New politicians bring hope
The American economy is stale. The unemployment rate has landed indefinitely on a plateau at 9.5 percent. Housing prices are still stagnant. Credit is only starting to loosen in the aftermath of the Lehman Brothers Holding Inc. catastrophe. Perhaps the most concerning aspect, though, is that the short-term outlook is bleak. Consumer spending, the largest part of GDP, is dreadfully slow. Companies are reluctant to hire. The national trade balance is almost irreversibly negative. Because of the frozen credit market and lack of confidence in the economic future, capital investing is not expanding either. What went wrong?
In six words — the American Recovery and Reinvestment Act. Although Keynesian policies are not without faults (i.e. crowding out private investment), they are the best available resource to dampen economic downturns (Ben Bernanke's loose monetary policy hasn't helped) — especially when low consumer confidence chokes spending. President Barack Obama's administration was right in its intent, but dead wrong in execution. The majority of almost $1 trillion, deficit-printed, went to repairing infrastructure. The first problem with this choice is that the funding needed to scrape its way through agencies, commissions, nepotism and, finally, labor unions' prevailing wage. The second, more lethal, problem is that it did nothing to create sustainable jobs or growth. The cash infusion, primarily into the labor market, was merely a superficial adrenaline boost that would not — and does not — leave the economy significantly better off. Washington would have been wise to direct the financial capital toward the development of intellectual capital and new technologies in the medical, information and energy fields. Instead of spending cash that taxpayers will have to repay, U.S. Congress should have invested in growth markets that would yield tangible returns. Teach a man to fish, as the proverb goes.
It is easy for a third party to groan about what bad decisions were made, and hindsight grants us the advantage of judging those decisions based on the outcome. Thinking back to before the crisis, one thing is clear. The Obama administration is not to be blamed for the state of our economy. It started with the Federal Reserve System, which left interest rates far below average during expansion and then caused the huge housing bubble. Wall Street investment bankers then, by underwriting an irresponsible volume of subprime mortgages, provided the pin.
On the brighter side, despite a collapsed financial system, a failed stimulus package and an unprecedented national debt, indicators suggest that the economy has bottomed out and could begin growing, however lethargic that growth may be. Banks will start lending, households will consume, companies will hire and invest. Now that we are not in free fall, the president should keep his hands off, with one exception, and let the private sector right itself.
One of the more practical, albeit obvious, suggestions by Obama and other leadership — and my one exception — is the renewal of the Bush-era tax cuts. Although many more tax reductions, coupled with the strangulation of federal spending, are needed to prompt short- and long-term growth without adding to the enormous debt obligation, the tax break extensions are crucial. Senate minority leader Mitch McConnell, R-Ky., has announced that he and all Republican senators will block an extension of the tax breaks if they exclude extensions for the people Obama labels "the wealthiest of Americans."
McConnell seems to have a surprising amount of bipartisan support against the president's tax plan, and it is possible that he can introduce and pass a bill that extends the Bush tax cuts for all levels of income. It is unlike Democrats to argue for tax reductions on the wealthy, especially when it conflicts with the president's desires. The most likely reason for this about-face is election season worries; the majority party is going to suffer a beating in November thanks to the passage of a very unpopular health care restructuring bill, negligent deficit-spending and the continued presence of American troops in the Middle East for far too long. Yet instead of staying in Washington to do their jobs and be productive, Congress is back on the campaign trail, spending taxpayer money on security and transportation to convince their constituents that they are still competent.
Although a conservative landslide this November is almost a foregone conclusion, the public has to ask itself if a takeover by hardcore Republicans is really desirable. What we need and what America wants, if Delaware's primary is any indication, are new representatives who will stand up against costly social programs and imprudent expenditures by the federal government — people who have no obligations to political parties or special interests, people who have careers and have no interest in being lifetime politicians. America needs leaders who will bring Washington back to its Constitutional roots. ?
James Winters is a School of Engineering junior majoring in biomedical engineering. His column, "From the Desk of ...," runs on alternate Mondays.