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Pressure Is on for Obama, but This Rescue Relies on All of Us

President-elect Barack Obama faces great pressure to
President-elect Barack Obama faces great pressure to "fix" the economy. But there are limits to what the government can do. (By Shizuo Kambayashi -- Associated Press)
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But even for an activist like Obama, there are limits on what he and government can do.

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The reason we are in this mess is that Americans, collectively, lived beyond their means for many years, consuming more than they produced and investing more than they saved, thanks to trading partners and foreign investors who were only too happy to lend them lots of money at cheap rates. Now that the credit bubble has burst and the party is over, Americans will have no choice but to go through a painful adjustment to get things back into balance.

That means that American households will have to spend less and save more, as they are beginning to do. It means that voters will have to decide whether they want to pay higher taxes or reduce the level of benefits or services they demand from government. It means that housing prices will have to fall to levels that make homes affordable to the people who live in them. And it means that companies will have to shrink their operations to reflect that new, lower level of consumer spending.

Most economists agree that government now has an urgent role to play in managing that adjustment, preventing markets from spinning out of control and turning what is a necessary recession into a prolonged depression. And most Americans want government to take steps to see that the pain of that adjustment is shared somewhat fairly and equitably, and ensure that the poor and vulnerable are protected.

But as Obama is quickly discovering, there is little consensus on what a fair and equitable adjustment looks like.

If government money is used to bail out banks and Wall Street investment firms, on the theory that their failure would cause too much collateral damage to the rest of the economy, it's not hard to make the same case for the strapped Detroit automakers and the millions of industry workers and pensioners who rely on their continued operation.

Moreover, if the government provides money to automakers, should it require that the companies forswear any further layoffs, as some have suggested? Or should the government require that shareholders, creditors, pensioners and active workers make whatever sacrifices are necessary to ensure that the money is repaid and these companies emerge as profitable, competitive and environmentally born-again?

On the other hand, why should the government come to the rescue of autoworkers while doing nothing to protect the jobs of the 9,500 delivery workers whose layoffs were announced this week by Germany's DHL, or the 1,300 employees who are about to be laid off by Nortel, the telecom equipment maker, or the thousands more employees who will lose their jobs at electronics retailer Circuit City, most of whom could only dream of pay and benefit packages like those to which unionized autoworkers still feel entitled?

Stemming the tide of home foreclosures is also a top priority on most agendas, but that hasn't turned out to be as simple as it sounds either. Most people agree that mortgages should be renegotiated and monthly payments reduced to levels households can afford. The disagreement starts over how the financial haircut should be distributed among the original lender and investor, the government and the homeowner.

There is little in Obama's campaign platform, and his oft-stated promise to "restore the middle class," to suggest how he will answer these questions or where he will draw the lines. But it won't be long before he is forced to acknowledge that even the federal government, with its unmatched capacity to borrow and spend huge sums, cannot rescue every important industry, save or replace every job, prevent every foreclosure and restore every budget cut. The sooner he levels with us about those limits and the extent of shared sacrifice that will be necessary, the sooner the new president will be able to establish confidence in his leadership and restore faith in our economic future.

Steven Pearlstein will host a Web discussion today at 11 a.m. at http://washingtonpost.com. He can be reached at pearlsteins@washpost.com.


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