"Does the collapse of the stock market worry you, Mr. President?" asked ABC correspondent Sam Donaldson after a record plunge of the Dow in October 1987. "No Sam," said Reagan, "I don't own any stocks."
With the stock market on the verge of a nervous breakdown over these past three months, perhaps a little levity can help disperse the clouds of melancholy hovering over our economic landscape.
Nevertheless, as mayor, I'm concerned that as consumer spending declines in the face of a deepening recession, eroding tax revenues will result in draconian cuts in financial aid. If our only worry were our own financial house, things would not be so worrisome since we know how to balance budgets, invest in the future and provide security against the vicissitudes of life's uncertainties.
But that's not the world we live in since we are, as the telephone commercial says, connected. Not always in a good way either, since Long Island tax dollars are disproportionately extracted to support a phalanx of state and federal programs from which we derive little or no benefit. Bringing some of these dollars back home is like fighting a tug of war against a caravan of elephants moving in opposite directions. With the ongoing financial meltdown, getting our tax dollars back home will be like putting the proverbial toothpaste back into the tube after it has been squeezed out. Once it's gone -- it's gone.
The best thing that could happen locally is, obviously, an economic resuscitation nationally. None, however, seems forthcoming any time soon. Back in mid-September, at the outset of the crisis, I called the rescue by our Treasury Department an economic Dunkirk. Government had acted, it seemed to me, as it must act during a deflationary spiral, as a lender of last resort flooding the market with dollars to inspire confidence and investment.
Massive government stimulus packages to jumpstart an ailing economy goes back to the days of the economist John Maynard Keynes, whose prodigious intellect resembled a burning sun upon which the economic solar system revolved. Back in the depression years of the 1930s, it was Lord Keynes who gave this theory its fullest expression based on the idea that feeding new money into the economy increases demand and thus production. Just as one who experienced an ugly divorce is reluctant to remarry, the investor who feels frightened and confused by recent losses is unwilling to take risks in the market.
Hence, government becomes a thermostat, elevating the temperature and thawing out the economic freeze to create liquidity. Keynes was prescient enough to see that with the right lending and mortgage policies in place the juggernaut would be an explosive post WWII real estate market. In the present crisis the new economic stimulus plan appears to be spending hundreds of billions of dollars for the nation's roads, highways, bridges, airports and transit systems to re-ignite a moribund economy.
But while our infrastructure badly needs to be rehabilitated, America's economic foundation is no longer based on construction workers or assembly line work that made America the manufacturing capital of the world. Over the last quarter of a century the American economy has added 50 million service jobs but has eliminated some 5 million manufacturing jobs.
Engineering recovery through the public sector at the expense of the private sector may work in the short run but I'm skeptical whether it can be sustained in the long run, especially because the debts incurred would not be easily extinguishable. Moreover, every dollar invested in the economy must first be taxed or borrowed out of the economy. In other words, no new spending power is created; it is merely redistributed and, therefore, does not create wealth or real jobs since as anyone who has taken Economics 101 knows economic growth can only happen by producing more goods and services.
Not that indebtedness is necessarily a bad thing; credit properly managed turns into wealth. America was blessed to be a society of legally enforceable property rights and contracts wedded to a culture of capital formation whose launching pad was credit. Credit, however, like steam, is an energy that only enlightened societies can harness. Nations that understand the workings of credit, said Daniel Webster, possess an entity more valuable than all the gold and silver mines of the world combined.
This same credit, however, has muddied the waters by democratizing credit and fueling heavy-handed entitlements that has skyrocketed out of control. The average American has 7 credit cards, which often translated to not having to save in advance to buy what you want. In 1946, personal debt was 23 percent of household income and in a year a family earned more than 4x its debt. By 2006, debt was 134 percent of annual income and the average family borrowed more than it earned. This wink and nod arrangement that permitted individuals and entities to borrow money at below market rates, with no money down and no credit checks was wildly negligent and eroded not only the mortgage industry's lending practices but lending standards throughout the economy.
What has occurred in the housing industry, entitlements and sundry government appropriations, is a classic case of the politics of over-promise in exchange for political advantage at the voting booth. What they forgot is that home ownership is the American dream providing you can pay for it otherwise it's a national nightmare. By having government-backed Freddie and Fannie Mae hold half of all outstanding mortgages in America by offering its borrowers sweetheart deals, represents an unconscionable concentration of debt and risk from which we will be hemorrhaging to the next ice age.
As bad as things have become, they would be worse if Japan and China were not reinvesting the dollars we send them for their cars, toys, cell phones and TVs into our financial markets. Without this inflow we would not be able to spend more than we earn, or put another way, produce more than we consume. Then Americans would actually have to pay for their standard of living, a truly appalling notion.
Social Security, Medicaid and Medicare are all part of the social fabric but their costs cannot continue to spiral upward, unabated, without wreaking the same havoc we see from the mortgage crisis. The list goes on. Am I disconcerted about rewarding the big automakers with bailouts for manufacturing cars no one wants to buy? Sure, just as I would be if we decided to bail out those in the restaurant industry for preparing dishes no one wants to eat. Yet, over the years we have subsidized the farmers not to grow food in sums that make the bailout monies to the auto industry pale by comparison, just so local politicians can curry favor with their constituency and be interminably re-elected.
The old adage that you can't fight City Hall might have had credence at one time, but the truth is really the opposite; City Hall cannot fight public opinion which though not monolithic, the sum of its parts exerts enormous public pressure to throw money at a symphony of special interests, constituencies and politically correct good causes. So compelling is the evidence that this is so that those who deny it should be relegated to the fringe, like flat-earthers, Holocaust deniers and those who believe they were abducted by aliens.
One Philadelphia Congressman being questioned on why his district gets so much pork said: "Well, some people call it pork --- I call it steak." No doubt huge votes appear in his column in exchange for the bacon he brings home, or the filet mignon, or whatever he wants to call it.
I speak of these things because as an incorporated, full service village we have special blessings but we also shoulder special burdens. Self-determination has a price tag and I don't think we need to pay any more dearly for self-government than we already have. I harbor no fears about what we can control in our budget, it is those mandates that we can't control that concerns me as well as bankrupt government entities withholding ever more of our taxpayer dollars to replenish their empty coffers.
As with every crisis there is an opportunity to shape the debate and refocus priorities. Whatever our political affiliation we must not immunize ourselves to the unpleasant fiscal facts before us and commit ourselves on focusing on what is doable and not desirable. Capitalism is still the primary vehicle to prosperity and despite its imperfections one does not throw out a good bottle of wine because it contains bits of the cork.
Markets, however, still need to be regulated only because if enough money is to be made there will be those who will not hesitate to make it illicitly regardless of whom they harm or defraud. But let us not overreact with too much regulation, which will only stifle markets and straightjacket productivity. Meanwhile, with a trillion dollars or more being flooded into the system lobbyists, who can pick up the scent of cash with the olfactory acuteness of a bloodhound, must be restrained or turned away. Finally, a brake on runaway spending clearly needs to be applied; burgeoning health costs trimmed and if new taxes have to be imposed let it be placed on consumption, not investment.
The roaring '20s devolved almost with light speed into the depressed '30s, so extreme and sudden vacillations of economic fortunes are not unprecedented and predictions that it could happen again cannot be dismissed as counterfactual or anti-historical surmises. But despite it all, this is not a message of malaise, but of good old-fashioned optimism. Back in the late 1970s it was thought that inflation was democracy's incurable disease. President Reagan and Federal Reserve Chairman, Paul Volcker, albeit by administering some painful medicine, disproved this fallacy with a dispatch and finality that has, in retrospect, a ring of folklore.
While deflation is harder to fight than inflation it is surmountable if we are willing to change how we do business. Not to change when change is needed is to surrender a hopeful future to a failed past. In 1940, both the domestic an international front was darker for America than it is today. But that year, Henry Luce, editor of Time Magazine, had the chutzpah to call the 20th century the American century. He was right, of course, and I have a feeling if not an article of faith that such heights are not beyond our grasp in the 21st century.
Above and beyond this we need to recognize in this country, amid the swirling storms of public debate, the shared norms of our nature, common experiences and commitment to the future. We need to have a fair and civil debate on what government should do for us and what we need to do for ourselves. Defining responsibility, limits and accountability can help clarify the momentous challenges before us. Americans should not do this glibly, arrogantly or cavalierly but honestly and forthrightly and guided always by the light of our most deeply held values, beliefs and traditions.
'Tis the season of tradition and for that alone we should celebrate. More than almost anything else that is what this time of year brings to mind amid the hustle and bustle of shopping, gift-giving and endless parties. Tradition is the anchor that keeps us from drifting in a sea of change and improvisation; an unwritten law that charts a course blazed by centuries of human experience.
While we should let the dead dogmas of the past rest in peace, there is a great deal in the ideals and values of old that are forever new. To be deaf to the past is to blind ourselves to the future. Was it G.K. Chesterton or Edmund Burke, I can't exactly recall, who said that tradition is the 'democracy of the dead' for it gives a vote to the most obscure of all classes - our ancestors.
From lighting the Christmas tree in Memorial Park to the familial habitudes of my own household during this time of year, comes a deep appreciation that tradition is a poignant and powerful reminder on what is permanent and that which is fleeting. Whether it is elevated by ritual or celebrated with the pomp of ceremony or merely observed unassumingly, it is a tie that draws us closer among so many forces that conspire to pull us further apart. In an information age pulsating with the constancy of change, tradition provides us with a layer of stability and continuity that is as much a part of human nature as variety and innovation.
Tradition inspires the deeply civilizing trait of reverence, which is the ballast that reminds an ever-growing pluralistic society of its shared norms, collective experiences and the stake we have in our common future. While tradition can, and has, been used as a veil for untoward prejudice this inclination, in today's world, is mostly inconspicuous. More likely cultural pressures fueled by notions of individual liberation are more likely to transgress, debunk and deconstruct the social and moral verities that make societies bind rather than fray at the seams. There are some things in life, especially the nucleus of family and the institutions of community, that are unique, irreducible and insubsumable and we must be careful that the branch we are sitting on is not sawed off for the sake of some fashionable iconoclasm.
In periods of uncertainty and apprehension, tradition serves as a breastwork and a compass, a lodestar to lead and guide. Even the recurring rituals performed in every household during special times, holidays and celebrations provide a comfort and rootedness that strengthens the spirit as well as giving a sense of belonging. This is no different for the community at large who by renewing ties to the past taps into old sources of strength for new challenges. In wishing a happy, blessed and healthy New Year to all our residents, let us clearly recognize that the values bequeathed by patrimony are not only the greatest part of our inheritance, the chief source of our cooperation and advancement as a society.