Feb 5th, 2009
The U.S Government is about to do some fiscally irresponsible stuff to end the recession. I think this is a really bad idea. The American economy does have serious problems, but the recession is the fix for those problems, not the cause.
The real problems:
- We have been borrowing too much and saving too little
- We have been running a terrible trade deficit
- The ratio between those taking retirement benefits and those paying into them is rising quickly as boomers retire and life expectancies increase
- Our brightest have been going to work in banks instead of going to graduate school to study science and engineering
What if I told you that these things could be fixed? What if I told you that they are being fixed?
The savings rate had dropped to 0.4% in 2005. It is currently 1.7% and rising. Should we panic when the headlines read “Americans are Spending Less”, or should we celebrate?
The numbers for exports and imports for November came out a couple of weeks ago. There was much handwringing that exports were down. But imports were down even more. The trade deficit was the lowest it has been in five years.
As their homes and 401K plans have lost value, many older workers are considering delaying retirement.
Last year 515 people applied for admission to graduate programs at Tufts’ School of Engineering. This year? 616 people.
I know the recession is painful — lots of people are losing their jobs, companies are failing — but there is an important adjustment that we as a nation are undergoing. When the adjustment is complete, our economy will bounce back. The pain can be delayed by fiscal stimulus, but it can not be avoided.
But what about the unemployed people? Yes, I think we should do what we can to keep the unemployed sheltered and fed. Let’s say that by the end of this adjustment, we will have needed to feed and shelter ten million households for an average of six months. That would cost something on the order of a hundred billion dollars. That sounds like a lot of money until you realize that we’ve already spent a trillion trying to prevent a recession, and we are about to spend another trillion trying to end it prematurely.
Let’s do what we can to comfort the unemployed, but badly run companies must be allowed to collapse, and this recession needs to run its course.