I. We begin with the good news from this week - The President signs a children's health bill into law that provides for legal immigrant children. Even though the recent debate over funding health insurance for children was contaminated by fears that "illegal immigrants" would sign up for the program, the bill still passed Congress and was signed into law this week. It is a very encouraging sign that Members of Congress could see past the politics and recognize that this bill - and the provision that was for granting legal immigrant children care - was the best policy. Congress and the American people showed how they are now ready to rise above the insults and demagoguery to enact smart policy. The accusations rang hollow - that the bill would encourage more people to come to the United States to "get on the government dole," or that there was "no verification system to speak of ... in the bill," as stated by Lisa Sylvester on CNN's "Lou Dobbs Tonight," while the phrase "illegal alien bailout" flashed on the screen - all this was kicked to the curb because policy makers knew better. They knew the truth, and demonstrated a desire to focus on solving problems as opposed to hating immigrants. Donna Cohen Ross, director of outreach at the Washington-based Center on Budget and Policy Priorities, said she was not surprised by the Lou Dobbs rhetoric. Still, after studying the House bill's language, she concluded that there was "nothing about the rules that would allow illegal immigrants to use the program."
But the fight is not over, as Simon has stated, "The immigration system is broken and there are a lot of people who live in this country who are not legal citizens,....So the issue of whether benefits are conferred upon them will come up again and again." Hence the urgency to pass comprehensive immigration reform as a way to stop having domestic policy held up by immigration proxy fights.
II. Mixed Messages - The debate in D.C. is focused around the economic stimulus package this week. And while everyone says they care about helping businesses and helping "everyday working Americans," the "economic recovery" plans laid out by Congress are full of mixed messages - I won't delve into NDN's perspective on these issues individually at this time, I'm only pointing out key items that - to me - seem a bit contradictory:
1. On the one hand, the Senate kind of backed off the original "Buy America" provisions, diluting them after public outcry. And yet, after diluting buy America, Senators turned around and came out against increasing H1-B - foreign - workers.
2. "He giveth and he taketh away" - A week after the Federal governmentdecided to delay mandatory implementation of the E-Verify system for government contractors, the economic stimulus package could mandate that all recipients use this ineffective system. Let me get this straight - you have companies that are struggling to the point they need government aid, and somewhere, someone believes it's a good idea to then turn around and impose an additional requirement on them that will potentially dilute any benefit conferred by the stimulus. Mandating e-verify could require businesses to hire additional Human Resources personnel to become trained in and handle the e-verify checks. Additionally, it will cause a delay for businesses in receiving the stimulus because most do not currently use e-verify, which means they can't get stimulus until they are trained and registered on the system. Businesses will have to deal with DHS and SSA on a regular basis, and many workers will potentially lose their jobs as their data is run through e-verify, many unjustifiably. At this time, all energy and money should be going to helping business get on its feet, and that should be the ONLY goal at this time, not to impose a bureaucratic process that does not even fulfill its intended role. By all means, we support a functional system that could provide certainty to employers making hiring decisions, but that is not the current e-verify. Let's worry only about stimulus at this point, then revisit E-verify as one part of a bill to enact comprehensive reforms to the entire broken immigration system.
And lest we forget - the E-verify databasedoes not contain immigration information, it was created by SSA to verify benefits with W-2s, it was never intended to serve as a system to check legal status. As reported by the House Committee on Small Business, implementing this now will only hurt businesses - small businesses above all, who already suffer inflation, poor sales, and job loss.
Finally, I have a test case that demonstrates what happens to business when you mandate the current - flawed - e-verify system: the State of Arizona. IPC has data about this case, and NILC and CATO have written about it as well. As Rep. Gabrielle Giffords testified during a committee hearing:
I believe that the Arizona experience should inform the ongoing debate about employment verification and whether the current E-Verify program administered through DHS should be extended and/or mandated Nationwide.
Some of the businesses that have signed up have reported a variety of challenges and problems using E-Verify. They are finding it complicated, unreliable, and burdensome. They are having great difficulty getting answers from DHS to their problems about the system. I have heard from employers, employees, and privacy rights advocates who are very vocal that nationally mandating E-Verify as it is would be potentially disastrous for our Nation. They are all experiencing the downfalls of using an inaccurate database with inadequate privacy protections. Between October of 2006 and March 2007, roughly 3,000 foreign-born U.S. citizens were initially flagged as not work-authorized. These errors have specifically impacted Arizona workers who have their ability to work wrongfully impacted. The experience of Arizona employers and employees makes it clear that we can do better and that action is needed.
III. Money = Policy. A great piece by Nina Bernstein of the New York Times this week continued exposing details of how Immigration and Customs Enforcement (ICE) actually strayed away from its mission to protect us for the sake of meeting ridiculous "quotas" of arrests, originally reported in California last week. Under President Bush, Immigration raids garnered bigger increases in money and staff from Congress than any other program run by ICE even as complaints grew that teams of armed agents were entering homes indiscriminately. Raids on private homes around the country were billed as carefully planned hunts for dangerous immigrant fugitives, and given "catchy" names like Operation Return to Sender. Federal immigration officials had repeatedly told Congress that among more than half a million immigrants with outstanding deportation orders, they would concentrate on rounding up the most threatening - criminals and terrorism suspects.
Instead, newly available documents show, the agency changed the rules, and the program increasingly went after easier targets. A vast majority of those arrested had no criminal record, and many had no deportation orders against them, either. Internal directives by immigration officials in 2006 raised arrest quotasfor each team in the National Fugitive Operations Program, eliminated a requirement that 75 percent of those arrested be criminals, and then allowed the teams to include nonfugitives in their count. In the next year, fugitives with criminal records dropped to 9 percent of those arrested, and nonfugitives picked up by chance - without a deportation order - rose to 40 percent. Many were sent to detention centers far from their homes, and deported.
What exactly was Congress expecting when it funded this particular program the most, and then did not partner that funding with oversight? Money is policy, and if you put your dollars into making arrests, it's not exactly a shock when the recipient of the money focuses on making arrests - without regard for the type of arrest. This is an example of why it's so important for advocates and for members of our community to look at where the dollars are going, and to shape where funding goes because that will necessarily dictate policy priorities.
Now, as the Obama administration vows to re-engineer immigration policy to target criminals, we certainly hope they reverse these "internal directives," participate in oversight, and work with Congress so that relevant committees also understand their role in funding certain programs, and then continuing oversight after they decide to appropriate funds. It will be interesting to see the role Janet Napolitano decides to play in all this - now that she has left Arizona politics behind, Ms. Napolitano is free to prove this is not Arpaio's America, where the mob rules and immigrants are subject to ritual attack and humiliation.
IV. Where is the Outrage? Speaking of ritual humiliation, even though 21st Century America is nothing like Sheriff Arpaio's America, this man refuses to let down. This "Sheriff" from Maricopa County, AZ paraded more than 200 men and women in shackles and prison stripes, marched under armed guard past a gantlet of TV cameras to a tent prison encircled by an electric fence. They were inmates being sent to await deportation in a new immigrant detention camp minutes from the center of America's fifth-largest city. Two things are troubling: 1) this has not been recognized as a NATIONAL civil rights issue by the media, most activists, and elected officials. How can a man - particularly in the position of Sheriff - allowed to parade people like cattle, dehumanizing and humiliating them while they are in a legal proceeding. We forget - MOST awaiting deportation are not criminals. Where is our community's outrage at this man, and the outrage of the entire country, that people are paraded in such fashion in the United States of America?
And 2) Arpaio's tactics are even more infuriating given that his office's budget has nearly doubled since 2001. In the meantime, criminals have the run of Maricopa County. As reported by the Goldwater Instituteand theEast Valley Tribune, the sheriff has 40,000 outstanding felony warrants in his jurisdiction and 2,700 lawsuits filed against him. So the money is going to pulling stunts as opposed to doing his job. If he wants celebrity, let him step down. The duty of Sheriff is to keep people safe. With crime rising, and being in a state that is largely involved in the drug trafficking fight, he should be more concerned with organized crime and fighting real criminals, as opposed to humiliating members of the community. I share NCLR's call to action against him:
Arpaio's newest scandal will by no means improve the safety of his community but no doubt get him more publicity. The images that this march will provoke are shocking: horrific shots of people chained, marching through public streets at lunchtime. Perhaps it's a ploy to increase the ratings of Sheriff Joe's new reality show, which is in its seventh week. Are you tired of his antics yet? Here's what you can do:
1. Request that the Department of Justice investigate Arpaio's abuses.
2. Forward this email to all of your family and friends, post it on Facebook, and circulate it as far and wide as you can. Send a clear message to Arpaio and his thugs that we will not stand for these kinds of abuses in our nation.
Arizona Republic: Arpaio to Move Illegal-immigrant Inmates
Hundreds to be relocated to segregated area of Tent City; sheriff says plan will cut costs
February 4, 2009
By JJ Hensley and Yvonne Wingett
Along the same lines, Simon was quoted in the Spanish-language paper Terra on immigration reform, and was the lone voice of reason in a Los Angeles Times op-ed by Ira Mehlman on the same topic. His recent essay about the Republican party and race, "Steele, the GOP and Confronting the Southern Strategy," was also featured on the front page of the Huffington Post. Finally, Simon was also quoted in AFPand Red Orbit about how President Obama will use his Web-based campaign organization moving forward. From the AFP piece, entitled "Obama Retools Campaign Machine":
Simon Rosenberg, president of NDN, a progressive think tank here, likened Organizing for America to former president Bill Clinton's attempt to build a grass roots pressure group on health care reform but agreed that "there really hasn't ever been anything like it before."
"Barack is not like any other candidate," he said. "He comes to Washington with more supporters and more modern tools than anyone in history. Barack is going to reinvent the presidency the way he reinvented the campaign."
Economist Rob Shapiro, a top Commerce Department official in the Clinton administration who was on Obama's transition advisory team, questioned the effectiveness of the $275 billion in tax cuts in the measure now before the House. "These tax cuts are not only not stimulative, but we're going to have to pay for them eventually."
Still, Shapiro, now an official with NDN, a think tank formerly known as the New Democratic Network, said it is more important not to let the debate over the stimulus package "degenerate into politics as usual. If the country believes this has turned into a package of special-interest spending and tax provisions, then the efforts to restore confidence will be damaged."
Finally, Morley and Mike had an op-ed published in Roll Call entitled "Obama Typifies Spirit of Civic Engagement." For those of you who don't subscribe to Roll Call, you can view an earlier version of this essay posted on the NDN blog here.
NDN has been writing and talking about the state of the conservative movement and the deterioration of the Republican Party for many years. With the House's passage of the stimulus bill without a single GOP vote this week, and today's RNC Chair election that will decide the GOP's future path, we would like to highlight some of our writings on the state of the modern conservative movement and the end of the conservative ascendancy.
The GOP and Magic Negroes, Simon Rosenberg, 12/30/08
The song “Barack the Magic Negro,” promoted by RNC chair candidate Chip Saltsman, is indicative of the troubles the Republican party finds itself in today.
The Long Road Back, Simon Rosenberg, 11/18/08
Barring major mistakes by the Democrats in the coming few years, Republicans are likely looking at a very long road back to power.
On Obama, Race, and the End of the Southern Strategy, Simon Rosenberg, 1/4/08
By looking to younger voters, minority voters, and Western voters, the Democratic Party can move beyond the southern strategy that, for so long, has been the only way Democrats knew how to win.
Repudiating the Bush Era, Simon Rosenberg, 2/18/07
Politics over the past several years has been driven by a widespread rejection of the disastrous Bush era.
A Day of Reckoning for the Conservative Movement, Simon Rosenberg, 11/7/06
The 2006 elections marked the end of conservative ascendancy. These essays look at how this shift can be explained by historical trends, hard electoral data, and recent decisions made by leaders of both parties (more here and here).
Also, please check out this recent video about how "What Race Means in America Is Changing":
This image was the headline on the Huffington Post website, until our post on"The Star Spanglish Banner"took its place for most of the day, and it goes very well with a piece in the Washington Post today by Manuel Roig-Franzia. As Republicans have a national meeting this week, they search for their misshapen identity. In the meantime, since they have nothing else to propose and know nothing other than the exploitation of racial fear and hate, they decided to issue a statement claiming that the stimulus bill would help undocumented immigrants:
The $800 billion-plus economic stimulus measure making its way through Congress could steer government checks to illegal immigrants......The legislation, which would send tax credits of $500 per worker and $1,000 per couple, expressly disqualifies nonresident aliens, but it would allow people who do not have Social Security numbers to be eligible for the checks.
What this statement does not say, is that the stimulus steers checks to TAXPAYERS, it's not aimed at "illegal immigrants." In fact, the measure indicates that Social Security numbers are needed to claim tax credits of $500 per worker and $1,000 per couple. It also expressly disqualifies nonresident aliens. Senate Majority Leader Harry Reid clarified, "This legislation is directed toward people who are legal in our country. It is about time the Republicans got a different piece of reading material and get off this illegal immigrant stuff." said Sen. Reid, D-Nev. "This bill has nothing to do with anything illegal as far as immigration. It creates jobs for people who are lawfully in this country." Not just U.S. citizens pay taxes - many legal immigrants under Temporary Protected Status or other programsfile taxes, purchase homes, and get credit, so they would be eligible for a return.
Instead of trying to create a new "boogieman", the GOP should be thinking about how to be more inclusive - and inclusive does not mean having one member of one minority in a prominent position in your Party. Some Members of Congress still - for reasons that I will probably never understand - think it is somehow out of line to repudiate racist/divisive attacks like Rush Limbaugh's. At least Phil Gingrey took one step in the right direction by not shying away from repudiating some of the latest offensive attacks, namely by Limbaugh against our President:
"I think that our leadership, Mitch McConnell and John Boehner, are taking the right approach," Gingrey said. "I mean, it's easy if you're Sean Hannity or Rush Limbaugh or even sometimes Newt Gingrich to stand back and throw bricks. You don't have to try to do what's best for your people and your party. You know you're just on these talk shows and you're living well and plus you stir up a bit of controversy and gin the base and that sort of that thing. But when it comes to true leadership, not that these people couldn't be or wouldn't be good leaders, they're not in that position..."
Lastly, and more importantly, aside from whatever Republicans do or don't do, this statement tying the immigration debate into the stimulus debate exemplifies a greater trend that Simon and NDN have predicted will occur with the entire domestic agenda until immigration reform is passed:
"That the debate.....has immediately become a debate about immigration should be a clear warning to the Administration and Congress that progress on many important domestic priorities this year may get caught up in the debate on how to best fix our broken immigration system. It is our belief that rather than having a series of tough and contentious proxy fights [with Republicans and with Democrats] on immigration, our leaders should recognize that passing comprehensive immigration reform this year will not only help fix our badly broken immigration system - a priority of many Americans - but may also be the key to unlocking bipartisan progress on a whole range of other domestic and security related issues."
With debate over the recent vote in Congress on the State Children's Health Insurance Program (SCHIP) largely turning into a debate on immigration, we present much of NDN's key work on comprehensive immigration reform, the changing demographic realities of 21st century America and Hispanic electoral trends.
As I have written so many times before on this blog, the modern Republican Party ceased being a serious Party when Bush took office. Their leadership and government left America weaker today than it has been since before World War II. They failed to tackle critical challenges on their watch, and ignored warning signs of dangers to come. They have dug a very deep hole for the nation, and today they turned their backs, hard, on a popular President trying to begin cleaning up the mess they made, and do the right thing for a nation in need.
I listened to Republicans over the last couple of days, trying hard to understand the rationale for their opposition. I heard references to a CBO report that had already been proven not to exist. I heard about pork but they offered few specifics. I heard the refrain again and again that tax cuts are the best way to create jobs - an assertion that was disproven by the economic experience of the Bush era. We had historic tax cuts under Bush; job creation was anemic, and incomes for average people actually fell. The tax-cut strategy didn't work. For eight years the Bush Presidency confused cutting taxes with offering a broad economic strategy that would help prepare the nation for the great challenges of this emerging century - and we are all paying the price today. Massive structural budget deficits, ready to grow worse with the retirement of the baby boom. Aging infrastructure. Years of flat wages and declining incomes. Record home foreclosures and personal bankruptcies. 2nd tier rates of broadband penetration. Rising rates of poverty and those without health insurance. A terribly broken immigration system. A global round of economic liberalization unfinished. A badly bungled TARP. But of course one big thing did get done during this period - those massive set of tax cuts for the very wealthiest Americans.
For the last four years, Rob Shapiro and I have talking about the inability of the political class to come to terms with was happening to the American middle class. For those with means, the Bush era - up until the last year - was a boom time. Taxes were cut, assets appreciated. But for far too many Americans the economic crisis we talk about today began long before the financial crisis hit in 2007 and 2008 - and this crisis was the increasing struggle of every day people, the decline of median income even during a robust period of economic growth. This lack of a proper response to this crisis is what drove the Republicans from power more than anything else in 2006, and it was Barack's finding of his voice on the struggle of every day people in the summer and fall of 2008 that was so critical to his pulling away from McCain. The American people have come to feel that the modern GOP really didn't understand or have a plan to deal with their very real economic crisis. They are right of course, and this more than any other issue is what has driven the GOP from power and given the Democrats their huge majorities today.
But clearly the Republicans in charge of the House don't understand all this. Their party only swung into action when the economic crisis began to affect the monied class. Their actions were predictably inept, secretive, and misguided. $500 billion of stimulus and TARP money was spent in 2008 and the crisis worsened. They even blocked meaningful action on keeping people in their homes - key to solving the financial portion of this crisis - with predictable and cynical cries of "moral hazard" when two companies alone - AIG and Citigroup - received commitments from their Treasury Department of close to $500 billion. More money, of course, than the one year cost of the stimulus plan passed tonight by the House. That's right. Citigroup and AIG have commitments for more money from our government than all of the 2009 portion of the stimulus plan that has been derided by the GOP as an outrageous use of the people's money.
The GOP will have two more chances on this stimulus to behave in much more constructive ways, with upcoming votes in the Senate and again when the bills are brought together and voted on again in each chamber. I don't know what is going to happen, or how this will play across the nation over the next few days. I wrote recently that the road back for the GOP, this party of "magic negros," would be a long one. But if the Republicans continue to act in ways so clearly designed to serve the interests of the few over the interests of the many at a time of such great national challenge then their road back may be even longer than I could have imagined.
Washington, D.C. - Today, Simon and Andres will address approximately 100 Latino organizers, community leaders, and individuals interested in increasing the civic participation of Latinos from approximately 20 different states.
It is most fitting that Simon and Andres begin the day's program, reflecting on Latino vote in 2008. NDN's most significant accomplishment has been our advocacy for what we have called the "new politics." For years NDN has made the case that a new politics was emerging in America, driven by three major changes: 1) the emergence of a new governing agenda and priorities, 2) the emergence of a whole new media and technology construct that was fundamentally changing the way we communicate and advocate, and 3) the emergence of a new American people, one very different from the demographic makeup of the U.S. in previous decades. As part of this third pillar of the new politics, NDN has made the case to progressives and those on the center-left that for us to succeed as a 21st century movement, we must involve Hispanics and encourage Latino participation in politics.
This day-long event is intended to serve as one major step to ensure that Hispanics continue to build on the momentum built by their participation in the 2008 elections, and engage civically. Panelists are experts in the areas of political organizing, media strategy, and advocacy. Attendees are coming to this pre-Inauguration event from AZ, CA, CO, D.C., FL, GA, ID, IL, IN, MA, MD, NV, NJ, NY, OH, OR, PA, PR, TX, VA.
Saturday, January 17, 2009
8:30 a.m.-5:30 p.m. National Council of La Raza Headquarters
Raul Yzaguirre Building, Washington, D.C.
1126 16th Street, NW, Washington, D.C.
Rep. Xavier Becerra & Rep. Linda Sanchez
Schedule & Speakers
8:30-9:30 a.m. Registration. Continental breakfast. Activity on challenges facing the Latino community.
9:30 a.m. Official Opening & Welcome Remarks
9:35-10:35 a.m. Reflection on 2008 Election
Simon Rosenberg, President of NDN
Andres Ramirez, Vice President for Hispanic Programs at NDN
Temo Figueroa, Obama campaign Latino Vote Director
10:35-11:35 a.m. Political Fundraising
Gabriela Lemus, Director of the Labor Council for Latin American Advancement
Regina Montoya, Poder PAC member, previous congressional candidate in 200, and previous chief executive of the New America Alliance
11:35 a.m.-12:35 p.m. Media Outreach
Estuardo Rodríguez, Raben Group
Fabiola Rodríguez-Ciampoli, Rep. Xavier Becerra Communications Director and former Hispanic Communications Director for Hillary Clinton's Presidential Campaign
12:35- 1:50 p.m. Lunch and Conversation with Latino Leaders
Moderator: Adolfo Gonzales, Ed.D., National City Police Chief
Mireya Falcon, Mayor, Achichilco, Hidalgo, Mexico
Delia Garcia, Kansas State Representative
Victor Ramirez, Maryland State Assembly
Emma Violand-Sanchez, Arlington County School Board
2:00-3:00 p.m. Advocacy/Lobbying
Sam Jammal, MALDEF
Larry Gonzalez, Raben Group
Alma Marquez, Green Dot Public Schools
3:00-4:00 p.m. Community Organizing
Introduction: Dario Collado, Harvard University Latino Leadership Initiative
Marshall Ganz, Harvard Professor and designer of "Camp Obama" organizing strategies for Barack Obama's presidential campaign.
Jeremy Byrd, former Ohio General Election Director, Barack Obama's Campaign for Change
Carlos Odio, Deputy Latino Vote Director, Obama for America
4:15-5:00 p.m. Regional Break out sessions
Participants will break into groups based on their geographic region to reflect on lessons learned during the course of the training, key issues to address, and next steps.
5:15 p.m. Closing Remarks
Melody Gonzales, New Latino Movement Committee Chair
Stephanie Valencia, Office of Public Liaison and Intergovernmental Affairs, Presidential Transition Team and Deputy Latino Vote Director, Obama for America
Over the past weekthe number of Hispanics/Latinos in Barack Obama's administration jumped to 7 individuals, an historic number, with the appointments of U.S. Sen. Ken Salazar and U.S. Rep. Hilda Solis. Even before this week, Obama was already receiving praise for setting a record of top Hispanics in the Cabinet (full First Read Cabinet Census listed here). The number of senior Latino staff to the White House might increase once again, if Adolfo Carrion is in fact named to head the White House Office of Urban Policy. The Latinos named to the administration so far, and their posts:
- Gov. Bill Richardson (NM), Secretary of Commerce
- Nancy Sutley (of an Argentine mother), Chair of the White House Council on Environmental Quality
- Moises "Mo" Vela, Director of Administration Office of the Vice President
- Luis Caldera, White House Military Office
- Cecilia Muñoz, Director of the White House Office of Intergovernmental Affairs
- U.S. Sen. Ken Salazar (D-CO), Secretary of the Interior
- U.S. Rep. Hilda Solis (D-CA), Secretary of Labor
Additionally, Rep. Xavier Becerra was approached for the position of USTR, but it is reported that he decided to remain in the House of Representatives. Rep. Becerra and others have been asked by the Spanish-language mediaif they feel that the number of Hispanics named is "sufficient," which completely misses the point of what these appointments mean. As stated by Rahm Emanuel, "diversity wasn't the driving force here....most importantly, the quality is of a single standard. We wanted to make sure that we got a great staff of seasoned people - both on the policy front and political front - who knew their stuff." What we celebrate is not that Hispanics are filling some sort of quota, we celebrate that the new administration is inclusive and receptive of talent, regardless of background and ethnicity, and we celebrate that the Latinos being named are leaders who have excelled in their respective fields. We celebrate that Latinos are not only a growing demographic, but that it is finally out in the open that they are also a part of the most talented pools of leadership in the United States.
As Simon has stated, these appointments mean that Democrats - and President-elect Obama - are working to build a very 21st century, and potentially durable, coalition. They are discovering the new electoral map of this new century, and employ the latest and potent tools to engange the American people. Obama particularly engages the Latino community through his Spanish-language updates and press releases on the inauguration, and through the Spanish translation of all his press releases and weekly address.
NDN congratulates all of the Presidential nominees, particularly our friends and collaborators - Rep. Hilda Solis is a longtime friend of NDN's and provided important support to our affiliate Latino voter mobilization campaign, Adelante 08. Gov. Richardson and Sen. Salazar are also longtime friends and formed part of NDN's founding advisory board. The nomination of our fellow Latinos not only demonstrates the power of the Latino vote, it is a reflection of the reality of our nation's demographic makeup and reflect's our nation's true mixed racial and ethnic identity. We congratulate President-elect Obama's commitment to reflecting the talent that comes from this racial reality in his Administration. Moreover, these appointments are proof of our community's abilities - these Latinos are also the most qualified people for the job.
The Bush administration, long known for faith-based initiatives, has embraced a new form of faith-based economics to address the financial crisis and cascading recession: We’ll call it an economic version of Christian Science, prescribing modest steps to make the patient comfortable while largely leaving us to heal ourselves.
It’s only an analogy, but play along. A succession of debilitating infections has left the American economy in critical condition. The specialists (the Treasury and Fed) have prescribed the application of salves (the bailouts) wherever the infections break through the skin (financial institutions facing bankruptcy), while the actual infections (rising home foreclosures, lax or absent regulation, and the credit freeze) are left to heal themselves. As the patient deteriorates, the family (Congress and the White House) faithfully hang on every word from the specialists; and like everything in modern medicine, the price tag is astronomical. Months into this regimen, the treatments have done little to control the infections, and the patient’s condition is critical.
The current regimen also leaves the economy vulnerable to new shocks to its system, and they’re almost certainly coming. Lucky for everybody, this patient can’t pass away – but the economy could require life support for another year and come out of this with long-term disabilities. This week’s shock came from Bernard Madoff and his accomplices. In normal times, the banks and other institutions that gave Madoff tens of billions of dollars to invest would write down the losses with modest effects on their other activities. Or, if the bailout regimen had included serious measures to stem the housing foreclosures still eroding the value of mortgage-backed securities, the institutions could better absorb the new Madoff losses. But more than half-year into this crisis, the Drs. Bush, Paulson, and Bernanke have still left hundreds of large banks and funds exposed to additional rounds of mortgage-backed-security losses, and thus all the more vulnerable to unexpected losses from sources like Madoff’s schemes. It’s not too late for Congress to address the underlying infection here, with a 90-day moratorium on foreclosures, and a commitment by Fannie Mae, Freddie Mac and the institutions collecting taxpayer bailout money to renegotiate the terms of the distressed mortgages they hold.
The Great Recession we’re all living through will inflict additional, damaging shocks on the economy. For example, the budget deficit is growing at a record pace, fueled by the accelerating decline and stimulus packages that include virtually every idea any member of Congress has considered over the last decade. The new catch is that as the effects of the economic decline spread to the countries which finance most of our deficits, especially China and Japan, the global pool of savings is contracting. On top of that, the recession has taken hold in much of Europe, driving up their deficits. The inevitable result will be intense competition next year for a shrinking global savings pool, which in turn will put upward pressure on our interest rates in the midst of deep recession. And that will further slow the resumption of normal lending – because, once again, the bailout regimen simply applied a salve of taxpayer infusions for financial institutions without addressing their dogged resistance to using those funds to resume normal lending.
The good news in all of this is that the nations that regularly make trouble for the U.S. – Russia, Iran, and Venezuela – all find themselves in terrible straits. The global recession has driven down their oil revenues (and the value of their government bonds) faster than an American 401K. Unfortunately, as Harvard’s Ricardo Hausmann points out, the global crisis also is cutting off foreign capital flows to most developing nations, including stable and friendly places such as Mexico, South Africa, Turkey, Brazil, and Malaysia. President Obama may well find Vladimir Putin and Hugo Chavez much weakened adversaries. But he and Secretary of State Clinton could well also face new problems triggered by economic upheavals in many parts of the developing world. The silver lining for us is that much of the capital that would have gone to developing countries will flow here instead, hopefully moderating the upward pressures on interest rates. In order to take advantage of it, however, Congress will have to go beyond the administration’s salves and attach explicit lending requirements to the next round of bailout funds.
The current regimen of Christian Science economics is working no better in this financial crisis than the medical version would work in a deadly epidemic. The American economy will not get well on its own. Fortunately, however, the architects of this approach will retire in a month, and the country then can turn to more able doctors.