will not be ready until February, but with more than two weeks to go before Obama’s inauguration, Congress has both the time and the public support necessary to pass a major bill before Obama takes up a chair in the Oval Office, as anyone who remembers the speed of Congressional action moved on the Wall Street bailout can attest.
The content of the legislation will reveal a great deal about Obama’s priorities. No president since Franklin Delano Roosevelt has entered office with an economic mandate as clear as that Obama enjoys, but one early warning sign for progressives is this week’s news that Obama plans to devote as much as 40% of the bill to tax cuts, a number that could go higher in legislative haggling with Congressional Republicans.
In a blog post over at The Washington Monthly, Hilzoy highlights the well-established economic fact that tax cuts are the least efficient method for boosting economic activity. Remember the February 2008 economic stimulus bill? Fat lot of good those $600 tax rebates did.
Public investment in areas like health care, green energy and research into sustainable manufacturing also leaves a stronger economy in its wake, and spending on basic infrastructure projects—roads, bridges, etc.—has been sorely neglected for the past eight years.
What’s more, as Ezra Klein notes for The American Prospect, the U.S. government seems to be in perpetual tax cutting mode, whether economic times are good or bad. While cutting the right taxes amid a severe recession can be justified, President George W. Bush’s decision to take a chainsaw to the IRS code during an economic boom cannot become a permanent facet of U.S. policy.
Imperative services provided by state governments are currently in severe jeopardy amid tax shortfalls prompted by lower housing values. The Public News Service discusses budget problems in Michigan and Missouri in pieces by Tony Bruscato and Laura Thornquist. Michigan faces cutbacks in health care for the poor and college tuition assistance programs, while Missouri needs to fill a $900 million hole by 2010.
State and local governments are likely to be $200 billion underwater next year, according to a piece by Robert Kuttner appearing in Chelsea Green. Even if Obama does not want to tackle major issues like universal health care in his first 100 days in office, he could fund community health clinics and make sure police officers, firefighters and teachers do not lose their jobs.
It has been easy to forget amid the mortgage market news of 2008 that other aspects of the economy have been under intense strain. In a frightening interview with The Real News, Leo Panitch details how a drop-off in working-class wages, fueled by a decades-long decline in the power of organized labor, has forced millions of Americans to turn to expensive consumer debt just to make ends meet.
That surge in credit card debt has been accompanied by a refusal on behalf of the federal government to place meaningful regulations on credit card lending practices. The Federal Reserve finally took steps in December to rein in deceptive credit card lending, but as Mike Lillis demonstrates for The Colorado Independent, the new rules are relatively modest given the scope of credit card-related abuses. Lenders can still do pretty much anything they want to a borrower once they miss a payment, and the Fed’s restrictions do not even go into effect until July 2010.
If low wages and predatory credit cards are not enough to push consumers into financial ruin, consider what is taking place in the student loan industry. The government keeps the student loan market going in two primary ways: by directly lending to students and by guaranteeing loans students take out from private lenders like Sallie Mae, making it cheaper for Sallie Mae to extend loans. The government-assisted private sector loans cost taxpayers significantly more money than loans made through the direct loan program.
When student lenders hit the skids this year amid a Wall Street-induced credit crunch, the government responded by financing student loans made through private companies.
But if the government is not only guaranteeing private-sector loans but financing them as well, the resulting scheme is essentially a less efficient version of the direct loan program, as Cole Robertson explains in a piece for The Nation. Sallie Mae CEO Albert Lord seems to approve of the bailout plan, but has not offered to return one penny of the orgiastic pay he’s accumulated over the past year in return for this taxpayer largess. Lord cashed out over $44 million in stock options in one day during the summer of 2007, and has been targeted by Congressional insider trading investigations for convenient sales of Sallie Mae stock.
A big federal bailout accompanied by outrageous executive compensation. Sounds familiar.
It is truly astonishing to consider how much damage conservatives have done to public attitudes on economic issues over the past 14 years. There is nothing inherently progressive about policy suggestions like like funding emergency health care, paying firefighters and teachers or refusing to allow lenders to arbitrarily change the terms of a contract without borrower consent. This stuff is basic sanity. At least 2009 promises not to be boring. We will either witness a return to said sanity that would have been unthinkable even a year ago or another depression. Happy New Year.
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