Bailing out America

Feb. 3, 2008

Are you kicking up your heels at the thought of your tax rebate this spring?
Yeah, sure.
But do you think the extra goodies in the mail are going to solve America’s economic problems? Probably not.
Congress has crafted an economic rescue package which will provide tax rebates of $600 for each taxpaying American, with $1,200 for married couples, plus $300 per child. That will mean a check in the mail to 117 million families.
Then there‘s another $50 billion to aid businesses, and Democrats in the U.S. Senate hope to toss in an extra $150 billion for seniors living on Social Security, and to extend unemployment benefits to people who are out of work.
Suddenly, it’s raining money. The idea is to stave off a recession.
And what’s that?
In the simplest terms, a recession occurs when people stop buying goods and services and the economy “recedes.” Then, companies lay off employees and even less stuff gets sold because unemployed people don’t have the money to go shopping. That makes the economy recede even further. More people get laid off, and so on, in a downward spiral.
So the rescue package is sort of like pouring a shot of gasoline in the nation’s carburetor in hopes of getting the economic engine running again. People will take their $600 down to Best Buy, or wherever, and we’ll shop our way back to a healthy economy.
But hold on. Whose products will we buy? Why, those made in South Korea, Honduras, China, Indonesia, Malaysia, Mexico, Sri Lanka, Vietnam and the Philippines, of course. All the places that now run the factories that used to be located in America.
How will that help America in the long run? Good question: If you keep impoverishing workers here by undercutting their jobs, who‘s going to have the spending power to keep the economy afloat?
The hope is that a burst of spending and further reductions in interest rates will stop the recession in its tracks.
Of course, it will also help the wealthy investors who moved all of those factories overseas in the first place -- a nice shot in the arm for Wall Street.
But regular folks who are out of a job with no prospects in sight? Well, $600 might buy a year‘s supply of oatmeal and powdered milk, or pay half a mortgage payment, but it‘s no longterm solution.
America’s problems are so deep-rooted that this rescue conjures up another analogy: it’s like tossing a shot glass of water at a forest fire in hopes that it will just go away.
For starters, there’s a flawed logic to the plan in the idea that more spending is the answer to our problems. Many Americans have already spent themselves into the poorhouse with their credit cards. Today, the average credit card debt of an American household totals roughly $10,000 (up from $3,000 a decade ago). And, as noted in Anne Stanton’s article last week (“Wading in a Sea of Debt”) -- there are some households with debts of $64,000 or more at 16% interest.
Many Americans have borrowed against their mortgages to pay off frivolous card debts. But -- whoops -- when you’re out of a job, you can’t pay that mortgage. So we’ve compounded our problem with a disaster in the sub-prime mortgage industry and the plunge in the stock market.
Instead of addressing the endemic problem of living beyond our means, Congress, the Senate and our president have crafted a rescue that heads further down the same road: they’re going to borrow the money from lenders overseas to bail us out. They’re going to “rescue” us the same way that they’re paying for the war in Iraq and the Bush tax cut: by borrowing from the Chinese and other foreign lenders, with the payback dumped on our grandchildren. (An article in The Atlantic Monthly notes that we currently owe China $1.4 trillion and are borrowing $1 billion per day.)
Thus, we credit card junkies will be bailed out by the credit card junkies in Congress on a grand scale.
It’s not a long-term solution.
To understand how America got in the jam it’s in today, you have to go back 60 years to the end of World War II.
It’s common wisdom in America that war is good for the economy. But that’s a big lie which only serves war profiteers. The reason America did well in the 1950s is because the factories of Britain, Germany, Japan, China, Italy and other manufacturing countries were bombed flat in World War II. Nobody had the means of production except America, so we thrived in a golden age of prosperity -- we went from the Great Depression to a consumer’s paradise. “Made in Detroit” became the gold standard of quality the world over.
But today, America’s manufacturing has flown the coop, and there are miles and miles of spanking new factories in the third world, with hundreds of millions of workers who’d give anything to slave in them for one-tenth of what an American makes.
Close to home, Michigan has suffered through eight years of job losses -- “the longest stretch of employment loss in the state since the Great Depression,” according to economists at the University of Michigan.
That’s the situation that needs rescuing. It‘s hard to imagine that a second round of Christmas-style spending this spring will wrap up our economic troubles with a bright, shiny bow.
What to do? For starters, we could all make a vow to spend those checks where they‘ll do our country the most good: by purchasing goods and services “made in America.”