Robert Reich writes:
Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s wrong. Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes, courtesy of the Fed flooding the market with so much money, mortgage rates are dropping — consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either.
[. . .]
If Geithner gets Congress to give him more bailout money, Congress won’t be in any mood to do what it really needs to do, which is enlarge the federal stimulus package — and do it soon. Voters are already worried about too much government spending. At most, the administration is going to get only one more bite at the congressional apple. Make that more stimulus rather than more bailout.
Reich’s aversion to more bank and car company bailouts is not just economically sound, it is politically astute. It is not merely tea party protesters who have had it with corporate bailouts. The public as a whole is overwhelmingly opposed to bailouts for businesses, be they banks or car companies. I’m not sure at all that Obama could get another round of bailouts through Congress.
But what about another stimulus? To some degree this is the same problem. Pass out more checks? People will save and pay down their debt rather than head for the malls. Create more government jobs programs? That’ll take many more months if not years to get through the system. Perhaps when all else fails some payroll tax cuts and other inducements for employers to hire and retain people would be in order.
The bottom line: the first stimulus was a waste. A trillion dollars (with interest) of pork and ineffective spending that has limited our options and the public’s willingness for more of the same. Reich is right that the bailouts are misguided, but having passed a junky stimulus, the Obama administration will, I suspect, have to live with the meager results. There is, after all, just so much debt we can off load on to the world bond market.