Big economic hangover looms with government’s quick fix | TahoeDailyTribune.com

Big economic hangover looms with government’s quick fix

Kirk Caraway

The funny thing about a recession is that, according to the official definition, you don’t know you’re in one until it’s gone on for six months.

Wall Street financial firms still can’t figure out how much of a hole they dug for themselves in this whole subprime mortgage mess. Meanwhile, record numbers of people are losing their homes, inflation is rising and jobs are bleeding away.

The politicians aren’t waiting around for someone to officially declare a recession. It’s an election year, and as Bill Clinton proved back in 1992, it’s the economy, stupid. Any politician who ignores economic issues in this climate is going to have to find a new line of work.

Of course, paying attention to the economy and actually doing something constructive to make it better are two very different things.

Unfortunately, economics is a very complicated science that most people don’t understand. Even Sen. John McCain admitted he doesn’t know much about the subject.

Lack of knowledge isn’t going to stop any candidate from trying to snow the voters on economic issues. They will throw around all kinds of solutions, few of which actually work, but they’ll sure look good come Election Day. That $168 billion stimulus package they passed isn’t going to do much. Great, we all get a check in the mail, which most people probably will spend paying off bills instead of stimulating the economy. But politicians facing voters this fall love it, and they spent $42 million sending out notices to tell us all about it.

A few weeks ago, I saw my congressman, Dean Heller (R-Nev.), on television talking about this package. He said something to the effect of that he’s always in favor of giving people back their money.

That’s really nice, Congressman Heller. Except that’s not what this package is all about. What Congress and the president did was to take out a loan in my name, give me the money (minus some administrative expenses, of course) and stick me with the bill to pay off later, with interest.

Isn’t reckless borrowing of money the reason we’re in this mess to begin with?

What we are left with is a hair-of-the-dog recession. Back in 2001, the Bush administration opened up the debt floodgates to battle that recession. Now, we are looking at the combined effects of both recessions at the same time. Guess they never figured out that you can’t drink yourself out of a hangover.

While Washington might be able to do something to ease the pain, trying to escape this economic hangover will just make it worse later.

The government has precious little money to throw at the problem. One of the reasons we are in this fix is the massive borrowing and spending that has taken place over the past seven years, which has helped drive the price of the dollar down around the world. The more irresponsible we are with our money, the less faith other countries have that we will pay back our debts.

This is a time of reckoning. Some people are going to lose their homes because they made bad borrowing decisions. Some financial institutions are going to go out of business because they made bad lending decisions. And the government is going to have to start living within its means, or it will just make matters worse.

Washington can’t do much about this recession, but they can do something to stave off the next one. First, the government is going to have to step in and install new financial regulations to prevent the kinds of abuse that have led to the current collapse. This is what they did in the 1930s, which was very successful up until deregulation fever hit, and we had to learn those painful lessons all over again.

Second, we have to fix the health-care system. The rising cost of health care affects everything we do. U.S. Comptroller General David Walker has cited reforming health care as the top priority for fixing this country’s fiscal problems. Private industry is forced to compete on an uneven playing field against other nations with government-controlled systems. Having health care costs rising at twice the rate of inflation is unsustainable and has to be fixed now.

Until these are corrected, there will be no long-term recovery, just more hair-of-the-dog fixes, with a bigger hangover to come.

– Kirk Caraway writes for Swift Communications, Inc. He can be reached through his blog at kirkcaraway.com.


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