President Obama says we have to act boldly to solve the financial crisis. On Tuesday, supposedly explaining the new and improved bank bailout plan, serial tax evader and Treasury Secretary Tim Geithner added that we have to try things that have never been tried before.
The Obama team wants to boldly take our economy where no economy has gone before. Ladies and gentlemen, I give you the birth of “Trekonomics.” It’s like the old “Star Trek” series, just without the brainy, logical Vulcans.
And Obama’s Trekonomics begins with a violation of the Prime Directive for a free-market economy: that government policy shall not hinder industry’s planning for the long or short term. As I learned the hard way while working in the aerospace industry two decades ago, even minor revisions to tax policy — if done too often — can prevent millions or billions in investments in research, new plants and equipment and hiring.
In contrast, Geithner promised to “bring the full force of the United States government to bear to strengthen our financial system.” But he didn’t say how, when or why. Which is the principal problem with the Geithner plan: it’s not a plan, it’s an idea.
As if to drive the instability knife deeper, Geithner did say of his new strategy, “We will have to adapt it as conditions change. We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.”
This announcement was the perfect antidote to confidence: any credibility Obama and Geithner had gained in the over-hyped lead up to the announcement was vaporized. Wall Street expressed its opinion of Geithner’s plan by dropping like a rock: the Dow Jones sank nearly 400 points, nearing the pre-Obama bottom of about 7800 points.
Geithner’s approach — Obama’s, of course — is based on the assumption that doing something quickly is more important than doing it right. And if you don’t know what you’re going to do, make an announcement that is designed to placate people with vague promises of bold action.
Which is precisely the opposite of what our economy needs. It’s no wonder the Dow Jones Industrial Average sank. Geithner’s speech sowed doubt: he tossed a financial grenade into the mess Hank Paulson made last fall and then stood back to watch the rubble bounce.
This is becoming a parody of government. FDR said we had nothing to fear but fear itself. President Obama and his team don’t fear the fear: they embrace a piece of it, react to it and then find another.
But according to Geithner, “When the crisis began, governments around the world were too slow to act. When the action came, it was late and inadequate. Policy was always behind the curve, always chasing the escalating crisis.”
Which was true last fall, and is still true today. Hank Paulson demanded the bank bailout, using apocalyptic rhetoric to stampede Congress. And since the Obama administration began (was it only a month ago?) we’ve heard little more than how bad the crisis is.
The financial markets cannot have confidence in themselves and regain their strength until they know that the biggest influence on them that is beyond their control — government policy — has stabilized.
But in his big moment, Geithner promised the markets only continued experimentation and gave them no reason to expect a stable policy for another year or more. He thus guaranteed that we will be in a worsening recession at least until the spring of 2010.
Even if you spend money at warp-speed, it takes a long time to run out of it. Geithner’s plan promises to spend up to another $2 trillion in the financial market rescue. And this comes on top of the $1 trillion that’s in the president’s faux-stimulus package.
President Obama seems comfortable with that time table. In his first prime-time press conference, he was asked how Americans should judge the success of his stimulus plan. Answering ABC’s Jake Tapper, Obama said that it will take time to work. The president proposed that his success be judged by three criteria at the end of the year.
First, Obama said we should measure how many jobs have been “created or saved,” repeating the goal of four million jobs to be in one category or the other.
Second, he said that if the credit markets are operating properly (and here he mixed the Geithner plan with the so-called stimulus), that is another measure of success. (But what is “properly”? Maybe he and Geithner will figure that out.)
Third, the president said that success will be achieved if the housing market has been stabilized and the rate of foreclosures has been reduced. There, at last, is a measurable criterion.
As the Congressional Budget Office said last week, the Obama-Pelosi “stimulus” bill will — in ten years — do more damage than good to our economy. We’d be better off if Congress took six months off rather than passing this awful bill. Which it may do today.
Our free market economy — at least what’s left of it after Bush, Paulson, Obama and Geithner are done with it — craves a reason to be confident in government. Not for government salvation, but for stability of government action and minimization of interference.
Obama’s Trekonomics promises only experimentation and continued instability in government action. He and Geithner will take our economy where no nation has gone before at the warped speed of government spending. And while they do, our economy will have no opportunity to recover.
Cartoon by Brett Noel.