Stephen: You may be right that the Obama administration didn’t have a choice but to continue the bailouts, but I think the lack of scrutiny and oversight to which his proposals have been subjected is not right. I’ve heard these thousand page bills were delivered to Congressmen the day before the vote, so no one had time to read what was in the bills. That is not the way our representative democracy is supposed to work. It sounds as if Obama has been operating on a mandate which does not include accountability, and I am personally not in favor of this type of unscrutinized, “let’s vote blind” form of governance.

Hopefully the decisions he and others in his cabinet are making are well-informed and will bear good fruit. I still have my doubts, however, about the overall prospect of this strategy to work to bring our economy back in balance.

It seems to me the rampant deregulation which we saw in the banking industry and other sectors has led to a lot of the problems. My dad heard a speaker at Rotary the other day who gave a history lesson on banking that sounded instructive in this regard. Traditional commercial banks were NOT the ones who got our nation into this subprime lending crisis. The corporations like AIG and Citi have had their hands in lots of pies, and probably should NOT have been permitted to play with banking like they played with other financial gambits.

I hope Obama is listening to American bankers and not just financial corporation gurus who are desperate to preserve their own financial stakes.

I think our government is WAY too involved in bailing out corporations for misdeeds and missteps which should have natural consequences in the marketplace. We should have CEOs and corporations going bankrupt because of the poor financial decisions which were made in the past. Fannie Mae and Freddie Mac insured people who should not have been buying homes. The government shouldn’t bail that out and continue that gambit. There are reasons banks don’t take those kinds of financial risks on their own, and we should pay attention to their wisdom, rather than letting the good name of the US government underwrite the expansion of the US housing market at the expense of our future.

Secondly, I’d just like to fact-check something you said. A law was passed about the government’s economic goals? Is it actually on the books as a law? I haven’t heard of it (my education in modern history is sorely lacking), but how can you state a goal as a law?

I’d be interested to see what you all thought about Obama’s declaration that the stimulus spending has created 150,000 jobs already while we’re on the topic of inflation. Newsy just ran a video comparing responses to his policies, but I didn’t see that they really covered (a) the long term effects of that kind of spending or (b) if you can even measure the impact of a single act like that.

I believe that Paul Krugman and his Nobel prize for economics/professor at Yale have more authority on the subject than Rush Limbaugh.

With all of this government spending, inflation is a concern, not hyperinflation. That is just Rush’s way of trying to scare everyone, unfortunately which he is good at. There have been documented cases throughout history of hyperinflation and sadly, right now Zimbabwe is a textbook example with 11,000% inflation. But according to the most recent data, we aren’t even experiencing inflation right now, let alone hyperinflation.

To your point about the national debt, my macroeconomics professor said it best when he said that the most important focus of economists is to balance the national economy, not the national budget. Just after WWII, there was a law passed that stated the three main goals of the government in relation to the economy:
to achieve full employment, price stability, and economic growth. There are still plenty of buyers of our debt, and will be for quite some time. That is why the national debt, for as big and scary as it sounds, isn’t that important to all of the government economists.

This is probably true. But if true, then it should cause you to rethink your position.

The “full-court-press” of the United States was essentially the U.S. government spending every dime it had, and borrowing a lot of money (remember “buy war bonds?”), in order to produce stuff (like tanks and bombers) that had no economic value. In other words, the U.S. got out of the depression by throwing money away.

We are in a similar situation today. Any sort of “do-nothing” approach is going to result in millions of people unemployed. I’m not sure you can imagine that. Can you picture our modern society with thirty percent unemployment? The consequence of doing nothing is roughly that, because that’s how much of the economy is directly at risk.

Indeed, while we’re at it, I would think that the current recession should put to the test the idea of *saving* to protect one’s wealth and provide for a retirement. You can’t isolate yourself from the economy as a whole. You can’t put the amount of money needed to support an entire generation into savings without tipping a balance. The economic collapse reflects the fact that the idea of ‘saving’ for retirement or ‘investing’ in the stock market is a giant ponzi scheme. Unless the next generation invests as well, there is no growth – but there is no money left for the next generation (it has all been sucked up into corporations, the value of which represents the savings of the previous generation) and they cannot invest. And the bottom falls out of the investments and the economy collapses.

Do nothing, and what happens? The younger generation still has no money. So they stay in debt. The savings of the older generations collapse, and those that can return to the workforce. But now nobody has any money to buy products, so the companies that would employ them also collapse. More people unemployed. Then comes the collapse of the dollar, and retail collapses as well. Most storefronts are shuttered, most plants are shut down. People are out of work and there’s no welfare, no health care, no hope.

So if you’re Obama, what do you do?

Well, the previous government has already committed you to a massive bailout. Yes, you could stop it, but that would drop the stock market to unbelievable lows. So you continue with the bailout, but you ensure (unlike Bush) that you establish an ownership position in the companies you’re helping. You need to do this because otherwise the companies will simply take your money and funnel it to shareholders without building any value (that’s how the war-time economy worked).

But you also know you have a deep structural flaw in the economy. Basically, the American people have been lied to for the last two decades or so. They have created this consumer society supported by housing equity and increased value of production, something which, when it faltered (as it did from time to time) could be rescued with a war. But (a) there’s nothing left to consume – the resources have run out; (b) the younger generation is, as I mentioned above, incapable of consuming more; and (c) the U.S. won’t win its next war, and everybody knows it.

So, the bailouts are a necessary short-term measure. You hope to capture as much value as you can, because otherwise you’re just throwing money away. This means taking a major ownership stake in major elements of U.S. productive capacity, its banking and insurance system, and (probably, to come) its retail sector. Once you are in this position of owning much of the economy, you can retool it.

So, you launch what amounts to a war footing. This will be Obama’s campaign for his second term. The United States, he will say, can do nothing less than to reinvent itself. It must provide for everyone – this means housing, education, health care, etc. An effective transformation from (the fallacy of) the ‘ownership society’ to an inclusive society. Because if people are sheltered from the impact of the recession, the recession hurts a lot less, and can be withstood (by contrast, compare that to the depression, where you had armies of unemployed migrating and rioting in city after city – can you imagine the same today? It would be brutal).

The second part of the campaign is to rebuild the economy on sustainable principles. This means green energy, green transportation, green housing, the rest. The United States will have to throw everything it has into this initiative, because failure means relegation to permanent third world status. The military will be recruited into this, and will find itself involved in the massive reconstruction effort. The U.S. is a country with few remaining natural resources, and few financial resources. If its major corporations leave (and what would stop them?) it will be in desperate straits.

If you have a better plan, I’d love to hear it. Remember, doing nothing is not an option – that leads to full scale economic collapse in a matter of months. You have to rescue the situation, because the previous government has left the U.S. well and truly up a creek.

(p.s. I also think that it might not be possible for the U.S. to get through this without some sort of economic or political union with Canada, because Canada has resources the U.S. badly needs and will not be able to afford to buy. But the price for union with Canada? Public healthcare and a sane policy on militarism and guns. It will be a bitter pill for the U.S. right to swallow, but that’s the price for being the worst government of a major power ever – I’ll probably have more to say alone these lines in the future).