The election of Barack Obama has illuminated a fabulous hope of economic recovery, a hope of historic proportions for the United States and for the whole world. Yes, we can change, provided that we escape from the narrow mentality and the simple retouching of public policy.
The simple fixes that some propose, such as tax refund checks or zero interest rates by the Federal Reserve will not suffice. The government needs a clear medium-term strategy that revitalizes spending on private investment, and will have to resort in the coming years to greater budgetary revenues to devote to urgent public investments and long-term restructuring. The short-term recovery will be enhanced by the clarity in the long-term orientation of economic change
The US economic crisis requires
a new macroeconomy and this is the most urgent task faced by President-elect Barack Obama. The Humpty Dumpty of real estate and consumer bubbles has fallen off the wall and will not be able to be redressed again, by many Wall Street bailouts, liquidity injections and tax refunds that apply.
The end of the consumption boom marks the collapse of a time that began with Ronald Reagan. Some experts and politicians would like to go back to the policies of the Clinton years, but those policies were compromises with Reaganism that will no longer suffice. The US economy is in a downward spiral of recession and huge budget deficits. The Federal Reserve inflated the economy for years and fostered irresponsible lending and borrowing practices in real estate and consumer credit, all to keep the economy growing.
A country that for years supports zero or negative levels of family savings and is heavily indebted abroad is condemned to pay a high price for these practices, and the United States has time to pay. Worse yet, as housing and consumer bubbles grew, the Iraq war continued with its bleeding of lives and money and a series of crucial problems, such as the environment, energy, infrastructure or world poverty, were ignored. . Now the macroeconomic and structural crises have unleashed simultaneously.
Here is a brief overview of our macroeconomic hardship. The 1970s marked the end of two epochs: that of the monetary system backed by gold (which ended between 1971 and 1973) and that of cheap oil (which ended in 1973). This double crisis led to painful years of stagflation in which energy shortages were associated with the ineffectiveness of monetary policy to trigger high inflation and economic contraction. Jimmy Carter was absolutely right in the world regarding the long-term energy problem, but his efforts were mocked and abandoned as soon as he left the presidency.
Ronald Reagan misdiagnosed stagflation and put the United States on a disastrous long-term course. President Reagan and his supporters erroneously held that the problems lay in state regulation, excessive taxes and welfare handouts, rather than in the need for a redesign of monetary policy and a responsible long-term energy policy.
As a result, they proceeded to dismantle a good part of the social protection network, creating a marginalized class in the United States that is scandalous according to the parameters of any other advanced economy: they left the country in the twenty-fourth position of the world by as regards life expectancy and in the twenty-fifth in terms of infant mortality.
The great myth in the United States is that capitalism demands that brutal contempt for the poor, something that is questioned every day by the high incomes, the low level of poverty and by the social cohesion of other advanced economies. Reagan’s tax cuts led to a generation during which we have been unable to invest in basic infrastructure. And the Reagan era initiated the enormous financial deregulation that has caused our current calamities.
The Clinton era reversed some of the excesses
but it was essentially a commitment to the Reagan era. During the 1990s, fiscal revenues as a part of gross domestic product remained low, and Washington continued to undo the social protection network and accelerate the deregulation of the financial market. Foreign aid plummeted during that decade, which allowed the spread of the AIDS pandemic and the African famine. Both then and now, Americans have failed to understand that doing nothing to fight hunger, disease and poverty is, precisely, paving the way for extremism and conflict.
The big money continued to infect the political system.
Both Democrats and Republicans made peace with immense wealth and were linked to the promising and innovative Wall Street. And the appeal to the bond market was interpreted as the end of the ambitions to solve the great challenges of energy, climate, poverty or infrastructure.
According to the famous phrase of Karl Marx, the story takes place once as a tragedy and is later repeated as a farce. However, with Bush we have had tragedy and farce. The Bush administration made purchases and tax cuts in the official macroeconomic policy of the United States. Families had to borrow on their real estate wealth to keep the consumer machine running. Financial deregulation was going to maintain the health of the real estate market.
As a result of all these changes, today we have an economy on the brink of disaster. Consumer spending is in free fall and housing, the automobile and other sectors of consumption are dragged into it. Unemployment will grow several percentage points. The budget deficit keeps growing.
The US dependence on the foreign loan has also acquired gigantic and unsustainable proportions, more than 700,000 million dollars a year (more than half a billion euros). Foreign central banks, especially Asian ones, have accumulated trillions of dollars in US securities. And, of course, banks are still in a state of deep decapitalization and can not or do not want to grant loans.