Sunshine, Lollipops And Rainbows
Ah, the classics. Ok, it isn't a classic, just a treacly pop song by Lesley Gore. But Robert Samuelson is calling the "economic stimulus" talk by politicians nothing more than lollipop politics. Because the ugly fact is that there is literally nothing that can - or should - be done to the economy that would actually work. But the politicians are arguing about what flavor lollipop to hand out with great earnestness.
Every day, the housing situation seems to worsen. Jared Bernstein of the Economic Policy Institute, a liberal think tank, likens a stimulus package to insurance. "The important part," he says, "is to prevent a bad situation from getting worse." Bernstein worries that Federal Reserve policy alone — cuts in short-term interest rates — won't suffice to spur the economy.
All this sounds sensible, but it stumbles on a stubborn dilemma. Folks, we have a $14 trillion economy. A one-time stimulus (rebates aren't permanent tax cuts, and grants to states would probably be temporary) of $75 billion or $100 billion is too small to do much. If the economy is in serious trouble, something much larger is needed. But if the outlook is not so dire, then a modest stimulus plan is mostly political symbolism.
The truth is that there's a touch of hysteria to much current economic commentary that is, as yet, unjustified by what's actually happened to the economy. Yes, the housing slump is vicious, but at its peak, housing was only 5.5 percent of the economy, and the present slump is still only the fourth worst since World War II.
Whether a recession occurs — a determination made by academic economists, usually after the fact — probably won't affect most people. Economist Richard Berner of Morgan Stanley expects a "mild and short" recession, with peak unemployment of 5.6 percent or 5.7 percent in early 2009. According to economist David Wyss of Standard & Poor's, the average unemployment rate of the past 50 years is 5.6 percent. This would be a setback, but not a disaster.
Only time and patience will cure some economic problems. Though few mention it, rising inflation is a threat. For the year ending in November, consumer prices increased 4.3 percent. Slower economic growth — even a recession — would dampen prices and incipient inflationary psychology.
The housing predicament is similar. Inventories of unsold homes are high; monthly sales are low. When there's a big gap between supply and demand, prices must adjust. That has to happen in housing. Home prices must drop further, so that houses become more affordable and revive both sales and new construction. True, falling home prices would probably lead to more mortgage losses and foreclosures. But the more the adjustment is delayed, the longer the housing market will remain moribund.
Sometimes the hardest thing to do is nothing at all. But that appears to be the correct path. Every candidate has a plan, however. The bidding starts around $75 billion or so and escalates rapidly. But against a $14 trillion economy, all of the billions they are yapping about spending amount to noise on the system. It isn't about economic reality, it is about handing everyone a lollipop, patting them on the head and deferring the necessary corrections until after the elections. The lollipops will, as lollipops do, eventually dissolve, leaving behind the tooth decay of having to pay for all the treats.
By Mockin'bird, Wednesday, 16 January , 2008 @ 2:31 pm
Couldn’t have put it better!
By classic60s, Wednesday, 16 January , 2008 @ 7:30 pm
Lesley Gore’s “Sunshine, Lollipops, and Rainbows” has certainly become a classic since its recording in 1963 and its chartings in 1965.
Run any kind of internet search, including YouTube, and find out how many young people my age know and like that song!