The Flinchum File

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The Linebacker and the Cheerleader

Given my belief that Congress is inhabited by useless children who would rather fight than win, I often need to be reminded that it has actually passed two important bills to deal with the economic crisis.

First, during the waning days of the Bush Administration, it did pass TARP, albeit on the second try.  Although the money was never used as authorized to purchase mortgage-backed securities, it was nonetheless very successful.  The latest CBO estimate is that taxpayers will be repaid $675 billion, out of the original $700 billion authorization, most of which has already been repaid.  Indeed, some estimate the taxpayers will actually make a profit.  One primary reason for the success of this program was that Hank Paulson insisted on taking a bazooka to a knife-fight.  Although he didn’t think we would need $700 billion, he demanded enough money to “shock & awe” Wall Street.  And, he did!

Second, during the opening days of the Obama Administration, Congress did pass a stimulus package of approximately the same size, i.e., $787 billion.  It was a failure.  There is an old Washington adage that Republicans would vote for a bucket of warm spit if it had a label reading “tax cut.”  To win passage, the President agreed to allocate $275 billion of the total to tax cuts in order to buy Republican votes.  Next, recognizing the states and cities were in even worse shape than the federal government, he allocated about $220 billion to them, just to keep their doors open, merely postponing the inevitable, without stimulating anything.  That only left less than $300 billion to actually stimulate the economy.

The U.S. economy was approximately twice the size of the Chinese economy.  They also quickly implemented a stimulus package . . . of about $513 billion, entirely for infrastructure needs.  In other words, they invested a much larger proportion of their GDP into stimulus than we did.  Today, their economy is growing almost 9% annually, while our economy is growing at less than 1%.  There was no Hank Paulson in the Obama Administration demanding that we take a bazooka to a knife-fight, and we “stimulated” too little.

Imagine a 340-pound NFL linebacker has the ball and is running downfield to score.  Would you send a 120-pound cheerleader onto the field to tackle the linebacker?  Of course not!  The linebacker would easily run over her, and you would have wasted one cheerleader.  A pitiful $300 billion stimulus package was futile in an economy as big as ours, especially one in such a severe recession.

Yet, this is not an argument for another stimulus package.  When you take a knife to a gun fight, you don’t get a second chance.  More importantly, we can no longer afford the $1 trillion stimulus we need, especially if we also have to spend another $2 trillion in payoffs to get the votes.

We had a chance, and we blew it!  Hank Paulson . . . where are you?