Thursday, October 16, 2008

They not only don't have a plan, they don't have a clue

Presidential debates...what are they good for? Absolutely nothin'

Doctrine for their established bases
What we can see is that neither candidate really has a clue about how the economy works. The idea that buying foreclosed mortgages helps housing is an idea that is way over my head. I fail to see the connection.

Giving other people money 'I' earned and you are taxing away is no road to prosperity either.

Avoiding backlash
The right answer to the question, "what are you doing for the economy?" is probably, "nothing , nothing at all." But that is hardly a popular response. Its particularly vexing after you have introduced over $1trillion in plans to help the financial sector and various financial firms. The man in the street would rather see those bankers in pinstripes wearing horizontal stripes behind bars instead of getting billions in government largess for their checkered past.

What did our 2008 stimulus plan do???
Despite all this fiscal policy is just not a good cyclical demand management tool. That should be apparent after the failure of the last $150bln or so plan. What did it do? It gave us a positive GDP quarter in Q2 so that the Q3 drop-off could be more severe. It did not change the trend of the economy in any constructive way. Simple lump sum tax cut give-aways are to the economy what sugar-heavy energy drinks are to your metabolism. You get one quick burst then you crash and burn.

Good politics meets bad economics: Objective? GET ELECTED
Of course history tells us that being inattentive to the economy's problems can cost you. George Bush senior lost his re-election bid to wild Bill " it's the economy stupid' Clinton over apparent neglect of the economy. Bush senior refused a stimulus program for an economy that did not need one. He was right. But he was DUMPED out of office. Only the revised data now show that the economy was not as weak as Clinton portrayed it (as did the data at that time) and he sold the American public on Bush as out-of-touch. This was despite Bush Senior's amazing success in the Gulf War and what will can now treasure as his amazing military restraint as well.

"I WANT MY MAYPO!" Meets where's the beef?
But tax payers want a government response. Right now government is fixing what it can fix. It should not fix what can't be fixed, in other words it should not meddle. But one man's meddling is another's stimulus plan and one man's refusal to meddle is another man's reason to call him out of touch. But there is a difference in being out of touch with the politics Vs the economic realities. Unfortunately during the election season this distinction is lost.

What we can fix is housing. But instead government attention has focused on banks. They do need to be fixed, but they are only one aspect of the problem. Once government gets around to finding a a way to help those paying mortgages they will have hit on something that is really helpful. It will not avert recession, but it can help to keep this recession from getting to be really nasty. Helping those with troubled mortgages will be a tough job. But there are a number of plans to choose from.

Choose wisely. But don't delay too long. The price of procrastination will be steep. Do some now or more later.

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