The Problem with the Stimulus
Doom and gloom is everywhere. We now see what happens when the productive capacity of a nation is propelled by ever widening wheels of debt, tied not to strength of assets but to derivatives of debt.
Now comes the question, what to do. First, be realistic. Second, be bold.
Here is the problem with fiscal stimulus: if not applied to rebuilding our nation’s productive capacity, it is money down a black hole. For certain, it is important to provide some floor under this free-fall. But government spending on infrastructure serves a temporary purpose. a limited purpose. Fiscal stimulus that fails to provide for new productive capacity—jobs making products that people need—will bleed out the economy like a slow suicide.
Miami-Dade County recently submitted to Congressional leaders a three page letter detailing $23.46 billion in “approved, programmed, multi-year capital projects” that the county would like funded from the Obama plan when it emerges, attaching a list of $7.2 billion that are shovel-ready. All the projects are needed, it is true. It should be acknowledged, too, that information about the scope and scale of the county infrastructure deficit was willfully suppressed by local government, anxious to keep the building bubble expanding without concessions to lagging infrastructure. But these are not projects that will revive the economy. They represent what Florida’s most populous county left behind in the chase for tax base.
Today they represent, moreover, a repudiation of values, fiscal prudence and ethics that sunk the economic ship.
Across the nation, thousands of counties and municipalities have similar shovel-ready lists to paper over egregious mistakes by public officials who failed to account for, fund and pay the costs of growth when and where they occurred.
Realistically, civil works projects will prop up the economy only so long as the vast inputs continue. But you can’t use debt to solve the problem of too much debt, whether you are a credit card junkie or a municipality. Without increasing productive capacity, those short-term benefits will disappear like smoke.
Florida is a state in crisis because it doesn’t make much of productive value. Its agriculture and tourism are vulnerable to disruptions in the broader economy. Its natural resources are in the midst of expensive, uncertain rehabilitations. The impacts of climate change are on the horizon, if not already here.
What Florida does have is a lot of sunshine. That makes the state a premier candidate for massive investment in renewable energy technologies.
To be bold, and to create permanent jobs requires a vastly de-centralized energy grid. Right now, Florida’s utilities green-wash their energy portfolios with pilot projects for solar but for the most part, they are like any other states’: relying on decadal investments and mountains of new debt and costs to consumers for large-scale investments around a fixed, antiquated grid.
Just like the banks, the big electric utilities will do business-as-usual—including all the millions in compensation and perks to top executives—until the system breaks down. Then, like the banks, energy will be nationalized.
It is not clear if our democracy is facile enough to adapt to the bold thinking and steps and implementation to get us through this economic crisis. To a large extent, members of Congress owe their own seats to powerful economic interests who would consume the nation’s capacity for bailouts before surrendering an ounce of privilege. That’s what happened with Merrill Lynch’s billions in compensation, while billons of taxpayer dollars were being injected to stave off its bankruptcy.
How could Congress let this happen, if Congress itself was not suffering from Stockholm syndrome?
Whatever formula the Obama administration chooses to allocate the national debt to revive the economy must be guided by analyses enlightened by the recent behavior of the serial bubble architects. Trillions of dollars of fiscal stimulus must be transparent, must have stringent federal controls, audits, and oversight and must be supported by a much more muscular regime to investigate, prosecute and penalize white-collar crime and public corruption.
This is no plain vanilla recession. The Obama administration should consider preemptive measures to nationalize sectors of the economy, to speed change, rather than be forced to nationalize once those sectors have been stripped and looted like the banking and insurance industries.
Who knew the fall of the Berlin Wall was a comma, on the way to; this?
ALAN FARAGO, who writes on the environment and politics from Coral Gables, Florida, and can be reached at email@example.com