By John Aloysius Farrell, Thomas Jefferson Street blog
My pal Peter Gosselin has a graduate degree in money from Columbia University. He could have made gazillions as an investment banker, I suspect, but chose instead to waste his youth in the public service of journalism.
Peter specializes in explaining the mysteries of finance to money dolts like me (Is it Franklin on the $50 bill, and Grant on the $100, or the other way around?) in understandable English. He is very good at it. The New York Review of Books got downright dewy reviewing his 2008 book "High Wire," which warned of the fragility of our economy and forecast how and why this current recession is going to hurt more, and more of us, than other downturns.
I turn to Peter for lessons on the economy. Back in the early 1990s, when Washington and Wall Street were trembling at news of $100 billion deficits, and Bill Clinton was modestly raising taxes to pay off the debt Ronald Reagan ran up when luring the doomed Soviets into a spending race, Peter scoffed at my worry.
A hundred billion dollars is a lot of money, I said. So Peter drew a Little Circle, about the size of a quarter, and next to it drew a Big Wheel, about the size of a saucer. The Little Circle was the federal budget, and the $100 billion budget deficit was, of course, but a tiny piece of that little pie. The Big Wheel represented the rest of the American economy.
"Here in Washington we focus on this," Peter said, pointing at the Little Circle. "But whatever the federal government does is dwarfed by what is happening here," he said, tapping the Big Wheel. "If this wheel starts churning, it can make so much money, so quickly, that $100 billion is small change."
And then we watched it happen. The Big Wheel started turning and, in a flash, we were, all of us, rollin' down the river. By the end of the Clinton years the revenues from the Tech Boom had not merely erased the annual budget deficit, but Alan Greenspan was publicly worrying that we would pay off our national debt too quickly. (I didn't understand it then, and won't try to explain it now.) Folks from both parties tend to forget, but the Treasury was awash in so much revenue that in the 2000 presidential campaign Al Gore's Democrats promised whopping tax cuts that were almost as big as those offered by George W. Bush's Republicans.
That is the role of the Little Circle: to keep the Big Wheel oiled, to jump start it from time to time, and to offer insurance to those who get squashed by its momentum.
Well, the huge gains in productivity and the excitement over the new gizmos spawned during the Tech Boom ultimately ran their course, and the Big Wheel slowed down. But then the Tech Boom was replaced by the Housing Bubble and the Smiling Chinese Loan Sharks. Can we be honest with ourselves? We all paid small attention to the risks. When the Big Wheel turns, Americans know to party.
Now the Big Wheel has slowed again, and it's time to use the Little Circle and the Smiling Chinese Loan Sharks (would that be a great name for a rock band, or what?) to get it spinning. That is what the debate in Washington is all about: how best to use the Little Circle to jolt the Big Wheel.
The stimulus package is a jump start. The bail-out represents long overdue oiling, repairs and maintenance. Three or four trillion dollars is indeed a lot of money, but then there is a lot of rot in the Big Wheel. What is scary, this time around, is how much the Wheel has slowed, and how much it's proved resistant to the antics of the Little Circle.
So that is why, were I a congressional Republican, I would be listening to the Republican governors of California and Florida, and the U.S. Chamber of Commerce, and the out-of-work folks back home—and not to cynical infotainers like Rush and Laura and Sean, who are laughing, all the way to the bank, at our gullibility.
Not this week. The grown-ups here know that a few hundred billion dollars in tax cuts, by themselves, won't do. It's time for boldness—to borrow big and spend more, just like Ronald Reagan, in the service of a patriotic cause. It's every shoulder at the Wheel. The voters will remember who didn't line up with them.
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