Reuters reports that
U.S. Treasury Secretary Henry Paulson plans to announce on Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards
Uncontrolled spending beyond means, aided by irresponsible loans (which where re-packaged and sold as investment options) is what brought the whole US financial market and the rest of the world, to a stand-still. Yet there is no recognition of this hard fact, that this sort of irresponsible spending ought to be curtailed.
From a strictly economics point of view, it might be best for consumer spending to be accelerated as much as possible in times of recession. But achieving that by sending the wrong signals, and advising bad personal finance, is just going to bring this cycle on again.
Mr Paulson’s cure is much like getting the obese to eat more so that the weight watch clinics wont go out of business. Ironically this republican thinking, which is not at all unique, is exactly the same thing that got the communist USSR to go bust, by keeping around sick industries, in the interest of keeping jobs.
A more viable policy would be to actually reduce the real costs, bring more efficiency into the system that would make a whole lot of items more affordable to the consumer. Steps like capping the maximum retail prices, reducing costs (more public health-care facilities) and universal insurance, improving usable public transports which reduce economic and private transportation costs and other such initiatives that provide more money in the hands of individuals to spend. Perhaps the new government might get the votes to go ahead and implement all these, like in the Clinton years.
If instead, the government promotes raw, vulgar spending, using more and more loans and credit cards, people would buy the same old things that do not help the society move forward from its current rut. By aiding more consumer loans for the same old SUV’s and tvs and refrigerators, which the US used to produce and have now hived over seas, more of what the US spend will go off-shore to Asia, and more US consumers would be in loan to the rest of the world, like before.
If instead, the US government HUGELY subsidizes the production of solar power, hybrid cars and power efficient and innovative electronics, consumers would be suddenly spending more on products that are only produced and exported from US, helping the US manufacturing and technologies to pick up.
At the very least subsidizing the new economy, would leave the US economy with a better investment to improve its future with, and its consumers with more valuable tools rather than be left with broken electronics and SUV’s and homes with inflated prices that no one wants anymore.
Sure, by subsiding these, the old ones that cannot move forward to innovate will be left in the lurch, but that’s the way industries advance. We are after all speaking of the free-est of the free-market-economies of the world aren’t we?
Lets hope that Mr Obama who got elected on the promise of change and intelligence ( compared to Bush, Sarah Palin and McCain to some extend) can follow the same line of reasoning.