Saturday, January 10, 2009

We're Turning Japanese? Yes, I think so

First of all, the current economic decline is a natural correction resulting from the bursting of the bubble economy in the housing market. Instead of this being a short and severe correction, it will be a long and drawn out one. This is because we did not allow market forces to correct the situation by permitting bad banks to go under and be taken over by solid banks with good lending practices. This is no different that what happened in Japan in the late 1980's and 1990's, except that we have the advantage of crippling every other nation with our bruised economy.

The single greatest action the Federal Government could have take to restore confidence in the system would have been to freeze spending on all government programs, while making strategic cuts to wasteful programs. By reforming the benefit system for social security, establishing a plan to gradually increase the retirement age, reducing the liability burdens on health care providers, and reforming the accounting practices in the Pentagon, the projected Federal deficit would have been significantly reduced. This would have demonstrated to the rest of the world that we were serious about making corrections to our reckless spending and that, in turn, would have restored the confidence of international investors in the American system. They would have then looked to the US as the responsible place to invest their money in these challenging economic times. An increase in capital investment would have resulted. The increase in capital investment would have triggered an increase in jobs and consumer confidence. That would have been the most efficient plan for a quick and responsible recovery.

Sadly the powers that be chose to go a different way and as a result they will all but guarantee a long and painful recession. The best we can hope to do now is to stop flushing money away through pointless bailouts, forget the failed policy of tax credits, and reform social security in order to prevent an even more painful situation in the coming decades. All of this is unlikely with a President Obama, since reforming social security would be the first courageous move ever taken in his life.

The people will likely demand further government action to relieve their pain in these times. The country is best served if this relief comes in the form of infrastructure projects that will benefit our economic future for decades to come. While government spending programs are, in general, a bad idea, the least offensive of these are public works projects. At the very least, all citizens will benefit from improved roads, more efficient communication lines and an updated energy grid, by reducing the costs of the private sector. Infrastructure projects, unlike welfare and other progressive social programs, actually benefit all citizens. The private sector is far more efficient than government bureaucracy and we would all be best served by competitive bidding that wasn't influenced by political considerations (yes, I'm looking at the union bosses). A consolation prize of sorts for America is that Obama's proposed stimulus plan isn't a complete waste.

Obama's plan does have a couple of good public works projects. Sadly, a couple public works projects are the only good things in the entire 700 billion plus proposal. What's worse is that Obama's plan will likely end up being even more of a pork riddled orgy of union handouts, cash to pay off credit cards, and green technology that will do little to help the economy. But, it will satisfy political interests on the left and give the perception that he cares. And really, isn't that all that matters.

The current economic crisis, in all its glory, was not anticipated by many. But, that is no excuse for the ignorance so many in power demonstrated in their subsequent responses. Some talking heads have now come around to the reality that the current crisis we are facing is quite similar to the one Japan faced (I so called it in my blog on that other site before you talking head bastards). Unfortunately, the talking heads have little to no understanding of why that recession dragged on for a decade and they are now recommending many of the actions that kept Japan in the recession. Japan could not, for cultural reasons, make the tough choices to allow some institutions to go under and for unemployment to rise in the short term. We, for political reasons, also seem to be incapable of making the tough choices that need to be made.

The connections of key members of the Bush administration to large financial entities that were involved in the market meltdown are largely to blame for the poor response to the crisis created by the democrats and their friends in the housing and mortgage industries. Until these ties are broken (and they won't be) there will not be the kind of reform that needed to take place months ago. In short, you're in for a long painful recession America. But on the plus side you now have something to discuss with your Japanese friends, besides the fine points of Bukkake.

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