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Monday, October 20, 2008

Ideology vs Terminology

Since the beginning of this crisis, I have noticed few - very few - consistencies. One of them is the obsession with terminology. People claim to be concerned with ideology when it is terminology that offends.

So today, Chairman Bernanke has endorsed the idea of a "fiscal package" and in a matter of seconds, the opposition was vocal and loudly so. The naysayers are opposed to an "economic stimulus".

Let's look at exactly what Chairman Bernanke's said in the hearings on Capitol Hill. His words are in blue, mine are in black. Words were made bold by me for emphasis.
  • "I understand that the Congress is evaluating the desirability of a second fiscal package." True
  • "Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also--because commitments of resources today can burden future generations and constrain future policy options--between the present and the future." True, hence why "fiscal actions" are taken after much consideration and hesitation, and usually considered appropriate when the options are unacceptable.
  • "Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials." Absolutely true - "value judgments that can properly be made only by our elected officials". Only people that represent the people, who listen to people, who understand the real not theoretical problems can make this value judgment. So all the naysayers should consult those who are now unemployed because of the crisis, or fear unemployment because of the crisis, or have lost their homes because of the crisis or fear losing their homes because of the crisis, or have lost significant savings and investments because of the crisis. Respectfully, only those who have a credible voice in this debate at this time are those who understand the suffering that exists, and more importantly, the long term consequences and costs of inaction.
  • "Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear." True. It is a consensus - we are in an unprecedented time, how can anyone know with absolute certainty the solutions. Yet, inaction is clearly not it.
  • "All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate." True. My question - given that weakness and protracted slowdown are universal beliefs, what is a reasonable alternative to a fiscal package? Are people not to have money to survive? Are people not to have jobs? Are businesses not to remain open?
  • "Should the Congress choose to undertake fiscal action, certain design principles may be helpful. To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak." True. in other words: Let's be selective and constructive in the design and only employ such measures when the situation warrants it. He already said the situation warrants it.
  • "Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue; at the same time, it should go without saying that the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly." True. In other words, get the most bang for the buck and do not waste precious resources
  • "Any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit." True - as small as possible to be sufficiently effective to head off a longer term expensive problem of extensive dependency of major portions of the population on the state.
  • "Finally, in the ideal case, a fiscal package would not only boost overall spending and economic activity but would also be aimed at redressing specific factors that have the potential to extend or deepen the economic slowdown". Absolutely true. So, not just money to deal with critical existing needs, but measures for employment are critical to keep people occupied and businesses in business so we can get back to wealth generation in addition to one-off measures that are immediately necessary but insufficient. To be clear: To delay immediate relief to argue over taxation ideology would be a colossal mistake. Immediate relief is absolutely necessary. Further, given that small businesses provide the majority of jobs, it is logical that they should have relief. However, select interest groups delaying immediate and targeted relief in order to get assistance that cannot produce a broad based impact is counterproductive at this time. Time is of the essence.
  • "As I discussed earlier, the extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery." Yes, again, consensus here.
  • "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers." Absolutely. The intervention in the banking system was to protect depositors and restart the flow of credit. More measures to encourage the restoration of flow of credit are quite logical and in keeping with the agreed principles that the world leaders have endorsed.
  • "Such actions might be particularly effective at promoting economic growth and job creation." His final words and there it is: at the end of the day it is all about people. The measures taken thus far were designed for the banking system 1) to protect depositors and 2) restart the flow of credit. The measures recognize that the banking system serve a critical function for the real economy. But the measures were not direct intervention for the real economy where severe damage has been done - damage to the real economy, damage to companies, damage to employment, and damage to people. Until there are direct interventions to repair the damage, and restart the real economy itself there are serious social and economic implications that will just result in a longer term cost.
No matter how you look at it, a temporary intervention is far less costly - in dollars and in permanent damage to ideology.

So my solution to this problem? Rename "economic stimulus" as "economic survival" and rename "fiscal package" as "measures to save ideology". Because if anyone believes inaction is an option, then I think its quite likely that he or she may have to face the real possibility that "ideology" and "terminology" become luxuries - because in most of the world, they are just that.

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Reasoning The Reasons by Deika Morrison is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.