There’s a lot to be said for cucumbers – and it rarely is.
[Long pause while you think about that.]
But I don’t have time to say it now, either, because, let’s face it, we’re in (sorry) a bit of a pickle. All those chickens we’ve been talking about coming home to roost? Well, the air is now, sadly but inevitably, pretty well full of them.
Homes purchased for more than people could afford; trillions sent abroad to buy things we didn’t need (tell me you don’t have a closetful) or will be putting in land fills or have burned up and sent out our exhaust pipes into the atmosphere; another trillion, all in, on a war of arguable necessity.
Unlike the war in Vietnam, where we were determined to have guns and butter, with this war we’ve had guns and extra butter – tax cuts for the rich. So it’s hard to see how inflation will not follow, as it did after Vietnam.
The Fed could get tough on interest rates to damp down inflation, and someday will. But for now quite the opposite will happen: the Fed will lower interest rates to try to ease the mortgage misery and avert recession (themselves inflation-inhibitors).
Except that the Fed can only control short-term rates. ‘The market’ controls long-term rates, and it cannot be assured that investors around the world will want to own long-term dollar-denominated debt if they think the dollar is headed lower. (If – a European – you had bought 2008-maturity U.S. Treasury bonds on the day our current President was inaugurated, you would have gotten your interest payments timely and your principal repaid. But that principal would have lost 40% of its value when you went to convert it back to Euros.)
So what is to be done?
The current plan (to shorthand it) is to give everybody $800. And some tax incentives to business.
(The President had hoped to use this crisis to push through, as well, his ‘permanent tax cut’ which would, among other things, trim the estate tax on billionheirs from 45% to . . . zero. But the Democratic Congress said no. A big deal, in my view, that got little note or applause because it was so obviously the right thing to do.)
And where is this $150 billion of financial stimulus to come from? Our children and grandchildren, of course. We will add it on to the National Debt.
The hope is that those $800 checks will be used not to pay down credit cards or augment rainy day funds, but rather get spent . . . which is good news for the Chinese and others who make many of the things we will spend it on.
This is not to say that quick, significant stimulus is a bad idea. A lot of economics is self-fulfilling. All we have to fear is fear itself. People and businesses do need to be encouraged to feel ‘the sun will come out tomorrow’ – because if they keep working hard, and investing in the future, it will.
But the real sunshine will begin to break through the clouds, if you ask me, when the world (and we ourselves) sees we have new, competent leadership that is investing not in rebate checks for consumer spending, but in incentives to create millions of new jobs greening America, ultimately to make us dramatically more energy efficient and thus far stronger economically. (A little money channeled to dredging our ports and waterways would be a good idea, too. Hint, hint.) (And how about pumping $1 billion into doubling the number of customs agents and launching the Greeter Corps to make the world feel truly welcome once again to come vacation, study, and do business here, as suggested here and here.)
Can you imagine how much labor would be needed to retrofit most of our millions of residential and commercial structures for energy efficiency? In many cases, the payback is under years five year – which means a 20% return on investment. Not to mention all the jobs, potentially, in solar and wind.
Yes, it’s best to leave market forces to drive as much of this as possible. (Surely, faced with the lessons of OPEC in 1973, Detroit would never again let the Japanese come to dominate fuel efficiency, right? Adam Smith’s invisible hand and the forces of capitalism would lead GM and Ford to lead the world in energy efficiency, generously licensing ingenious American technology to Toyota. Right?) But at times like this, when you’re doling out cash to keep things moving, there can be a role for government to give a targeted, well-considered nudge.
And I would argue – even though this argument will go nowhere in the short-term – that the $150 billion should not be borrowed from our children and grandchildren. How about a one-time 10% surcharge on all 2007 personal income above $1 million? So a hedge fund manager who made $35 million last year, instead of being taxed on it at a 15% rate (you are taxed at a higher rate), would be taxed at a 25% rate (all in, you likely are still taxed at a higher rate)? It’s a sacrifice, to be sure. But this country has been awfully good to the rich, and particularly so the last several years.
You will recall that President Bush sold his tax cuts this way – ‘Most of the tax reductions go to the people at the bottom end of the economic ladder’ – when in fact what he meant to say was at the top of the economic ladder (sometimes, a single word can make all the difference). You will also recall that, on his watch, median household income in America has fallen, even as the net take-home of those at the very top has gone through the roof.
While celebrating the accomplishments of those who earn $1 million or $5 million or $35 million a year – and while never wanting to go back to the crazy and counter-productive 90% tax brackets of the Eisenhower era, or the 70% top bracket of Kennedy, Johnson, Nixon, Ford, and Carter, or even the 50% top bracket of Reagan’s first term – it should be possible to roll back the George W. Bush tax cuts on that portion of a family’s income that exceeds, say $200,000 a year.
Not to punish anyone, but as an important step in getting our economy back in balance, for the benefit of all.
Anyway, fasten your seatbelts. The $800 will be lovely, but this hang-over we’re beginning to experience will not be soon gone. (From pickles to roosting chickens to hangovers. Clichéd metaphors run wild. It’s a good thing this column costs as little as it does or I’d say you wuz robbed.)
More on cucumbers, and cucumber cosmetics I want you to buy, real soon.
Quote of the Day
Those who make peaceful revolution impossible make violent revolution inevitable.~John F. Kennedy
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