Driving the Hippo
Original post made by Tom Cushing on Sep 14, 2011
The US economy is like that. It's a mammoth beast, in a massive flow of many tributaries, that doesn't change course on any regular basis -- certainly not every four years. It might be nudged this way or that, but those corrections are uncertain, and may be felt far downstream. Unplanned obstacles lurk under the surface and jolt it uncomfortably.
The ants? They're the policy makers and advisors who think they know how to drive it. They are pleased to take credit for happy accidents that occur during their tenures, and to defer blame for problems that arise on their watch. As always, it's good to be lucky -- unlike a war or a legislative initiative with defined terms and set goals, it seems to me most of those economic attributions are empty, at best.
The tools of economic policy are few and pretty clearly understood, at least in theory. There's tax policy, which has the effect of injecting or removing resources from the electorate (and drawing up or down the national debt, immediately expressed in the interest money paid on government securities). Then there's monetary policy controlling the money supply and the "discount rate" of interest banks must pay for their raw material. Raising that rate makes borrowing more expensive, and vice versa, to cool or stimulate investment, and thence productive economic activity.
Finally, there's fiscal policy government spending on the things governments buy, like weapons, or highways or targeted R&D. This spending is best done counter-cyclically deferred in good times (fat chance), and acting as a prod to lagging demand in bad times. None of these tools fundamentally alters the hippo's route the game is always played at the margins.
So, when we look at the current unpleasantness, is it the Obamaslump? He's been Ant One for almost three years, after all, and strove mightily to redirect the hippo by maintaining tax and interest rates low and providing a fiscal stimulus, to mediocre results. By most measures, he's properly applied two of those tools, yet the hippo has stalled. What might he have done differently, other, more, or sooner?
Or is it the Bush recession, since his profligate fiscal spending, tax cuts and regulatory 'oversight' in the truest sense (as in "I forgot it was an oversight") during good times may have over-stimulated the beast, leading to a precipitous downfall? Or were the seeds of the Great Recession planted earlier in Clinton era loose-credit policies designed to encourage home-ownership? Reagan's deficit spending?
Or is it structural? Is the hippo mired in the shallows, because the flow has slowed toward a trickle? There's ample evidence that the US economy runs on a middle class pump that has been cavitating for four decades. Some traditional jobs have departed for overseas in a more open, developed and connected world. Others have steadily left for parts unknown, as technology has replaced or streamlined processes that once required humanpower to perform.
New hiring, to the extent that there is any, has been at the top and the bottom of the pay scale in what Marketplace commentator Kai Ryssdal calls "the hour-glass economy." But the top end doesn't have to spend enough, and the bottom end can't afford to. Investment, too, has fled the scene, with companies and lenders sitting on unprecedented amounts of cash, or devoting it elsewhere in the world -- meaning those jobs aren't coming back.
So, what's to be done? How shall we re-float the hippo? When monetary and fiscal policies have been tried and are ineffective, I'd argue that you have to attack the jobs issue directly, and work to prime the long-neglected pump that powers the flow. If it's difficult to drive the hippo, even it's harder to push the river. But rebuilding the middle class has to be Job 1 for our Ant-in-Chief. He'll need all the other ants to help him.
Wish him luck.