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What's Wrong With President Obama's Stimulus Package and How Should We React?

By       Message Nathan Nahm     Permalink
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It is sad to see the public enthusiasm about President Obama's administration begin to soften--at least ever so slightl--so soon by its failure to present what is supposed to be its most important economic project in the true and pure form for the stated goal.  In this, the Obama administration clearly mangled a golden opportunity.  I guess too many Congressmen and Congresswomen, whose support President Obama needs, saw a great opportunity to get their favorite pork belly projects in, since, in such a huge package, who will notice what's really in it, right?   

 

But, as the Nobel laureate Paul Krugman has already pointed out in his Op-Ed pieces (e.g., http://www.nytimes.com/2009/02/02/opinion/02krugman.html?_r=1), the Obama stimulus package, obviously structured by his economic team--under the guidance of Geithner, Summers, et al--suffers, because it is based on the same flawed ideology that is no different, in substance and philosophy, than the initial Hank Paulsen package promulgated last year under President Bush, in one of the most critical aspects. The government gives hundreds of billions of dollars to banks and other financial institutions but will not get any equity interests--on the ground that the government is not good at, and therefore should not be engaged in, running banks.  Instead, the government will buy the bad assets from the failed banks as a means of giving money to them.  I grant that the government probably should not be in the business of running banks but their conclusion that therefore the government should not get equity interests in those banks is a non sequitur.  The US federal government did get equity interests in commercial banks and savings banks involved in the financial crisis of the early 1980s and exercised its power in an appropriate manner in successfully resolving the crisis in our banking system, in a similar situation.

 

To see the glibness and intellectual dishonesty of the statements made by Summers, Geithner, et al, regarding the inability of the government to run banks, we only need to remind ourselves that bank shareholders do not run a bank.  Even ordinary, run of the mill variety investors, who buy or otherwise acquire bank stocks, all can and do exercise their rights as shareholders--which has always been part of the system that maintains our national banking system.  The bank shareholders never run a bank but only participate in the shareholder meetings in which they elect the top executives, maybe set the basic guidelines regarding the executive and staff compensation, maybe also decide on any basic policy changes for lending practices (as opposed to day-to-day operations and processing of bank loan programs), and the like.  These are the basic shareholder functions that ordinary private investors  always perform. 

 

So, why cannot our government (i.e., Geithner, Summers, et al), with a vast professional support staff in the Treasury and other government offices, perform these same bank shareholder functions as competently as, or at least a hair better than, ordinary bank stock investors?  And why do we have to watch the pathetic scene in which President Obama has to appeal to the clearly missing conscience of the bank executives when they go overboard in their self-dealing ways, when, in fact, the government, now as legitimate shareholders of those banks, could and should be actually making the relevant decisions regarding their pay and bonuses?  And we should ask, was it really expected that they would behave in any other way, on their own, after we have witnessed all the unconscionable self-dealings of those runaway CEOs?  Moreover, what good would the public whining of the President really do in curbing such behavior, and for how long, if at all? 

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In contrast to buying equity interests in the banks, to buy bad (or good assets) from the banks, the government must decide the "fair"- price of those assets.  But to determine the fair price of bad assets that are not widely traded in a market is something that no one, including the government, can perform well, since the fair price of any asset can be properly determined only in an open and active market.  Therefore, if the government purchases assets as a means of giving money to the banks, it will necessarily end up giving astronomical amounts of money as pure gifts to the banks, without much objective basis for the price the government pays or any effective means of controlling or monitoring the banks in which the government has poured hundreds of billions of dollars.  Is this bona fide capitalism based on the free market system?  Definitely, no!  It is only a warped, fraudulent version of the "free market"- system advocated by unscrupulous defenders of the Reaganomics and still peddled, in many disguised forms, by some of the remnants of the old school conservative economists who still abound in the Obama administration as the legacy of the Clinton administration, which he seems to have inherited. 

 

What is wrong about the President Obama's economic stimulus package is not in the details of the package but in the fundamental philosophy underlying the economic policy, which is still lingering around what Reagan/Clinton/Bush/Cheney administrations have been proclaiming for the last several decades, gradually eroding the basic financial and economic regulatory framework established by FDR and maintained by the subsequent administrations including President Eisenhower, to the detriment of the nation today.   

 

Another big disappointment in the President's economic stimulus package is that it does not contain any major public transportation infrastructure such as a bullet train system between New York City and, say, Washington, Boston, Chicago, or all of those and possibly other cities.  Many people who thought that the current situation would provide a great opportunity for the government to start such ambitious projects are naturally disappointed, but should hope that there is still an opportunity to see such exciting projects in the near future.  One has to wonder how long it will take this country to catch up with the other nations, which clearly were not ahead of us only a few years ago, in these high tech areas, also including the high-speed internet, solar energy, etc. 

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If President Obama's stimulus package contained truly ambitions projects that will launch us into the frontier of the new technology again, it could have inspired many more people and consolidated the public enthusiasm about his administration further.  Instead, his announced package flopped badly, although it passed the House.  The blame clearly has to be shared by both President Obama and the Democratic Congressional leadership.  But what can you expect from those Democratic Congressional leadership who have been complicit with almost every nasty thing that the Bush/Cheney administration did during the last eight long years.  But then how can you expect one man to do everything, even if he is truly the man we believe and hope he is? 

 

If we have learned anything from the horrors of the past eight years, it seems to be that we can no longer leave the health of our Republic in the hands of the politicians alone.  We the people must always be vigilant in a constant effort to protect and preserve our Republic and its economy, and that each of us must do what he or she can, in addition to voting regularly.  What we must be keenly aware of is that politicians are not necessarily so dumb that they do not know what is the right thing to do; yet they, too often, fail to take the right action because of the perceived or real political cost to him or her. Our job, then, as citizens, is to make enough public noise to support those politicians who are be willing to do the right thing and to make their political burden for taking such action less burdensome.  So, it seems that the only possible way for us to help President Obama accomplish what needs to be done is for every one of us ordinary people to talk about these and other important public issues more and more loudly among themselves and call Congressmen and Congresswomen, newspapers, and everything, so loudly that the government will have no choice to but hear the people.  I think ordinary people may have been too deferential and too polite to each other, expecting the government and the politicians to act correctly all by themselves, for too long, and ended up hurting all of us. 

 

What each of us can do individually is so meager and yet if enough people does small acts, it is not unreasonable to expect that they will add up to make enough thunders to silence the rightwing pundits, the mainstream media and the like.  We must beware the cynics, too, as they can be a dangerous cancer among progressives who constantly warn us that no effort will bring about any meaningful result because the establishment has already pre-fixed every social and economic agenda.  The collective task of the ordinary citizens, therefore, is to defeat not only the powers behind the status quo, if such exists, but also to defeat the cynics who are apparently very happy to indirectly aid the status quo.    

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Nathan Nahm is a retired New York lawyer.


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