Economy still needs help but maybe not the government’s

Before it finally dawned on us just how expensive it would be to provide health care insurance to 30 million people, politicians used to wave that number around and say, “We have to do something.”

Yet, there are more than 40 million people in America who are still staggering from the punch delivered to them over five years ago when the financial markets imploded — and politicians are saying … well, nothing.

The latest data from RealtyTrac.com, the mortgage and foreclosure market information firm, shows that in December 2013 there were 16,580,241 mortgages that were “underwater,” meaning that the mortgage owed was larger than the market value of the house or condominium. The average household, according to the Census Bureau, has 2.61 people, so we would estimate that the number of people affected by the underwater mortgages is at least 40 million.

From an economic standpoint, the 40 million people burdened by these mortgages are “disabled” to one degree or another. They do not function in the same way as others in our economy and, equally important, do not exhibit the financial behavior that fits the models used by policy makers and government regulators.

Is it surprising, then, that efforts to inject some energy into our economic recovery do not seem to have much impact? We have had an expansionary monetary policy for years now, and its effect on economic growth and employment has been, at best, disappointing. Much the same can be said of the misbegotten stimulus spending program undertaken in the early stages of recovery.

If we were to add the long-term unemployed , the underemployed, and those who left the workforce to those disabled by underwater mortgages we would begin to understand why the U.S. economy isn’t recovering as briskly as expected or hoped. Overall, the economy behaves as if it is dragging its anchor. It is likely to do so for some time.

That is not to say that we would be better off if politicians were to wave the numbers and say “We must do something.” In fact, based on past behavior, the more they stay out of it the better. The Obama Administration, for example, has introduced more mortgage-relief programs than anyone can keep track of — to no visible effect other than confusion.

A major part of the problem with government intervention is that Congress equates effectiveness with activity and success with spending. That is why both Congress and the news media measure its productivity and effectiveness by the number of laws passed. And it is also why the federal budget looks the way it does.

Long-term unemployment and underwater mortgages have changed the structure of the U.S. economy, as has uncontrolled government spending. The result is an economy that is very different from anything that John Maynard Keynes addressed in the 1930s. In economists’ terms, we do have an inadequate aggregate demand problem but not one that lends itself readily to either Keynesian deficit-spending or post-Keynesian monetary solutions.

Critics of our situation abound. Recently, for example, the New York Times published an op-ed opinion by a columnist from the Irish Times who debunked Ireland’s recovery and criticized the government for its “austerity” program and for stabilizing (bailing out) the privately-owned banks that make up Ireland’s financial system.

The parallels to the U.S. economy are direct. We, too, bailed out our banks when our financial system appeared to be on the brink of collapse. Only a person who cannot imagine the devastating human cost of a catastrophic banking system failure could fail to understand why we, and Ireland, nor only rescued the folks who caused the mess but also cleaned it up for them.

Criticism of what was done under crisis conditions is deeply unfair. And the spending control measures adopted because of shaky financial underpinnings reflect the lack of a workable alternative more than any love of “austerity.”

We are just beginning to understand what the long-term destructive effects of a financial market meltdown are. The failure of our economy to recover from the Great Depression in the 1930s may not have been attributed much to the mistakes of the Federal Reserve, or of the Congress. It may simply have been that the wounds were too deep to heal quickly.

Parts of our economy have recovered but that doesn’t mean there aren’t parts of the economy that remain deeply wounded. That is why the recovery is moving slowly. They need help and so does our economy.

If we can understand that “we have to do something” doesn’t include wrecking the healthy parts of the economy with dreamy, malfunctioning government schemes, there’s hope for the millions still economically disabled. And if we keep the faith in America there’s hope for all of us.

More in Herald Business Journal

Teddy, an English bulldog, models Zentek Clothing’s heat regulating dog jacket. (Ian Terry / The Herald)
Everett clothing company keeps your dog cool and stylish

Zentek uses space-age fabrics to moderate the temperature of pets and now humans.

Everett engineers learn lessons from Mexico City catastrophe

Structural scientists went to help after the September earthquake there and studied the damage.

DaVita to sell off medical groups including The Everett Clinic

Another round of health care consolidation means The Everett Clinic could soon get new ownership.

Engine trouble hits Air New Zealand’s 787 Dreamliners

A Rolls-Royce engine was shut down and was afterward found to be seriously damaged.

Washington, Amazon sue company over seller training programs

Braintree is accused of using deceptive ads promising information on how to make money on Amazon.

The Marine Corps’ version of the F-35 Joint Strike Fighter is designed to land vertically like a helicopter. (Lockheed Martin)
F-35 fighter costs, $1 trillion over 60 years, draw scrutiny

Pentagon’s ability to repair F-35 parts at military depots is six years behind schedule.

Incidents of severe disturbances on commercial flights climb

The number of cases in which the cabin crew had to restrain a passenger rose to 169 last year.

Funko mascots Freddy Funko roll past on a conveyor belt in the Pop! Factory of the company’s new flagship store on Aug. 18, 2017. (Dan Bates / The Herald)
Funko starts to bounce back after disappointing stock debut

The Everett toys-and-collectibles maker also announced the acquisition of an animation studio.

Now hiring: Younger factory workers, at Boeing and elsewhere

The company and its training partners are fighting perceptions of a dying manufacturing industry.