Congress Obviously Can Not Fix The Economic Crisis

I’ve been reading an excellent work, The Mess We’re In: Why Politicians Can’t Fix Financial Crises by Guy Fraser Sampson. The answer, to put it briefly is: “because they caused them”.

One of the foundations of this excellent book is what I’ve also thought, and said, many times. That is, “within a Western democratic system, we place our politicians in an impossible situation. We ask them to make decisions with long-term effects,” but because “they must seek election every few years, we more or less force them to consider only the short-term consequences”.

To explain, members of the House of Representatives must run for re-election every two years. So they essentially have one-year intervals to participate in setting policy that, if they want to keep their jobs, must satisfy their constituency, their party, and the media. Then they have to stop everything and run for re-election, which entails fundraising, campaigning, traveling to local events, etc. That’s a rather impossible task to accomplish in such a limited amount of time.

The result: Eric Cantor has set the Congressional schedule for 2013 at 129 working days!!! So our elected Representatives have jobs that they only attend one-third of the year, yet get paid $174,000 full-time pay, lifetime pensions, paid lifetime healthcare, and have the nerve to call OTHERS takers???? And these are the people setting our economic policies???

Stop The Damage

The fact is that virtually all economic policies that are likely to bestow a long term benefit are “also likely to cause short term pain, while those that confer a short-term advantage (often no more than a brief alleviation of a long-term or naturally occurring condition) almost always cause long-term damage.”

He notes this having an unpleasant effect after WWII when “it would become a leitmotif of governments of both parties as the post-war period progressed, that important policy decisions would be made not according to the long-term interests of the country, but to maximize the chance of re-election”. He then traces most of our existing predicaments to the bad decisions made under these impossible conditions. He is predictably quite clear that the same thing is happening now.

It is a point being exposed, even among conservative economists, like a gaping, zombie-wound in the UK and the Euro zone that austerity in a recessive downturn doesn’t work, and yet, it is still the driving force behind misunderstood Capitalism by GOP policy here in America today. The question every day from conservatives is “If we don’t cut the deficit now, when will we?” The answer, of course, is once the economy is steadily and growing again.

Quite the Conundrum, Or Is It?

Cutting spending and long term government borrowing is “almost impossibly hard”. Our political parties wrangle incessantly over who should bear the brunt of the pain. Republicans insist, quite callously, that the poor and middle class “takers” should be the ones punished for being unproductive, or unlucky, or even genetically inclined (through genetic and costly diseases) to take more than they’re able to give back. Conjuring up the will and the political support to promote this agenda is becoming a class war. It’s is agreeably difficult, and any consensus on it is certain to be brittle, given the non-stop demands and doggishly short attention spans and memories of the voting public.

The US needs a financial system that serves all of society, rather than operating as if it were an end in itself. That means that the focus of economic policy must shift from speculative and proprietary trading to lending and job creation. This would require reforms of financial-sector regulation, and of anti-trust and corporate-governance laws, together with adequate enforcement to ensure that markets do not become rigged casinos. But short-term fixes, regardless of Keynesian, Austrian, or, hell even Klingon, economic theorycannot be effective in two-year cycles.

And politicians should not have to risk their jobs to “do the right thing”, instead of doing the “smart or effective” thing. It results in turning them into lunatics with short-sighted blinders when we need long-term, effective solutions. I do not think that the two are compatible. And frankly, I’m surprised we’ve lasted as long as we have.

Do We The People Have The Will, Much Less The Knowledge

Our economic policy, at least for the next four years, should be celebrated only because the US has evaded actions by the conservatives that would have pushed it closer to Euro-style recession, amplified inequality, forced further hardship on the elderly, and obstructed access to healthcare for millions of Americans.

Beyond that, Americans should hope for:

  • A strong “jobs” bill based on investments in education, health care, technology, and infrastructure.
    • That action alone would stimulate the economy, re-establish growth, trim down unemployment, and engender tax revenues far in excess of its costs; thus improving the country’s fiscal position. And for pete’s sake come up with a logical housing program that finally addresses the remnants of America’s foreclosure crisis.
    • A comprehensive policy to increase economic opportunity and reduce inequality.The goal must be to remove, within the next decade, America’s dubious distinction as the advanced country with the worst economic disparity and the least social mobility. This would entail a fair tax system that is more progressive and eliminates the subsidies and loopholes that allow speculators to pay taxes at a lower effective rate than those who work for a living; not to mention they enable the rich to use offshore tax havens to evade the laws and avoid paying their fair share.

Can Do Or Will Do?

With the UK and euro crisis likely to worsen under nonsensical austerity, America’s continuing gridlock does not portend hope for global growth. Even worse, with the scarcity of strong Republican leadership, venerable global problems, (from climate change to urgently needed reforms of the international monetary system) will continue to worsen.

Nonetheless, I suppose we should be grateful: it is better to be stationary than it is to be heading in the wrong direction.


Harvey Gold

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