Many of the commercials running today are either insipid or insulting, but at least one strikes the right notes. The Domino’s Pizza CEO marches through Washington, D.C., announcing he doesn’t want a bailout. Instead, he says he’ll provide one, in the form of cheap pizzas.
The ad works, because it captures the spirit of the rolling bailouts. There’s so much federal money sloshing around, but nobody really seems to understand where it’s going -- least of all the lawmakers and administration officials who are spending it. And regular Americans aren’t sure all that money will help them. For most of us, a $5 pizza on a Friday night might seem preferable to $500 billion handed to some big company somewhere.
Well, to understand where the American economy is going, it’s important to know where it’s been. For that, let’s turn to “An Empire of Wealth: The Epic History of American Economic Power,” by economic historian John Steele Gordon.
From the earliest days of our constitutional republic, Gordon writes, “The ability of the federal government to borrow huge sums at affordable rates in times of emergency -- such as during the Civil War and the Great Depression -- has been an immense national asset.” That’s true today, of course. Or at least it was true until last year.
In the fall, politicians doled out $700 billion for an initial Troubled Asset Relief Program, followed in February by nearly $1 trillion in “stimulus.” The Federal Reserve has also pumped out cash with abandon. Just this week it sent another trillion or so out the door. The Obama administration also wants hundreds of billions for housing, hundreds of billions for health care and, undoubtedly, hundreds of billions for, well, hundreds of other projects.
This is all in keeping with Gordon’s warning that, “Without exception, wherever politicians have possessed the power to print money, they have abused it, at great cost to the economic health of the country in question.” It seems unavoidable that inflation, something that hasn’t been a concern since the mid-1980s, is set to make a comeback.
The immediate result, of course, is that we’ve seen a federal buying spree. Uncle Sam now owns huge chunks of what was, just a year or so ago, private industry. We taxpayers, for example, own about 80 percent of insurance company AIG. Recently, lawmakers held hearings where they took turns attacking the new AIG chairman (a man handpicked by the Obama administration, by the way) over some bonuses paid to his employees.
Now, one can certainly argue that the people who damaged the company to the point that it needed a bailout shouldn’t receive bonuses. However, such payments were specifically allowed under the “stimulus” bill raced through Congress last month. Maybe, if lawmakers had bothered to read the law they were enacting, they would have stripped the bonuses provision out.
But we’ll never know, because that’s not how Washington works. Lawmakers would rather race to pass a bad bill and then blame others for its failings than take their time and fully discuss a bill before they pass it.
Along those lines, Gordon also points out that the American economy really took off in the 1890s when modern accounting practices became standard. And again, while politicians love to howl about the occasional corporate accounting scandal (it gives them a chance to grandstand for the cameras and pass overly-broad legislation such as Sarbanes-Oxley), it’s government that generally falls short in this arena.
“The one major fiscal area where generally accepted accounting principles and independent accountants have remained rare is in government,” Gordon writes. “The federal government -- the largest fiscal entity on earth -- still keeps its books in much the same way as it did in the nineteenth century.”
And that, of course leads to mischief. “The ‘managers’ of government -- legislators, governors and presidents,” Gordon writes, “have been able to put their self-interests ahead of those of the ‘stockholders.’” Hum. Think that applies to a president who adds more than a trillion dollars to the federal debt while promising that his projections show the country will trim its debt in half during his tenure? As Daffy Duck might put it, “It just don’t add up.”
The answer is to hold policymakers to higher standards. At a minimum, lawmakers should read the laws they pass and understand them before they vote. And they should know where the money they invest is going. Simply pouring out hundreds of billions and only asking questions months later doesn’t make sense.
This recession, like all others, will end. A bigger worry is that as lawmakers scramble today to “do something” to fix the economy, they’ll stick all of us with massive debts, high inflation and foolish laws we’ll have to live with for the rest of our lives.