2/05/2008

The Economy and an Argument for Conservatism

Aside from Super Tuesday and the presidential race, one of the biggest issues facing the country regarding its government is the economic stimulus package currently being debated in Congress. Economic volatility, a slumping housing market, and a weak dollar have contributed to a pervasive sense of pessimism among many voters.

To address these voters' concerns, President Bush, members of Congress, and even the presidential candidates have talked about the need for some sort of "stimulus" that will benefit American families and help jumpstart the American economy. However, their rhetoric and the very nature of the economic stimulus package on the table blatantly contradict some of the principal tenets of their political philosophies. Both liberals and conservatives are guilty of this, but it seems that conservatives are a bit more egregious in their hypocrisy because what should be their argument is actually quite credible.

One major part of the package involves mailing out rebate checks to people who paid federal income taxes last year. The size of these rebates depends on one's marital status and how many children they have. Republicans, including the presidential candidates (both current candidates and those who have recently dropped out), have talked about the need for Americans to get those rebate checks so they can "put that money back into the economy" by buying consumer goods, such as clothes or electronics.

However, these wishes fly in the face of traditional conservative campaign rhetoric about the importance of saving money or encouraging people to invest it. Encouraging people to spend money they received as some sort of "gift" from the government sounds more like telling people to take advantage of a government giveaway--something that appears more in line with liberal philosophy.

On top of this, the people who are struggling financially can't really afford to spend this money on a new pair of shoes or a new television. And if they did, then they would only risk plunging themselves deeper into debt. But then again, since many Republicans want Americans to spend these checks, it seems like they are only exacerbating the financial squeeze many families find themselves in at present.

People are generally pessimistic about the economy, but this pessimism has a lot to do with the choices one has made in the past. For people with mounting credit card debt and rising mortgage payments, the economy is obviously not so good for them. This is where true conservatism (not the current "conservative" rhetoric) could serve as a remedy. Many of the people struggling with their mortgage payments are those who had obtained subprime loans. In other words, their previous poor financial decisions are directly responsible for their poor credit and their poor decision to purchase a house they could not afford. And now they are struggling and need help.

True conservatism would warn people that they should live within their means. A house is the biggest investment any person will make in their lifetime. It takes decades to pay off a mortgage, and it takes stable and reasonably lucrative employment to be able to cover the payments. If someone is not able to handle these conditions, the solution is not to call for the government to bail you out. The solution is to rent an apartment.

As for credit cards, smart consumers know that if they are not able to pay for something in cash or if they can't pay off the bill in full at the end of the month, they should not use their credit cards for anything at all unless it's an emergency. However, consumers in all income brackets are buying iPods, PlayStations, and flat-screen televisions--often on credit.

Conservatives would rightfully argue that people who are not financially independent should be more careful when making these kinds of purchases. Put more bluntly, poor people should not have a Nintendo Wii in the house. People making $35,000 a year should not be making payments on a BMW 3-series. People who get paid by the hour or who work for tips should not be upgrading their cell phones every year.

For these people, their own poor past decisions are directly responsible for their current economic plight. For people who have lived within their means and managed their credit carefully, the economy is doing fine (save for declining property values and high gas prices). Renters aren't worried about rising mortgages, and people without credit card debt aren't worried about rising APRs. However, it is too politically risky for a politician to say this for two reasons: 1) it makes the politician seem "out of touch" with the voters who are suffering from problems they really brought upon themselves, and 2) their "you should have been more careful" rhetoric doesn't provide a solution to the fact that families are struggling now.

One of the tenets of liberalism is that if you do your part and play by the rules, the government will help you or protect you if you are down on your luck through no fault of your own. The problem with this argument is that in most of these cases of current financial hardship, consumers did in fact break these rules and brought about their own ruin. Consumers who paid their bills on time never had to worry about subprime mortgages. Consumers with tight wallets who bought board games or comic books for Christmas instead of DVD players and laptop computers aren't worrying about paying down credit card debt. Lower-income consumers who are driving Corollas instead of Camrys and station wagons instead of SUVs aren't worrying about expensive car insurance and high car payments.

Conservative voters realize this, but none of the presidential candidates are really addressing it. To his credit, Mike Huckabee has warned that the Chinese economy stands to benefit more than the American economy given the glut of Chinese products on the market. But most of the other candidates and congressmen are spending more time talking about extending unemployment benefits and getting these rebates in the hands of the American people as fast as they can. Conservatives look at their (usually Republican) political leaders and shake their heads in disbelief at their rhetoric. It seems like politicians of all persuasions are more interested in pandering than in principle, and that's a shame.

13 comment(s):

Nikki said...

Great Post Anthony I agree with you on this. However I do want to point out that the economy is only showing a "no growth" not a decline yet, and from what I have read a short term stimulus would stop a possible down turn. Of course the media sets us all up for panic mode. At the same time permanent tax reductions would signal a more permanent solution. I really know nothing about economics, as a matter of fact the only class I had in college was taught by a professor that was drunk most of the time. "The unseen hand" is always in dispute and I think what you say is correct. Take care of our own houses and living within our means is a true principle, not just a conservative or liberal philosphy.

Josh Rush said...

Credit Card Zappers is the best company out there to help with debt.

The government certainly won't help us. I'm sure the credit card companies make hefty political contributions every year to keep it that way.

Brett said...

A good post, and I will concede that morally, one ought to leave the people who deliberately made bad decisions regarding credit card usage and home finance mortgaging to suffer from their misdecisions.

However, at some point (and this is why I tend to think the Liberal view is actually the realistic one, and not the Conservatism view), you run smack dab into the reality that if countless thousands or even millions of people are allowed to simply lose their homes and be reduced to penury via bad credit choices, then you might run into worse problems in terms of increases in poverty, crime, and so forth (in other words, unintended consequences). It doesn't help that many of these people can't simply "choose the right" next time - for most of them, there may not be a next time to buy a house.

This is why, instead of letting the Savings and Loan Scandal sort itself out, the government financed a massive bail-out.

Anthony Palmer said...

Brett,

I thought about that too. Giving people who need help some assistance, one of the tenets of liberalism, does seem more compassionate and more based in reality, but only to a point. I don't agree that not helping out these people would lead to poverty. For some, it might. However, I think their current difficult circumstances should inspire them to tighten their belts and live within their means. If you're living on a $45,000 income and you have a $200,000 house, you're not going to be in poverty if you lose the house. You'll be smart to simply rent and be more frugal until you can save up to take the next step to trying again with a house. You mentioned that these people might not have a next time to buy a house, but owning a house is not a right. It may be the American Dream, but nobody should be entitled to it. And as for bailing people out, why should those of us who made better decisions and are living more responsibly be responsible for helping to bail out the families that did not make good decisions?

Yes, there are indeed consequences for failing to address the concerns of people who are in dire straits. When it comes to education, that can lead to more dropouts and a poorly trained workforce, for example. But you can't really choose where your children can go to school (unless you are wealthy enough to send them to private school), so this should be a shared responsibility. However, you DO have the choice to pay your bills on time, move into a cheaper house, rent, not have that third child if you're already scrimping and scrapping financially to take care of two, and refrain from buying a new car right after you paid your last one off.

As a taxpayer, would you want your tax dollars to bail these people out? I don't mind paying taxes, as they are a necessary evil. But I do mind if this tax money is not used responsibly. Thanks for the comment.

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Josh,

You appeal to my populist side. When the GOP controlled Congress a few years ago, they made it harder for people to declare bankruptcy and also were friendlier to the credit card industry by giving them more latitude regarding how much they could charge their customers. So you are right that the government is probably not going to help anyone out. These credit card companies are lining the pockets of both Democrats and Republicans to ensure that they don't lose the advantage they have.

However, the increased credit card fees don't apply to you if you don't carry credit card debt to begin with. I was recently offered a free upgrade for one of my credit cards in which they doubled the credit limit and lowered the APR. So while some people are struggling, others are doing just fine. The people who are doing all right are the people who managed their credit responsibly in the past. For people who want to get out of debt, I think they should tighten their belts and hold off on that new video game or piece of jewelry and spend the money they would have spent on those new 19" rims to pay down their debt and keep it down, rather than just wait for the government to help them out. Thanks for the comment.

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Nikki,

I'm sure you would have agreed with this post too. (See? I can be both liberal and conservative at the same time, right?) I do have one question about tax cuts though. If making Bush's tax cuts permanent is so important now, why weren't they made permanent when they were initially passed? And at what point will the anti-taxers ever be satisfied? Why not just cut taxes one huge time and get it over with, rather than simply say "we need more tax cuts?" Keep in mind, a lot of these tax cuts don't even apply to many people until April 15 anyway, so I'm not sure how beneficial these cuts are. Can you explain that to me?

Thank you all for the good comments!

Silence Dogood said...

Anthony, I am glad people are looking at the real political philosophy behind this tax rebate (it is really neither liberal or conservative) and it actually harkens back to the fact that Republican fiscal responsibility was abandoned some time ago, not JUST by the big spending, but also by tax cut fundamentalism. The more recent tax cuts have had nothing to do with helping the economy and have almost doubled our nations debt in one presidency (from 200 years previous). When I saw Tom Delay arguing that it was our "duty" to take a tax cut in time of war I realized Republicans didn't understand the Laugher curve - the economic theory for which tax cuts creating a bigger base for tax collections is based - but did understand that "hell, they are popular things to give back" Problem with this most recent stimulus package is a fundamental lack of understanding of the economy, the fact that we are going to have to borrow to give it back (the main problem of lack of stability in our markets and the weakness for the dollar is our mounting national debts) The American economy is suffernig from morbid obeisity and our politicians have served up Chocolate cake as a solution. Everybody forgets that even Reagan - AFTER those really popular tax cuts of 1982 RAISED them back up again when fiscally responsible Republicans realized that debts were just growing and that the Laugher curve didn't worked quite how they figured. That part of his legacy is always left out...Today we have Sen. Jim Demint arguing the reason the economy has gone South is because the Bush tax cuts are permanent? We are still living under them and Demints sheer lack of grasp of our economic instability and current problems is perfectly amazing to me. The even more stupifying part is that we as a nation listen. Sure I would love an extra $500-$1000 bucks, but I also know this rebate which we borrow from China will only futher exacerbate the problems which led us to this point in the first place.

Nikki said...

Anthony from what I understand and I don't even try to play an economist or tax expert, but the tax cuts were temporary because of a compromise to get them passed in the first place. They are to expire in 2010 and from what research I have done they are credited with ecomonic growth, depending on what website you go to and where your political butter is spread there are also arguments against them. Making the 2001 2003 and 2006 cuts permanent will reduce uncertainty in the market and ease jitters. For me personally, my husband works for a tax consulting company that helps manufacturing companies go back and get credits not taken but offered by the government to ensure that jobs stay here on US soil....these tax breaks affect the american worker directly and his job helps companies keep american workers by rewarding them for doing so. He only deals with companies who manufacture in the US. Companies who manufacture outside the US get no benefit. This policy is up for a vote every few years and almost unanimously the founders of the company and the experts hired to defend the studies done for these companies all want a republican in the white house.......even the liberals. Because manufacturing in this country needs to stay in this country and the Bush administration should be credited with this policy.

Silence Dogood said...

Nikki, do you think the passage of CAFTA with no reciprocal trade protections for the United States or the fact that the tax cuts, with no corresponding cut in entitlment spending which have left the government with less revenue and therefore higher defecits and an exteremly fast acceleration in the rise of the national debt might be argument against the economic prudence of such policies though?

Nikki said...

Silence ....I really know very little about economic issues. I would love to have an intelligent dialog about this. So bear with me while I dissect your comment. for real. With regard to the deficit (that word I do know haha), here is a quote from a meeting with the World economic Forum "International Monetary Fund director-general Dominique Strauss-Kahn said a "serious" response was required to counter the risk of slowing global growth, including both interest rate cuts and increased government spending.
The suggestion from the IMF that countries should increase spending, even those with deficits, was seen as "an indication of the gravity of the situation we face" by former US treasury secretary Larry Summers.
"In the first time in a quarter century, the managing director of the IMF has called for an increase in budget deficits," Summers said during a debate with Strauss-Kahn."

There is an argument for deficit spending. As for the less revenue argument...to me that isn't necessarily a bad thing. great conversation. I appreciate the dialog!!
:) Nikki

Silence Dogood said...

Nikki, thanks for the response, I won't even posture as if I have a PHD in economics or the like. Short term deficit spending does help bolster an economy through certain economic down turns - in part because the government itself is the largest consumer of goods, but perpetuated deficit spending or even just in the long term, is not a good thing. However, defecit spending shoudl be a temporary thing (or in our case higher defecits). Government's can get strangulated by debt just like an individual as you will see when more and more of our national buget gets taken over by debt management i.e. making the interest payments on the debt itself and really little else in our nation's case currently. I don't know if you are biblio-file or not, but a really great book about most of this stuff is "Running on Empty" by Pete Peterson, he is a former high level economic advisor from the Nixon administration - it is only about 200-220 pages. Even though he talks about many economic theories in his book it is not a book for economists and a lay person can easily undertand his arguments. He rails on both Dems and Republicans for poor economic policies and stewardship. While many of his things seems stereo typical to the parties and the individual dem. or repub. may feel it is unfair he is stereotyping based on the overidding economic policy that came out of democratic or republican leadership from certain time periods. I found him very even handed and informative - I hope you take me up on the suggestion should you have the time or inclination to do so. Also it sounds like a book your husband may enjoy as well. Get the most update one (written in 2003-4?) it is still quite relevant. Sorry to be long winded.

Nikki said...

Thanks Silence I will look into it since this seems to be a big topic at the moment!! Also I think the short term deficit spending is needed and you mentioned interest rates and of course they are low at the moment so the deficit is at least at a low rate.......thanks for the suggestion. :)Nikki

Schenck said...

Got lots of homework, Anthony? Eagerly awaiting your Super Tuesday analysis :-)

Anthony Palmer said...

Silence and Nikki,

What I'm tired of with politicians these days is the sloganeering. Our elected officials are supposed to be more competent, more prescient, and more pragmatic than we are. But they're not. It's easy to say "we need more tax cuts" or "we need to increase aid to the needy," but do people not know that these initiatives aren't free? If you keep cutting taxes, where will the government make up for the shortfall in revenue? If you keep increasing the size of government programs, how are you going to pay for them? China and the OPEC countries are laughing at us while they hold us hostage. Voters should demand more from their politicians in terms of substance and pragmatism. Maybe I oughtta run for office someday, but like Lou Dobbs, I don't think I could handle the nonsense associated with campaigning.

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Schenck,

Ahhhh, Super Tuesday...Well, I wasn't planning on writing a post about it because Clinton and Obama essentially tied (as I expected) and McCain was expected to coast. I will say this about Romney, though. He really lacked a clean victory anywhere, so he had no choice but to get out of the race. Michigan, Massachussets, Nevada, and Utah are essentially home states for him. And winning North Dakota and Montana doesn't really matter so much because those Western states are more likely to have higher Mormon populations (and are therefore more likely to be more tolerant of Romney) and those states are simply too small to matter. Seems like the best state he won was Minnesota. I'm sure Romney hates Mike Huckabee right now too for splitting the conservative vote down South.

But it looks like he may try to run again in 2012. However, I think there are other more formidable conservative candidates out there, such as Charlie Crist of Florida or even George Allen (if he can rehabilitate his image). We'll see.

I'm debating whether I should open up this blog to guest posting because it's really hard for me to stay on top of all the news and blog about it by myself. I haven't decided yet, but comments like yours really got me thinking about it.

Thanks for the comments, everyone.

Schenck said...

Yo Anthony that would be cool. I'm actually working on starting a legit blog right now, but guest posting here would be sweet. I definitely have a lot to say and would relish the opportunity to rant here :-)

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