....February 19, 3:28 PM
 
 
 
The Cliff Notes To Economic Recovery 101

By Michael Schenkler

Okay. I am not an economist.

I understand business, money, cash flow, profit, loss and sort of understand taxes. But to claim that I can participate intelligently in Congress’s stimulus debate would be inaccurate. I am no more capable of figuring out the most effective ways of spending $789 billion – that’s 790,000,000,000 dollars – than they are. Gimme a break. The guys and gals on the Hill are not economists. Many of them are not even successful businessmen. Some haven’t even paid their taxes. Few, if any, of the 532 – 100 Senator, 432 Members of the House – have any formal training in stimulating the economy. The President, as bright and impressive as he is, probably has less experience managing money and/or a budget than most of the small businesspeople you know.

So how do they negotiate a $790 billion stimulus package with any confidence that recovery will be the result?

I think it’s fairly simple.

If you throw 790 billion new dollars into the economy, things will get better. A lot of it will get spent; and then re-spent and re-spent again. Imagine 790 billion additional one dollar bills in circulation; it will surely start to clog the retail registers on Main Street. Some will make its way to Wall Street and big chunks will wind up in most industries, communities everywhere across the nation.

When someone winds up with a pocket full of cash because of the effect of the stimulus package, they are going to spend a portion of it and that’s going to fill someone else’s pocket. Whether the pocket is a business or a person, rich or poor, big or little, a full pocket doesn’t stay full for long. Money circulates. And so, in my unsophisticated opinion, the reason the stimulus package will work has little to do with the economic skills of the folks in Washington, D.C., but is because if you print an extra $790 billion bucks and throw it into the economy, there will be lots of money spent.

You could drop it from an airplane. You could give it back in tax cuts; you could build infrastructure, hire teachers, buy chocolate bars, earmark it for bridges to nowhere – just get the money into the system and it will circulate.

Fill the banker’s pockets and he’ll start lending. Fill the middle class’ pocket and they’ll start spending. The impact of more than three quarters of a trillion newly printed dollars will be amazing. As long as it gets into the system and circulates, we’re well on the road to recovery.

Now, if you take $790 billion and divide it by the number of American families, that’s more than $5,000 for each family. Imagine if every family in this country spent an extra $5,000 this year what impact it would have on the recession. Boom, gone. That money would circulate through the communities and be spent many times over. Some of it would pass through each of our hands.

The decision Congress and the President had to make was how to get it out to the people. Sadly Washington’s decisions are always influenced by special interests, partisan politics and other anti-productive forces which always negatively impact everything out of the nation’s capital. But all that will do on $790 billion is cause some of it – hopefully not too much – to be unproductive new money.

As I said at the column’s opening, I am not an economist but I think many of us could take $790 billion and figure out how to get it spent quickly and effectively.

Dear American family, Enclosed please find your 2009 Uncle Sam Recovery charge card. The United States government will automatically pay $5,000 in retail purchases made during the 2009 calendar year. It will pay $10,000 toward the purchase of a new car made in America or $15,000 toward the purchase of a home for first time homeowners. The funds received from this card are exempt from Federal taxes but are taxable on the State and local level according to the laws of your State. All funds must be spent before December 31, 2009. Happy recovery, Barack O. & the members of the Congress.

Perhaps my recovery program could be tweaked whereby the size of your spending limit is tied to your wealth, so that the poorer American families get more, but let’s get the money into the system.

We really shouldn’t spend the time debating the best way to do it. We each have to now get ready to do our part. Shop keepers on Main Street have to tape big “sale” signs to attract the new money. Auto dealers need to come up with new promotions: “use your Uncle Sam card and get GPS at no charge.” Banks: “no point mortgages when you use your Uncle Sam card as part of the down payment.” Restaurants: “charge the meal on your Uncle Sam card and get a glass of wine on the house.”

If each of us spends an additional $5,000 in 2009, we’re gonna all have a good time. And so will our economy. It isn’t too serious how the money seeps into the economy via charge card, air drop or Washington stimulus package.

The only ones who have to be concerned are our kids who someday may have to pay off the debt.

See you in the stores.

 
 
Stimulus to Provide Bonanza For State & City Budgets

By Henry Stern

The economic stimulus bill will provide immediate relief for part of New York State and City’s fiscal distress. It will stave off disaster for at least a year.

It will do nothing to cure the chronic structural imbalance that is now greater than ever due to the collapse of the banks and the stock market.

The emergency we face makes this a good time to do something about the long-term problems which threaten to overwhelm the State and City, whose budgets are already strained by falling revenues. However, the temporary relief we will receive from Washington is more likely to be consumed by the state legislature in a way that does not address the current fiscal reality and the dysfunction of the state’s economy.

With the national government piling up debt by the trillions, state and local debt rising by the billions seems like small potatoes. But while the federal government has the power to borrow until it runs out of lenders, the state and city do not. There are legal requirements that the State and City balance their budgets each year, but as we have learned from the term limits controversy, legal requirements can be abrogated if they cause inconvenience to people with sufficient power.

It is clear to us that shared sacrifice is the key to extrication from overwhelming budget deficits. That would involve contributions by the principal players, public employee unions and taxpayers. So far, there has been no sign that any union will give back even a nickel in wages, benefits, privileges or immunities. Though between 80 and 90 new taxes, fees and tolls have been proposed, they face opposition from those who would primarily be affected by them.

It is difficult to see how the unions are likely to make any voluntary sacrifices.

Private sector unions want their employers to remain in business, if only so they can continue to pay them. There are no comparable external restraints on the demands of public employee unions.

Another factor is that, because of the stimulus bonanza, there is no immediate imperative for the unions to reach any new agreements with the City in 2009. Most contracts have already been renewed for multiple years, at generous terms formulated before the economic collapse.

As long as no, or very few, employees are laid off, and layoffs are confined to the newly hired and are temporary in nature, what incentive is there for a union to modify rights and privileges that have been won (earned, as labor prefers to say) over a long period of time? For the city to expect give-backs, there must be a direct and immediate need for those givebacks, as, for example, occurred during the city’s close encounter with bankruptcy in April 1975. The fact that NYC will deliver less service with fewer employees is of relatively small concern to labor, compared with their own economic interest in high wages, paid health care, early retirement, generous pensions, and lack of any reward or distinction based on quality of performance (an important but under-reported union aspiration).

The situation is complicated by the fact that this is an election year, and the mayor will be a candidate for a third term. One of the many disadvantages of third term eligibility is that it gives the special interests, unions, nimbys, and pressure groups of all kinds another crack at the mayor, whoever he may be. How can anyone be expected to deal dispassionately with the largest interest group in the City, public employees, when they have such an important voice in deciding the mayoralty? The mayor does not ask others for money, but he does ask them for votes. On the other hand, his rivals will ask for both money and votes.

Under these conditions, it is unlikely that any significant measures will be taken to increase productivity, or that similar efforts will succeed in improving municipal performance or efficiency. It is probable that the state authorities will shovel out stimulus money until it is exhausted, raid whatever reserves that may have been established, and then borrow all they can under one loophole or another to postpone reckoning with reality. If the economy does a 180 degree turn, and 2010 is a year of milk and honey, it is possible that reality can be pushed further into the future. We do not know of any economist or other seer who has made such a prediction.

To say that “the day of reckoning is at hand” suggests a bearded old man wearing a sheet, issuing a tired warning to people who are enjoying their lives without a care for the future. Nonetheless, it is increasingly unlikely that the day of reckoning can be postponed indefinitely. We have already imposed trillions in the national debt on our descendants, and the City and State deficits could become a proportionate burden to state and local residents.

This is not like spotting a wisp of smoke curling out of Vesuvius. Today’s problems are more visible, and more widely recognized than the early warnings in 79 A.D. But there is a yawning gap between awareness and action. As far as action is concerned, we might as well be in Pompeii.

StarQuest@NYCivic.org

Not4Publication.com by Dom Nunziato
Michael Schenkler can be reached via this contact form.