Stimulate This, Beyotch
It seems America can only govern by stimulus
SUMMARY: The United States seems to have lost the ability to govern and has given itself over to the whims of corporations that are designing every inch of our lives, our economy, our domestic and foreign policies and ultimately our national priorities. In between busts in the boom and bust market cycles, we’re only capable of tinkering around the edges. As much as we desperately need another round of stimulus, it will be a pyrrhic victory if we don’t fix the structural imbalance in our nation that has repressed and subjugated the poor and working class.
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As usual, we start with a little history lesson to contextualize our current conditions...
In mid-2008 John McCain was battling Mitt Romney, Ron Paul and Mike Fuckabee while Hillary Clinton was locked in a death match with then senator Barack Obama to see who would take over the best job in the world. Ultimately it was McCain versus Obama, but shortly after the primaries it was becoming apparent that the brass ring was actually painted lead and the presidency was about to become the worst job in the world.
The wheels were already coming off the economy faster than they came off McCain’s campaign, which was painfully ill-equipped to deal with the fallout of this crisis - equal parts because his campaign was fucking awful, everyone knew the republicans were going to take this one square in the starfish and the realization that Maverick’s rootin-tootin sidekick from Alaska was bonkers.
The Obama presidency basically started before the votes were tabulated as the great financial and policy minds hunkered down with the Bush team to try and stop the bleeding. Continuity between their teams would be essential and for a minute, partisanship disappeared. Even Brookings would call this the most seamless presidential transition ever recorded. The coordination was pretty incredible but we’re going to focus on the handful of men who likely prevented the complete collapse of the American economy as it relates to the construction of economic packages that followed.
Hank Paulson, Tim Geithner, Larry Summers and Ben Bernanke. Paulson was already in the Bush administration and Bernanke was head of the Fed and both were dealing with the fallout in real-time. Geithner was head of the New York Fed and was actively participating before his appointment to Treasury Secretary. And Summers was lurking somewhere on Nal Hutta with Princess Leia shackled close by and Han Solo frozen in the wall.
Don’t worry Unfuckers, I’m not going soft on you here. In the interest of time, we’re going to examine how they prevented a complete collapse, but make no mistake, they were all complicit if not directly responsible for the circumstances that led to the financial crisis.
As fashionable as it was (and still is) to take them all to task for bailing out Wall Street and leaving Main Street behind, it’s still important to look closely at the mechanisms they employed because they would serve as a blueprint for the next catastrophes. Again, I’m not defending the thesis of Wall Street over Main Street. Their financial package did in reality fuck average Americans who would reel from the fallout of their fuckery for years to come.
They took care of their own, failed to prosecute clear criminality among the banking class and then threw away their political capital at its height and walked away from implementing true financial reform. But while this all holds true, the parallel truth was that by September of 2008, the American financial system was about to fall apart.
By mid-September of 2008, AIG - who had securitized the debt supporting the toxic instruments that were failing nationwide - was on the brink. Lehman had already failed. The market was descending into chaos and there was a run on every financial institution in the world.
The Bush team under Paulson had already started toying with bailouts and established TARP, the Troubled Asset Relief Program, in October to inject liquidity into the system and shore up the banks to prevent further collapse. Remember that they had already gone through enormous hurdles to negotiate JP Morgan Chase’s purchase of Bear Stearns and the Bank of America / Merrill Lynch deal, though they drew a line at saving Lehman.
Even with these extraordinary interventions, the system wasn’t going to hold. Lehman’s sneeze gave other banks a cold, which spread to insurers, ratings agencies and underwriters. Black, opaque markets filled with invisible instruments of collateralized debt were stretched by capital calls forcing a global liquidity crisis because the one infallible underlying investment that everyone had bought, sold, divided and sold again, - residential mortgages in America - was going belly up at a devastating pace.
And we were just about to elect a new president who ran on a campaign of hope, though he had precious little experience, and the country was running out of time and running out of money.
So this was the backdrop, the picture we needed to refresh in our minds to really unpack the first stimulus that was passed shortly after Obama was sworn into office as Americans were losing jobs at a pace of more than 600,000 a month. Remember that before this, the only thing comparable in scope was LBJ’s Great Society, Eisenhower’s infrastructure spending, and the multitude of programs under FDR. In other words, this was a generational economic moment. But it differed from the others since the Great Depression, because this one was a self-inflicted wound by Wall Street’s callousness, greed and hubris.
The reason I spent so much time rehashing the financial crisis is because it set the stage for how we would govern for the next 13 years and counting. As we established in the beginning, stimulus packages of these magnitudes were generational. And yet we’ve just delivered the third one in a single generation. If nothing else, this should signal that something is very, very wrong. Outside of the ACA, it’s hard to point to any other massive public policy initiatives or transformational gains in Washington.
Tax cuts don’t count. Executive orders don’t either. The last six years under Obama were a stalemate with some moral victories and a whole lotta gridlock. And if you clear away the smoke of the Trump era bluster, Trump essentially accomplished nothing. Think big policy on things that matter in our daily lives. You might like an executive order to ban transgender individuals from military service, for example. But that’s not a policy item. Oh, and if you did like that, promptly go fuck yourself.
Tell me a story.
Gather round, my little chickadees. Let’s pick up with our protagonists where we left off. We move now from Bush and Paulson’s TARP plan and head into the Oval Office immediately following Obama’s inauguration where we’re joined by Barack Obama, Valerie Jarrett, Rahm Emanuel and David Axelrod. You’ll note the absence of any of the masters of the financial universe for a moment because it was here that it was decided that despite TARP, all indicators suggested the country would collapse without a massive injection of funds right into America’s veins. But it was also here that it was decided the number could not exceed a trillion dollars. This will be important later, which is why I’m isolating this moment in time.
Now we can invite the masters of the universe back into the picture.
After all of the internal wrangling among Obama’s advisers and soon-to-be cabinet members, and after all of the squabbling with Congress in the first month of his administration, Obama signed the stimulus into law on Feb. 17, 2009. The plan was to send $787 billion coursing through the economy in an effort to stave off total cataclysm.
Everyone on the budget side and people like Tim Geithner included, believed this was a mistake and that the number needed to be more than a trillion. Anything less would be insufficient to spark a true recovery. But Obama’s key advisors were hedging their bets. A trillion dollar package to them equaled total midterm annihilation and therefore any possibility of legislative control past the first two years. Even though they were only in office for a matter of days, they were keenly trained on what their legacy would be.
And so it was decided the number would be $787 billion and that, in the words of Larry Summers, it should follow the three Ts: Timely, Targeted and Temporary. Also an important concept as we move forward to talk about the next two packages.
Typical democrats. In hedging their bets they ultimately fucked themselves in two holes instead of one. Not only did they get shellacked in the midterms, but they did indeed shoot too low and instead of a robust and rapid recovery, the country set about on a remarkably slow, yet steady recovery that would extend beyond Obama’s second term and leave millions of Americans in the squeeze of a lifetime for years.
So what did they get right?
The Recovery Act put federal funds into the hands of agencies and consumers that had the ability to spend them in a timely fashion. This came in the bipartisan form of tax cuts for the middle class, an extension of unemployment benefits and medical benefits, state aid to support endangered Medicaid programs, healthcare IT and student loans. It was the ultimate return to Keynesian philosophy; an acknowledgment of what Keynes called the “paradox of thrift,” whereby austerity during a financial crisis only served to hasten economic decline. This was the essential concept that had been dismissed by free-market shills over the past few decades.
Suck it, Milton Friedman.
Economists such as Joseph Stiglitz would quickly laud Obama’s plan, though most economists also believed the $787 billion package was only about half of what was required to properly address the situation at the time. Paul Krugman, called it “woefully inadequate,” and nearly everyone on the Obama political team concurred but the Trillion number was just too radioactive. Plus, they were hopeful that it would be popular and just potent enough to take a second bite at the apple later that year and finish the job.
What they didn’t see coming was what we covered in our Unfucking Congress episode. There was a new breed of fuckheads in Congress that were determined to block any and every new democratic policy. So in one way, perhaps the biggest outcome of the first stimulus was the complete and utter destruction of compromise in the United States. As we move to the CARES Act, if you’re interested in learning more about this seminal moment in our history, check out The New New Deal by Michael Grunwald, the best record of events and what was at stake. His access was unprecedented and he painstakingly details these important months. I’ll link it in the show notes.
The C.A.R.E.S Act would perfectly bookend the Trump administration, which began with a single legislative victory to deliver billions in tax cuts before entering the most intransigent legislative and chaotic executive season ever. The tax cuts largely aided corporations and wealthy individuals, while temporarily reducing rates for normal people but those were always set to expire. And the republicans stuck a nifty change in the new tax code to limit deductions. This had the effect of really fucking people who lived in blue states.
Like New York.
You motherfucking pricks.
The CBO estimated that it would reduce the government coffers by $2 Trillion over a decade. The tax cuts combined with unnecessary increases to military spending added an astonishing amount to the federal debt and created massive budget deficits.
The economic dislocation during the Trump years is disorienting. Unemployment continued to drop, the markets continued trending upward as they had under Obama - with some added rocket fuel from the tax cuts - and our economic output was crushing the rest of the world. Those at the lowest end of the spectrum remained in abject poverty, homelessness reached a tipping point in several parts of the country, and people busied themselves with two, three sometimes four jobs in the gig economy. It seemed like everyone was working, but it was the same people as always that were actually getting ahead. But the narrative was that the country was killing it because unemployment was low and the markets were high.
Classical economic theory dictates that this is the time you increase revenue to close the deficits and shrink the debt, but republicans, as we know, only care about debt when democrats are in charge. The last time that so many stars were aligned as they were under Bill Clinton, who left office with a budget surplus. True to republican form, George Bush promptly gave all of it away upon taking office.
So when the pandemic hit and the economy shut down there was no well to dip into.
No safety nets, no universal health coverage and no surplus.
So two separate areas of the government sprung into action.
The first was the Fed. Even before the markets crashed in March the Fed announced $700 Billion in quantitative easing to forestall any potential liquidity traps like the ones we experienced in the financial crisis. The Fed had this playbook down pat and wasted no time deploying these funds and taking the federal funds rate to zero. Of course the markets did crash shortly thereafter but the Fed had succeeded in heading off an even bigger catastrophe at the pass.
While the Fed was shoring up the financial system, Congress was locking and loading a plan to hold the economy together for the next several months.
Now, recall during the Obama stimulus when his political advisors argued against anything more than a trillion dollars. Well, the Trump administration wasn’t about to make the same mistake. So this time around, there was no talk of limits and the Trump team ultimately devised a whopping $2 Trillion package.
The money was ultimately split between big business and industry bailouts, direct checks to individuals and families, extended unemployment insurance benefits, payments to hospitals, funds to states and municipalities, and Paycheck Protection, which offered mostly forgivable loans to small and medium sized businesses. Just like crediting Operation Warp Speed in our America Inc. episode, a ton of credit must be given to the Trump Treasury department, the IRS and the SBA for how these programs were managed. Even Steve MaDouchin emerged as somewhat of a hero here.
There are similarities between the Obama stimulus and the Trump plan. They both took care to send money to the states, which were suffering from significant drops in income and sales taxes. They both extended unemployment benefits at a crucial time. And they were both really, really stingy with respect to safety net programs that protect the sickest, most impoverished among us. Because, well, fuck the poor. It’s not like they lost value in their portfolios. What would they know from that kind of pain? Ooh, you went from two meals a day to one? Boo-fucking-hoo.
A Trump administration invention that was extremely effective and a model for the Biden team was the direct payments. In fact, it highlighted the idiocy of tax credits so much there’s now a torrent of fresh debate on how best to support families in the future. To be continued.
There was another huge difference in the way the Obama stimulus was handled and how Trump’s was. With more than a decade behind us, one of the most remarkable things about Obama’s Recovery and Reinvestment Act was the complete and total absence of fraud. The man responsible for overseeing the disbursement of funds and preventing fraud? None other than Joe Biden. Which brings us to Biden’s American Rescue Plan.
Old Ass Joe to the Rescue
Almost everyone knew that the C.A.R.E.S. Act would be insufficient to drive home a full recovery and get many households back on their feet. Despite the fact that not a single republican in the House voted for the Rescue Plan Act, they too knew this was going to happen and had they held the presidency and the power in Congress, they would have done pretty much the same thing.
So here we are, in the midst of yet another historic measure that will send nearly $2 Trillion more surging through the American economy in the form of municipal support, direct payments to families and individuals, extended unemployment benefits and a host of other measures like support for public pensions and small businesses.
Republicans dusted off their playbooks from pre-Trump days to argue that it would blow up the national debt - it will - send money to people who don’t necessarily need it - it will - and potentially overheat the economy and cause a surge in inflation - it might. Of course when they were writing the checks, these weren’t really considerations.
Two trillion in tax cuts to the wealthy blew up the national debt and sent money to people who absolutely didn’t need it. In the aggregate between Fed intervention and the Trump stimulus, money flooded the system causing the markets to rip like a rocket ship and it brought inflation back in line with normal expectations.
So there are a couple of things at play here. Let’s go down the list..
Neither democrats nor republicans managed to accomplish much for the poorest among us.
Neither democrats nor republicans were able to see their way clear to raising the minimum wage or even having the fucking discussion.
If you lost your employer sponsored health insurance, you’re still fucked.
The only conclusion that has yet to be drawn is whether this final injection of cash into the system will overheat the economy. It’s very likely so we’re going to do an even deeper dive into Modern Monetary Theory in the near future, so hang tight for that because history is literally unfolding as we speak with respect to this incredibly important theory.
Odds are inflation will creep back in as the vaccine takes hold and the economy reopens. The pent up demand for travel and hospitality is enormous. Household savings in the upper middle class and wealthy Americans is at an all time high, so discretionary spending will be on the rise. And in terms of manufacturing, inventories are still at a cycle low, which means we’re not only going to be pressuring supply with new orders but we’re early cycle in a typical recovery that will see a huge spike in raw materials, manufacturing and inventory replenishment.
Because the velocity of money supply - essentially how much we’ve been able to spend in a locked down economy - has been so low, it has offset the increase in money supply, which is historic. More than 25% of money in circulation today was invented in 2020. That’s never happened before.
So the stage is set for a massive economic transformation over the next decade and we’ll be able to finally settle the Keynes versus Friedman debate of how best to operate a so-called capitalist economy. If you listened to the Capitalism episode, Unfuckers, you pretty much know where I land on this argument.
For the love of God, wrap it up already
And now, for the real point of this entire episode. The United States seems to have lost the ability to govern itself and has given itself over completely to the whims of corporations that are designing every inch of our lives, our economy, our domestic and foreign policies and ultimately our national priorities. In between busts in the boom and bust market cycles, we’re only capable of tinkering around the edges.
Despite massive public support we don’t have the resolve to tackle minimum wage, curb homelessness, end mass incarceration, protect indigenous rights, create a proper pathway to citizenship, end bloody foreign entanglements and unconstitutional interventions by way of air and drone strikes, provide healthcare for everyone, guarantee a dignified retirement, ensure that no child goes hungry, and the beat goes on. Basically everything we talk about here on Unfucking the Republic.
Trust me, as much as I believe wholeheartedly in the need for this stimulus, it will be a pyrrhic victory if we don’t fix the structural imbalance in our nation that has repressed and subjugated the poor and working class.
As we mentioned a couple of episodes prior, it begins with getting corporate money out of the system and instituting campaign finance reform. Otherwise, when things recover again this time - and they will for most of us - we’ll soon forget that we have a country to run, issues to tackle, poor people to lift out of poverty and a planet to save.
Don’t let these fuckers just tinker. And don’t let them act like they're doing you a favor. They’re all like arsonists who set your house on fire then run around back and spray it with your own garden hose and say you’re welcome.
As Biden and company do their little victory lap, let them know you’re not impressed. You want to impress us?
End homelessness in the wealthiest nation in the world.
Raise the fucking minimum wage.
Let every person in prison on weed possession charges out now, expunge their records and pay them for their time behind bars.
Find the parents of the kids who are still stuck at the border.
If the financial crisis and the pandemic have proven anything it’s that we can move mountains and print money in a crisis. So start treating human beings in crisis as the moral crisis it truly is and stop patting yourselves on the back for doing the minimum and giving us what’s rightfully ours.
Covid’s not over so wear a mask.
There are no lizard people.
And Fuck Milton Friedman.
Here endeth the lesson.