Isn't the real problem a massive lack of accountabilitty. Consumers spending money they don't have for products and services they want and don't need. Business grew to meed this demand; banks lent money they should not have to fuel their growth. All of this in turn led to corporate greed and escalating compensation with no accountability. This in turn stifled creativity and problem solving and led to further waste of just hiring additional people rather than training existing employees and holding them accountable. The end result - we have businesses filled with employees and management that aren't capable of doing their jobs and consumers aren"t able to pay their debts.
This isn't a crisis that was made on Wall Street. Yes, Wall Street enabled it and made it worse; in addition, there is no place where the greed is more apparent than on Wall Street. I agree with the remedie's suggested in the article, with the exception that consumer habits wasn't really addressed. Yes there needs to be massive job training and not just for people who have lost their jobs so they can get other jobs, but also for individuals who have managed to hold onto their jobs. In addition, there should be a massive education program regarding consumer finances so individuals will realize they can not continue spending more than they make indefinitely. This is a crisis that was fed from all areas of the economy and not just Wall Street.
The Big Bang of Bailouts
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Against this line of reasoning is the possibility that, just as experts have underestimated the swift descent of the world economy, they may be underestimating the social and political fallout. Some of these explosive problems are already on the horizon. The beggar-thy-neighbor trade policies that worsened the Great Depression have current echoes in the accusations that China is now manipulating its currency to promote its exports, that a bailout of Detroit will discriminate against Japanese automakers, or that some national stimulus packages are designed to favor domestic producers. Blocking world trade and investment would all but ensure a 1930s-scale downturn, with dire consequences for all the recent progress made toward establishing market economies, building democratic governments and reducing world poverty. Last week the World Bank announced that 155 million people have been pushed into poverty in 2008. There are already signs that economic distress is increasing nationalist fervor and political instability in hot spots including Pakistan, Turkey, Ukraine, the nations of Central Asia, Thailand and Iran.
The risks are too great not to move more boldly. President-elect Barack Obama is the only world leader who would have a chance of marshaling the global effort that is required, and he has to consider plans much bigger than anything he, or any member of his team, has publicly proposed so far. The U.S. stimulus package would have to be big enough to allay any doubts that the United States is not going to risk failure: $1 trillion (about 7 percent of GDP) over two years is the right order of magnitude, not $500 billion over the next two years, as Obama has proposed. Despite the plans for grand infrastructure projects and the greening of American society, it is vital that an overwhelming amount of the stimulus be dispersed quickly and in a way that gives Americans confidence that the deterioration of their lives and economic security will be stopped. This would entail a heavy emphasis on significant and permanent tax cuts for the middle class, meaningful extension of unemployment compensation and serious funding for job training and retraining.
Unfortunately there is no way to finance a massive stimulus without going into deeper deficit and incurring extraordinary levels of debt. However, this is a better solution than watching the global economy collapse. It's true that we would run the risks of serious inflation, but at the earliest this would be a problem a few years from now, when economic activity really picks up, and we will have to confront the problem then. But to worry about those inflation problems now would be Hooveresque.
The United States cannot act alone. Europe and Japan, as well as big emerging markets like China, India and Brazil, would need to make efforts of similar magnitude relative to the size of their economies, although the specific directions might differ by country. The total spent on stimulus should amount to $4 trillion, or about 7 percent of global GDP, a roughly sevenfold increase over current efforts.
To get this done, Obama would need to call the G20 together as soon as he is inaugurated on Jan. 20. If the United States pulls out the stops to ramp up growth and others do not follow, Washington would come under heavy pressure to restrict access to its energized market on the part of foreign exporters that want a free ride. National treasuries and central banks also need to do more to prop up the financial system: the U.S. Treasury and the Fed are working on plans to expand credit to consumers and homeowners, and that is certainly the right track so long as the programs are big enough. In addition, it is time to cleanse the system of toxic assets in the way the U.S. Treasury first intended. More injections of equity will be necessary to recapitalize the banks, too. Obama should announce in his Inaugural speech a one-year moratorium on housing foreclosures, a major political and psychological boost to the economy that would help stop the rot.
At the January G20 meeting President Obama should get the EU, India, Brazil and China in a room and hammer out a trade deal for the stalled global negotiations called the Doha round. The wrangling has gone on for the better part of a decade. Ending it on a positive note would be a first step in showing the world that we are determined to maintain an open global economy.
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