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National Politics Fri Jan 30 2009
Congressman Don Manzullo (Republican, Illinois 16th) appeared on The Rachel Maddow Show on Wednesday to discuss his (and every other House Repulican's) 'no' vote on the economic stimulus bill. While Rep. Manzullo should be given credit for wading into enemy territory, particularly when it is occupied by the smart, incisive Maddow, his arguments demonstrated a core misunderstanding Republicans have about economic matters. Maddow repeatedly asked the congressman to explain how $200 million to renovate the National Mall is not stimulus. Ever the seasoned politician, Manzullo, rather than attempting to argue a point he was certain to lose, instead explained some GOP ideas for stimulus. The Illinois 16th is home to a Chrysler manufacturing facility, so fittingly enough, the congressman pitched his idea for a $5,000 voucher to purchase automobiles. (Manzullo specifically mentioned the Jeep Patriot, a car that receives a mediocre 28 mpg.)
Herein lies his fundamental misunderstanding: this recession was not caused by a lack of consumption -- it was caused by over-consumption. Americans purchased too many homes of too little value with too little equity. Put quite simply, we bought ourselves into the recession. When the GDP begins to fall, as it did dramatically today, it is because there is a lack of wealth being generated. If every American were to buy a car tomorrow, surly the economy would see a slight uptick. Car manufacturers would have some cash on hand but, and this is the rub, they would not use this money to build new cars, at least, not if they were smart. Once a person buys a new automobile, they do not plan on purchasing one for several years. As a result, the car industry would be hit even harder once they realize that the market, in unison, over-consumed due to a false propping up of demand. More likely than not, they would hang on to the cash and trench themselves for an even more difficult future. This is true with every industry, if you lower the price for the sake of liquidity, you are doing it to erase excess supply because there is little demand. It is a financial formula to tinker with demand and create fast cash. It does not create wealth or prosperity.
The recession happened because our rate of consumption grew too quickly for our ability to create items of wealth. Due to the low interest rates and "creative" loans we bought houses with little regard to their actual value. Arguing that we can consume our way out of the recession is like arguing you can drink yourself to sobriety. Our economy needs food stamps, unemployment benefits, and smart investments until we can sleep off our hangover and get back to innovating, the only real economic stimulus. Comically, then Pres. Bush, acting as a pushy bartender, rather than suggesting educating or saving, advised Americans to "...go shopping." after 9-11. (Check out Moody's research on the topic, here.)
People in the real estate profession understand downturns in the market are coupled with a "flight to quality". That is, people return to the fundamentals of what drives the economy, creation of items of value. It is for this reason that spending $200 million is a good idea, a National Mall in a good state of repair possess real value to this nation. Spending billions of dollars on permanent infrastructure creates real value and also has the added benefit of raising property values, whose plummeting is the real cause for this recession. Tax cuts which, at their best, prompt a quick shot in the arm. At their worst, tax cuts only encourage short-term, over-consuming that will need to be reckoned with as soon as their temporary effects subside.
It is understandable that Rep. Manzullo was playing to his district but, most Republicans (to be fair, many Democrats) continue to tote the party line that more consumption is the solution. We don't need more consumption of widgets we need more creation of wealth.