These certainly are interesting times. The United States is in an increasingly precarious position. Growth at home is anemic. There’s not much in Europe to be up about either. Markets are increasingly skiddish, and yesterday plunged.
But America just fought a great battle! The forces of fiscal responsibility and spendthrift largesse clashed against one another, dueling right down to the moment when it seemed that all might be lost, but no! Miraculously we have a deal, perhaps not a “grand bargain”, but a deal none the less. Surely this battle captures the mood of the nation, certainly my fellow countrymen and women sat at the edge of their seat like everyone here in Washington. Right?
What does capture the mood of the nation? For me it was a conversation I had, a little over a year ago, back home in Wisconsin, where Kabuki theater still did not exist until, well, this winter. A close friend of mine had just left a long and rewarding career as a diesel mechanic, and had begun his own shop. When I asked how things were going in this new venture his reply stuck with me for a long time, and hit home this week while I watched CNN broadcast live from the House Chamber, tallying votes for the debt deal.
“Well right now we’re just waiting to see what the Government’s going to do next.”
He was referring to Cash for Clunkers, which I can imagine to the mind of a mechanic must have seemed like absolute lunacy. This comment though, captures everything in today’s America, and especially in this increasingly raucous 2011.
What’s going to happen next? Where can I put my money? Will I get a social security check? Will I get an unemployment check? Will my community receive stimulus, or will funding evaporate? No one really knows, least of all, so it would appear, Congress!
While Congress is caught up in successive paroxysms of misread mandates – the 2006 to 2009 mandate to bring about a progressive utopia, and the 2010 to 2011 (it will end) mandate to bring about a “governmentless” utopia (if there is such a thing) – the nation is in a painful transition period dominated by deleveraging. We spent too much, and then in 2008 a lot of our wealth just evaporated, and now we’re paying down the bill. This is where we’re at, for all the sound and fury on the airwaves, most of us don’t want a day of reckoning, we just want to get this behind us and get back to work.
While Americans pick up the slack, and there is a LOT of it, perhaps as much as two to three years more for most households, the economy has limped along, fueled in large part by stimulus and quantitative easing. These programs haven’t sparked a massive recovery, but they have saved us from what could have been a precipitous drop into something that looked a lot more like the 1930s.
If we are going to stop the spending now, who will fill the void? Consumers won’t, they’re not ready, and the future is still too opaque. The old model of GDP being 60-70% consumer spending isn’t something we can go back to anyway. Corporations are flush with cash – some $2 trillion, but they won’t spend it, because consumers won’t buy their products.
So what can be done? For Congress, get a clue – it’s not about you – and get out of the way!
Stop creating dangerous and needles crises and start creating long-term expectations. Or where those aren’t possible, at least short term expectations, which are an improvement upon absolute uncertainty. Now that the debt ceiling battle is over, Congress may have some cover to pass annual spending bills. It should. While five and six year spending bills are not feasible, it should at least pass bills that create stability for the next two years. Come November, it should begin to lay out a long term plan of tax reform that seeks to readjust the economy away from overspending by consumers, and toward a more balanced mix that includes increased savings, investment, and innovation. That means cutting taxes in areas like personal and corporate income, but raising them on consumption – something that will, admittedly, precipitate another crisis (but a worthy one!). Those changes will begin to create stable expectations, which in turn will create an environment where the risk of the unknown is diminished, and businesses and consumers can begin to jump back into this economy. That will create jobs. And that is what we all want to happen next.