If the goal of stimulus is to maximize the boost to total spending while minimizing the increase in the budget deficit (in order to minimize the deleterious effects of “crowding out”), then maximum bang for the buck would be desirable. The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving. Direct government spending on goods and services would therefore lead to the most bangs for the buck since none of it would be saved. The largest categories of direct federal spending are national defense, health, infrastructure, public order and safety, and natural resources.
This means that insofar as Steps 3 and 4 are concerned, the Stimulus Package, while far from perfect, is in the ballpark and Republicans are not only out of touch when it comes to the economy, they’re not even on the same planet. Their stubborn refusal to acknowledge basic realities reveals the nature of their mass refusal to vote in favour of the stimulus package: obstructionism and politics. When the Republican solution everything to cut taxes – how do you change a light bulb? You cut taxes and watch the bulb screw itself back in – playing politics with the economy in the hopes of scoring points is the only explanation for the refusal to consider difficult, not necessarily pleasant, solutions to challenging problems.
So with about the best we can expect given our low expectations – steps 1 and 2 are obviously not going to happen – it’s time for a very brief description of Step 5.
Step 5: Abolish Capitalism (As We Know It)
Capitalism as we know it is bad for the economy. Yes, it’s more successful than communism. And yes, there are obvious benefits – stocks and bonds are useful instruments to fund risky endeavours. But there is something profoundly wrong with an economic system that is also prone to catastrophic failure, which can become so complex that no one can truly understand it well enough to manage and is prone to rigging and manipulation. Of course, one might say that any human-created system is prone to these faults, and that’s true. But capitalism is seen as such a golden goose that we tend to gloss over the fact that is intrinsically vulnerable to failure. Take retirement. How logical is it to invest money for retirement in a system that can wipe out investments? True, by the time we reach retirement age, we’re supposed to have our money invested in bonds rather than stocks…but governments have been known to default on bonds. Or how about the incessant need for growth…considering that we have a finite amount of resources? Perhaps President Obama’s stimulus package will succeed in it goal. In fact, I suspect it will. However, it doesn’t change fundamental, structural problems that manifest themselves in recurrent economic disasters.
This isn’t a new notion, however, and a reminder comes from a fellow named David Korten, author An Agenda For a New Economy From Phantom Wealth to Real Wealth. I have yet to read the book, but in an short article he states very well what needs to happen next. Replace what he calls the “Wall Street economy” with the “Main Street economy:”
“…the Main Street economy is comprised of local businesses and working people who produce real goods and services to meet the real wealth needs of their communities. It has been battered and tattered by the predatory intrusions of Wall Street corporations, but it is the logical foundation on which to build a new, real wealth economy of green jobs and green manufacturing, responsible community-oriented businesses, and sound environmental practices.”
Korten isn’t the first to see the problem and propose a solution. The unjustly obscure individualist anarchist thinker Josiah Warren identified, in his 1852 text “Equitable Commerce”, a key problem with economics as we typically understand it: we base our economic transactions on value.
“If a traveler, in a hot day, stop at a farm-house, and ask for a drink of water, he generally gets it without any thought of price. Why? Because it costs nothing, or its cost is immaterial. If the traveler was so thirsty that he would give a dollar for the water, rather than not have it, this would be the value of the water to him; and if the farmer were to charge this price, he would be acting upon the principle that “The price of a thing should be what it will bring” which is the motto and spirit of all the principal commerce of the world; and if he were to stop up all the neighboring springs, and cut of all supplies of water from other sources, and compel travelers to depend solely on him for water, and then should charge them a hundred dollars for a drink, he would be acting precisely upon the principle on which all the main business of the world has been conducted from time immemorial. It is pricing a thing according to “what it will bring,” or according to its value to the receiver, instead of its cost to the producer.”
This discrepancy between cost and value is why, for example, many homeowners find themselves with mortgages whose values now exceed the market value of their homes – through no fault of their own.
The next step, the way to really revitalize the economy, is to transform it by thinking, not in terms of value, but in terms of cost. To think, not in terms of purely monetary profit, but in terms of holistic benefit to individuals and society.
Frédérik invites you to discuss this week's column and more at his blog.