Son of Stimulus? And Bonus Bonanza

Some of you will find it odd that I link bonuses for bankers and Obama’s latest attempt at getting a jobs program organized, but in my mind the two are inseparable. After all the distorted short term incentives awarded to the folks in our big banks were a primary cause of the crisis, one effect of which is the continued need for stimulus. Put another way: were bankers paid properly we would not be talking about bailing out from a horrendous recession.

So the two fit together. We should never look at one without vexing over the other.

First let’s look at Obama’s next foray into stimulus land.

Right from the get go we have to avoid calling it a stimulus. That word has become a no-go zone for the administration, bent as it is on avoiding any confrontation with centrists. Our apparent need to allow the likes of Olympia Snowe to run the country implies that we tread very carefully around issues such as government spending. Having so ceded control the administration now likes to position itself as an involved advisor nudging, but never bullying, Congress in the right direction. One such nudge is the proposed set of job creating activities that Obama unveiled this week. So far we have been told little of substance, so it is very difficult to assess their likely impact. Having said that if the rumored cost is correct – $70 billion – then we can almost guarantee they will produce a mediocre result.

As you can tell from my tone of voice I have now sunk into a frustration with the administration that prevents me from cheerleading anything it does. Limp is in. Compromise dominates boldness. And self-imposed limitations constrain our imaginations. We must not dream too expansively for fear of upsetting folks. I would be fine with this, even though I would still champ at the bit, were our circumstances to match its mellow low key theme. But the world is a whole lot more harsh than the administration wants to believe it is. There are some really nasty problems lurking out there in the weeds. Some of them are quite big. They require equally big responses.

Allow me to quote Robert Reich at length:

“Main Street is hurting worse than ever. Ten percent unemployment translates into roughly 18 percent of our workforce unemployed or underemployed. Housing markets are in terrible shape: One quarter of homeowners are paying more each month than their houses are worth; the rates of tardy mortgage payments continue to rise. Thirty percent of American households contain someone who has lost a job and can’t find another, and yet almost all households are dependent on more than one wage earner in order to make ends meet. A quarter of all American children are now dependent on food stamps.”

This is the country we are. These are the issues that press down hard on the economy. My view of the world demands that I take these things seriously and that I support appropriate action to ameliorate them. $70 billion just doesn’t cut it. It is nowhere near enough.

So I am left, once again, with a sinking feeling. I have to ask why it is that Obama and his cadre of advisors hesitate to act on behalf on the people Reich talks about. Why is it that we, as a nation, cannot be led sufficiently strongly that we come together with enough resolution to deal with the horrible plight so many of our fellow citizens? Why is limp so popular when the problems are so muscular?

I have not re-run the numbers myself recently so I cannot speak directly to Reich’s advocacy of a jobs plan of about $400 billion. But it looks about right given that the last time I did such a calculation I thought the stimulus plan was about $500 billion short. The economy has improved a tad since then so Reich’s figure is certainly plausible.

So why is the administration not asking for something of that order of magnitude?

Politics.

Or so I am told.

The political landscape is so infested with ideological traps that we, as a nation, would prefer to wallow in mediocrity and court constant disaster, than stir ourselves to do the right thing.

I was always taught that politics is a malleable art. That politicians can shape the debate. That they can alter the balance rather than simply accept it. Obama clearly doesn’t agree. He seems to think that the ideologically crippled playing field presents a permanent constraint on his actions. He accepts this limitation and so modifies his agenda – which is certainly progressive in its underlying philosophy – to the landscape.

Hence his avoidance of the word stimulus.

Would it not be healthier for the country to be told clearly that a stimulus is necessary? That the stimulus has to be large? That it will add to our debt? And that we will all have to sacrifice at some point to repay that debt? Would this not allow the inevitable anger to be channeled constructively towards reform of the system so that we avoid future similar crises?

But I misread the lay of the land.

Instead we are treated to half measures because it’s any easier sell.

$70 billion just won’t do. They know it. I know it. You know it. Why we are being pulled through this charade is beyond me. Because we are afraid of opposition? Then challenge the opposition to articulate an alternative. Expose that alternative for what it is – more of the old Reagan/Bush same. More of what caused this mess. I would applaud the emergence of a healthy debate about our national choices. But that requires enough courage to wade into the swamp first. I call that courage leadership. It’s what we, as a nation, are lacking.

I have said it before: the debt hawks are right in the sense that we will need to reduce our deficits. There are three ways to accomplish such a reduction. Raise taxes. Cut spending. Inflation. Preferably a little of all three. But we should never be afraid to pile on the debt when it will assure our survival. Like now. In any case we need to discuss, like adults, which of the three we most want to enact. Wd cannot perpetually avoid the subject. Especially what to do about our debt.

Not using debt at the moment is a bit like refusing to lower the lifeboats on a sinking ship because we don’t want them to get wet. That’s what they’re for. We can clean them up later.

Likewise our ability to run deficits is essential in times of crisis. It’s in times of prosperity that we need to be fiscal hawks. It is apparently too hard a task to articulate that clearly. So debased is our discourse that all our politicians would prefer to avoid the word ‘taxes’, and the inevitable backlash it would create among voters. So childish have we all become that Obama is seemingly forced into tepid and convoluted policy advocacy instead of telling us straight to our faces what the cost has been, and will continue to be, of the mistakes we made over the past thirty years.

You see, the years of illusion were based on the childish notion that we did not have to make choices. We wanted to believe the sugary message that the American economy, by simple dint of being American, could defy gravity. We could consume our capital and indulge in debt ridden ways and never pay the price. The hard choices, like if we want to have a huge military with which to tame the world then we have to … ummm … pay for it, were never presented. So we borrowed.

The game worked on so many levels.

We all did it.

We all loved that inflation drove our home prices sky high. We never imagined that it was dumb luck. We all preferred to think of ourselves as clever. We were smart investors. Smart real estate dealers. Smart shareholders. And smart bankers.

And we all turned our eyes away from the flood of statistics that started to show that the wheels would come off. The illusion was more fun than the real world.

Especially, it turns out, if you were a banker.

So let me provide the link I mentioned at the outset.

Bankers live in an illusory world. Despite all the evidence of the last two years, they actually think that they’re smart. They still do. Witness their determination to pay themselves earth shattering bonuses even while the rest of us drown. They think they are skillful. They get all hissy when anyone dares suggest they cut back their egregious ways. Some of them threaten to flee to more supportive climes [ to which I say please don’t wait].

In the UK this attitude has elicited, at long last, a counter attack by the government. Over there, serious consideration is being given to a special, one time, windfall tax on bonuses. The logic is compelling: the UK government deficit is huge and needs to be closed; those most able to pay need to chip in more than those less well off; and bankers are demonstrably better able to pay. In fact they flaunt the fact. Moreover, and this is the important part, the business conditions in which bankers earn the profits that they then pillage for bonuses rather than pay on to shareholders, are set by government policy. The low rate, safety net protected, liquidity flooded, and reduced competition arena in which the big banks now play is government sponsored. It is the taxpayers largesse that permits those profits being accumulated. We set the game up that way to protect ourselves from further predation by the bankers and their ill advised activities. We did not set them up so that bankers could pay themselves massive and socially abusive bonuses.

In other words they’re not so smart after all. Not only did they just create the mother of all recessions through their collective ineptitude, but their current profitability is simply a function of our efforts to clean up after them. They owe us one. Big time.

Now, if the administration needs to provide itself with enough popular cover so that it can do the right thing and spend $400 billion on getting middle America back to work, why not go after American bankers? They’re the root cause of our malaise. Making their lives miserable would be an easy sell to the public. And they’re deserving. They can also afford to help out a good cause. A good cause such as America.

So how about a ‘Get America Back to Work Tax’ aimed at banker bonuses?

I know it will provide only a drop in the bucket of the amount we need. But the popular support could propel even our timid administration into action on behalf of the regular folks who have been left to languish in the dust while Wall Street lavishes both largess and praise on itself.

Bankers love helping charities. Since they turned our economy into a ‘charity case’, they can think of the special tax on their bonuses as a charitable contribution.

A non-deductible one of course.