President Obama's economic plans have been the subject of much conversation lately. I'm glad that the economic stimulus package passed a few weeks ago, but I've been reading in various magazines that the stimulus package will work only if it comes together with a good plan to fix the financial system. From what I read, if Geithner and the Congress do not come up with a good plan to fix the banks and its toxic assets, the economic stimulus package will only be a temporary fix and our economy might wind up staying in a rut for years, like Japan's economy in the 1990s. In the February 14, 2009 issue of the Economist, an editorial wrote:

"Fiscal stimulus, indispensable as it is, cannot create a lasting economic recovery in a country with a broken financial system. The lesson of big banking busts, such as Japan's in the 1990s, is that debt-laden balance sheets must be restructured and troubled banks fixed before real recoveries can take off. History also suggests that countries which address their banking crises quickly and creatively (as Sweden did in the early 1990s) do better than those that dither. This is expensive and painful, but cautious, penny-pinching governments end up paying more than those that tread boldly."

One of the names that keeps popping up in the articles that I've been reading is John Maynard Keynes. The February 4, 2009 New Republic had a good article on Keynes' philosophy by John B. Judis. Judis wrote about Keynes' philosophy:

"Keynes theory inverted the relationship between savings and investment. Instead of the amount of savings determining the amount of investment, the amount of investment determined the amont of savings. It also inverted the relationship between consumption and savings. If the inducement to invest was determined at least partly by consumer demand, then the greater the propensity to consume rather than save, the greater the inducement to invest. Consuming, in short, was preferable to saving.

These two inversions had radical implications for government policy. In the past, governments had advocated budget cuts and tax increases, along with wage cuts and lower interest rates, to escape recessions; Keynes was arguing that, except for lower interest rates, these measures made matters worse. And, in a severe recession or depression, when pessimism about future business profits made lenders reluctant to finance investment, even government attempts to lower interest rates wouldn't help. What was needed instead? Budget deficits, rather than budget balancing, and public investment and income transfer programs designed to put money in the pockets of the poor- that is, the people most likely to spend, not save it."

To try to understand better what Judis was writing about, I checked out from the library John Maynard Keynes' book The General Theory of Employment, Interest and Money. It was easier to read Judis' article than it was to read Keynes' book. The General Theory of Employment, Interest and Money is an extremely mind numbing book to try to read. It was easier for me to read an article in the February 16, 2009 edition of the Washington Post Weekly by Steven Mufson about the debate of the effectiveness of the New Deal in dealing with the Depression. While Republicans argue that the increase in spending of the New Deal didn't really resolve the Great Depression, liberal economists make the counterargument that the New Deal was actually too timid in expanding government spending. Commerce Department data showed that during the period from 1933 to 1937, the economy grew annually at a rate of 13 percent and unemployment fell at a rate of 4 percentage points a year. In 1937, the economy stumbled again when FDR heeded calls to cut spending and reduced federal spending by 10 percent. The United States economy got out of the Depression due to World War II, when the federal government spending soared sixfold and the federal government debt doubled. Economists like N. Gregory Mankiw, Harvard University economics professor, and Christina Romer, chairperson of the Council of Economic Advisors, feel that another good thing that FDR did was abandon the gold standard, which freed the Federal Reserve to expand the money supply. I did a cartoon for the February 11, 2009 edition of the Tri-City Voice based on the arguments of Republicans and Democrats.

A more radical alternative to the course than Obama's economic plan is offered in the March 2009 edition of Z Magazine by Jack Rasmus, a teacher in the Department of Economics and Politics at St. Marys College, Moraga, California. Rasmus feels that Obama's economic recovery program is too small in scope, and Rasmus offers instead an alternative that focuses on stabilizing the housing market and restoring consumption. I won't go into too much detail, but to summarize, Rasmus proposes to stabilize the housing market by resetting all mortgage rates for all loans between 2002 to 2007 to the Federal Funds Rate plus 1 percent to cover administrative costs, create a homeowner-business loan corporation to provide direct lending to the homeowners and small businesses, and give an optional 40 year fixed loan extension. He makes these proposals to bypass the banks and lenders who are not doing much to stimulate loan demand. Rasmus also wants a $1 trillion job creation and retention program that focuses on jobs for the infrastructure, healthcare, and manufacturing. To help redistribute income and restore disposable income to families, Rasmus wants the creation of a national 401K pool, a single payer universal health plan for households earning less that $160,000, and a measure to de-privatize the student loan market.

I personally like the goals that Obama has set, to redirect our economy towards energy self sufficiency, to rebuild the infrastructure, to focus on education, and to target the gap that has grown between the rich and the lower and middle classes. In reading the various articles, I found many differing viewpoints, but they all shared in common the notion that the government needs to act boldly to stop this economic crisis from getting worse. As someone who has always been bothered by the power of corporations these past few decades, I hope Obama focuses on ways to reduce their power over our lives.

Though I am no longer Catholic, I am still influenced by the critiques of capitalism that are found in the papal encyclicals. As Obama and our country focus on how to get us out of this economic mess and reform the system to make it more humane, I think it would be wise to remember the words that Pope Paul VI wrote in his encyclical Populorum Progressio. Paul VI wrote:

"But it is unfortunate that on these new conditions of society a system has been constructed which considers profit as the key motive for economic progress, competition as the supreme law of economics, and private ownership of the means of production as an absolute right that has no limits and carries no corresponding social obligation. This unchecked liberalism leads to dictatorship rightly denounced by Pius XI as producing 'the international imperialism of money'. One cannot condemn such abuses too strongly by solemnly recalling once again that the economy is at the service of man. But if it is true that a type of capitalism has been the source of excessive suffering, injustices and fratricidal conflicts whose effects still persist, it would also be wrong to attribute to industrialization itself evils that belong to the woeful system which accompanied it. On the contrary one must recognize in all justice the irreplaceable contribution made by the organization of labor and of industry to what development has accomplished. "