Politics, Economy: Does Anything Work?

The bank bailout and stimulus package worked--up to a point. While the former did rescue the banks, and the latter spared us the depths of the Great Depression, neither has "fixed" the economy.

The big banks made money, but mostly on speculation with the cheap (almost free) bailout money, but they haven't been lending enough to genuinely rescue the economy. In fact, there is a real danger that bank speculation could trigger a worse financial collapse, unless Congress passes laws empowering government to regulate the whole financial industry. Because of widespread American distrust of government, however, and because of intense bank lobbying, re-regulation of the finance industry is difficult to get through Congress (banks were much more regulated before the wave of deregulation that began with Carter and Reagan, and continued through Clinton and Bush administrations).

Further, the stimulus was too little. While some millions of jobs were saved, and something less than that were created, the number of jobs lost, and the number of jobs needed is far larger, so the stimulus limited the damage, but didn't go far enough. The stimulus also saved the housing market from collapse: it is slowly recovering, but many are still losing their homes to foreclosure, many of those due to job losses, many others because house values plummeted and mortgage holders were left "underwater," owing more than their houses were worth.

No wonder people are unhappy and grasp for "solutions," like the Tea Party movement. Ironically, the solutions offered: abolishing the Fed, going back to the gold standard, free marketeering, abolishing regulations already in place, would make things worse.

The gold standard would drastically reduce the money supply, which would destroy more jobs; further deregulation would permit more speculation by the banks, which may be why the tea party is so well-funded, but it would further reduce the money available for job creation. And budget-balancing would subtract still more.

The real problem (Dollars and Sense: May-June, 2010), is that the whole global trading and financial system is seriously out of whack: the dollar no longer works as the world's reserve currency, which requires the US as importer of last resort, a high dollar, imports of goods, exports of dollars and the destruction of US manufacturing. This creates huge trade deficits, consumer debt, high finance and high unemployment.

What is needed: regulate finance and reduce its importance, revive manufacturing (especially to combat climate change), an active government in the economy, a low dollar, not a high one, and a new international reserve unit to replace the dollar.

This might end America's imperial hegemony, but we've already gotten to the point where we can't afford it; it has destroyed the US economy. The jobs we most succeed in creating, wreak destruction world-wide. We'd be much better off as "just another country." Otherwise, we might end like the Assyrian Empire: brilliant, brutal and short.