Monday, November 8, 2010

What Now?

We survived the off-year elections, but will we survive the next two years?

Chances are we've just elected a do-nothing Congress, so our odds for survival may be better than you think. After all, the theory says, a Congress that can do nothing can do no harm.

I'm not so sure. One of the first problems they'll argue about is whether or not to extend the tax cuts the Bush administration put in place. The Democrats will argue that they should be continued for the middle class, but rescinded for high earners. The tea partiers will argue for extension of all cuts. If they win the day the cuts will all stay in place, but the consequence will be that the government will have to borrow money to cover the shortcoming in revenue – exactly the kind of borrowing that helped toss away our surplus in the first year of the Bush administration. They will have won their taxation argument, but deepened the deficit as a result. If they allow the tax, their angry base will accuse them of ignoring public demand for low taxes. Either way, they could be hoisted on their own petard.

The big problem, of course, is still the economy. We should note that on November 5, two days after the election, the Department of Labor announced an upturn in employment levels, GM announced its intention to buy back the government's investment in its stock, Detroit announced that truck sales are up and global stock markets surged in response to the "Fed's" buy of $600 billion in Treasury bonds. Our new electees have no claim on these accomplishments, though if the upturn holds they will surely try it later.

Still, we have a long way to go and the jobs lost over the last ten years will never return. Our manufacturing based economy has gone the way of the dinosaur. That's why the only way out is forward, and that's where the argument against government involvement falls apart.

Government created the highway system that enabled freight hauling to make available the consumer goods that drive our economy. Government created the G.I. Bill after WWII that gave us a college educated, home owning middle class. Government created the space program (ERTS-1) that gave rise to Landsat and, ultimately, the internet.

Yes, corporations built the manufacturing base, but there was government assistance involved in that, too. Given free reign, existing big corporations will do more to guard their present positions than to find new ways of competing with those positions. Government R&D and infrastructure investments in alternative energy sources and other sustainability oriented endeavors would do us a great deal more good, including new jobs, than curtailing social programs could possibly accomplish.

The plus side of the election is that the two sides must now work harder at working together. The question is will they take us forward or backward? Stay tuned.

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