Today's announcement by U.S. Treasury Secretary Henry Paulson is but the latest effort by the current administration to downplay the severity of the current economic crisis. In the grand old American tradition of hucksterism, Paulson's prescription is a sorely misleading sell.
It's time to wake up and smell the economy. Sadly, there's no short and easy fix to the longer-term problems created by excessive borrowing combined with rampant consumerism. Yet Paulson insists (White House Stimulus Fact Sheet, Jan. 18, 12:03pm, WSJ.com), "By passing an effective growth package quickly, we can provide a shot in the arm to keep our fundamentally strong economy healthy and help keep instability in the housing and financial markets from more adversely affecting the overall economy." Believing the economy to be grounded on a "solid foundation," Paulson is ignoring the walls falling down.
Paulson's leading theme is to "[get] money to them [U.S. consumers] so they will spend it." Help America spend our way out of a problem created by too much spending? Only in America. Low interest rates combined with easy and arguably predatory lending practices is what got us into this mess in the first place. Our national motto: I spend therefore I am.
We have become a culture of extreme consumption. The rest of the world sees it -- why can't we? Since 2005, the U.S. personal savings rate has been below 1% of disposable income [U.S. Bureau of Economic Analysis, www.bea.gov], while China's, in contrast, sits at 20%. [Credit Lyonnaise] We borrow against our homes we can not necessarily afford in order to buy a television better than the one we already own. We market Disney credit cards to children and convince Americans they can't live without time-shares in Orlando. We are the richest nation in the world and yet the greatest global borrower. The world's economy grew on the back of the overspending U.S. consumer and we are all waiting to see what happens now that the spine has snapped.
So what will help Jane and Joe Jones who earn a mean income of $48,201 [U.S. Bureau of Economic Analysis, www.bea.gov], a year, are funding their children's education, have leased gas-guzzling SUVs, and whose mortgage is now above the current market value of their home? Good question. And one we should be asking our candidates who will inherit this looming disaster. Where Paulson was short on specifics, our candidates have to offer us long-term sustainable solutions that will likely involve some pain.
Attention voters: We need to urge our candidates to rely on the capital markets and our fundamental belief in efficient markets to shore up the financial system. Any government-imposed strategy which circumvents the idea of the free flow of capital would have disastrous long-term consequences. Supply liquidity to the banking system? YES. Bail out one home buyer but not another? NO.
We are among those who believe we are already in a recession. A thoughtful stimulus plan is much needed, but with the mindfulness that fueling inflation will only open a whole new can of worms.
Now is the time for innovative thinking that aligns short-term fixes with long-term ethical direction. The promise that quick-fix maneuvers aimed at stimulating more spending will rescue the economy is yet another example of the current administration's wishful and delusional thinking. Jane and Joe deserve better. And so, dear readers, do we.