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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Reflate the Economy - Now

by Ben Stein

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Posted on Monday, November 17, 2008, 12:00AM
Herewith a few thoughts about the economy, public policy and retirement.

First, a note to the mighty international powers convening at the White House for the G-20 Summit to consider the world economic and finance slowdown. In this situation where aggregate demand is collapsing and where credit is desperately tight almost everywhere, the future dangers facing us are all on the deflationary side.

That means there is virtually — for all practical purposes -no limit to how stimulative fiscal and monetary policy can and should be. The dangers of inflation at this point are extremely modest. There is a worldwide commodities debacle. There is almost no new corporate financing. Even mighty China is slowing hour by hour. Inflation is not a present danger.

In this situation, the governments that care about their citizens should and must have extremely expansive policies. That would include running very large deficits — which we are doing, not even mentioning tax hikes until the situation is stabilized, and possibly cutting taxes as a temporary measure. Public works projects, tax rebates, even to people who paid no taxes, extensions of unemployment insurance payments — all of these are necessary. Bailing out the big auto companies, offering loan guarantees to encourage banks to lend, making sure lending facilities are in place for credit card issuers - all of these should be done and immediately.

Obviously, this is also a time for extreme monetary growth. As we economists would say, the velocity of money — that is, how often it changes hands — is falling rapidly. This means the Federal Reserve can pump up the quantity of money greatly to offset that fall without fear of inflation. There are the usual "pushing on a string" limits to how well this will work but it must be attempted.

The real issue choking the economy now is lack of lending and fear by the banks and other lenders. This must be met by explicit solvency guarantees from the central banks. There should be no pussyfooting around this. It's a matter of extreme urgency.

The sums involved will be substantial, but tiny compared with the losses to the world if we slide into a world wide depression. I offer as an example that it might have cost the government about $30 billion to $60 billion to save Lehman. That was deemed too expensive. The losses to the U.S. from the panic caused by that blunder are on the order of $4 trillion to $ 5 trillion. This is what is at stake if we do not spend the hundreds of billions and maybe a trillion or more to reflate the economy now.

Mr. Obama clearly has a better idea about this than Mr. Bush, who is dragging his feet about Detroit and other aspects of reflation. I hate to say it, but I think we are lucky Mr. Obama won the election. Of course, time will tell.

I desperately hope I am wrong and I may well be, but the government has to put in a bottom here. Otherwise, the bottom is very hard to see. Again, I hope very much I am being too pessimistic.

Secondly, the broad stock market is now at levels it hit roughly ten years ago on the Dow Jones Industrials Average and the S&P 500. This means something horrifying. If there are to be no long term gains in stocks, the retirement projections of almost everyone are simply demolished. Unless a pre-retiree is terribly lucky, he or she cannot count on meaningful gains in stocks. Obviously, the interest on bonds is modest and aside from Treasuries, they have been hit hard as well.

If workers can only rely on dividend and interest income and not on long-term capital gains of 8% or 9% per annum, pre-retirees have to save enormously more than they had anticipated to adequately fund their retirement. This is serious business.

Again, I hope I am wrong. Historically, stocks have major recoveries after falling as low as they have in recent months compared with the 15-year moving average of stock prices. This is what my pal Phil DeMuth, of Conservative Wealth Management, tells me, and he is a super smart fellow. But I would also consult my pal Ray Lucia, who requires his clients to have a very large amount of cash or short-term Treasuries to get through long difficult stretches. Ray's advice has turned out to be spectacularly sensible. But, again, if we have a lot of low return cash and low return stocks and low return bonds, we have to save much more than we thought we did three or even two years ago.

This makes reflation even more desperately needed. I hope Mr. Bush will wake up, stop listening to Dr. Evil, his Treasury Secretary, Henry Paulson, and work with President-Elect Obama to get a large, serious stimulation package into the economic bloodstream pronto.

This is getting ugly.

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  • Sammy - Monday, December 1, 2008, 5:44PM ET  Report Abuse

    • Overall: 1/5

    Listen to what this guy spew out and you'll be living in the streets in no time. Ben Stein is a few cans short of a 12-pack, he's as blind as he is crazy. You can guarantee that!

  • Yahoo! Finance User - Monday, December 1, 2008, 5:48AM ET  Report Abuse

    • Overall: 4/5

    Ben is onto something intelligent here with the ability to enact extremely stimulative fiscal and monetary policy, without the need to worry about inflation in the short-term. I think everybody would be much happier if this happened. Good insight Ben.

  • JamesR - Sunday, November 30, 2008, 5:02AM ET  Report Abuse

    • Overall: 1/5

    "Ben Stein Watch": http://tinyurl.com/6mcgtz (It's common knowledge that this man is an idiot)

  • Yahoo! Finance User - Friday, November 28, 2008, 6:21AM ET  Report Abuse

    • Overall: 5/5

    Dear Ben: Your article is excellent. Thank you, Ben, for all your info and advice. And please continue providing us with your honest and insightful assessments. You're a genius!!

  • Hunter C - Friday, November 28, 2008, 3:05AM ET  Report Abuse

    • Overall: 1/5

    OMG! I can't even describe how narrow-minded and moronic this guy is. Please, Yahoo, please for the love of God, for the love of all that is good and decent in this world: FIRE THIS IDIOT before I lose another brain cell reading his crap!

  • Yahoo! Finance User - Wednesday, November 26, 2008, 12:44PM ET  Report Abuse

    • Overall: 1/5

    If you think deflation is bad, wait till we hit hyperinflation, which is what will happen as the powers that be keep pumping money into this economy. Ben, you sound like a gambler who had a win streak and now is losing, but he won't leave the table until he wins back what he lost. A recipe for losing everything, which is where you are headed if you don't wise up. Pumping funny money into the system works for a short time but costs much more when it comes time to pay the bills. The only way to win this game is to get a real financial education and stop gambling with your future. Take some time to research www.maxhouse.com.

  • Ted - Wednesday, November 26, 2008, 12:02PM ET  Report Abuse

    • Overall: 1/5

    I doubt anyone can come up with one example of a country borrowing its way to prosperity. Countries need to EARN WEALTH by increased production – NOT by borrowing money. If dept was the way to wealth then all those people in bankruptcy /foreclosure today would be very prosperous. The politicians wanted to see a plan by the automakers to become more competitive before they would guarantee loans to keep them running. However no such plan exists to make this nation more competitive in the world. What this country needs is a policy to stop the hemorrhaging of jobs overseas. Everyday we loose tens of thousands of jobs to China/Asia. The result is what you see going on today - bankruptcy and foreclosure. The truth is businesses in this country are flooding China with investment capital and technology making China very prosperous. We need policies in place to reverse this trend and keep investment capitol and technology investment here in the USA. Bank of America took $15 billion under the U.S. Treasury's Troubled Asset Relief Program. Now its chief, Ken Lewis, is spending $7 billion of his spare cash upping the bank's stake in China Construction Bank. - http://www.iht.com/articles/2008/11/18/business/views19.php This money was supposed to be used to increase capital flow inside the US, NOT sent to China! WAKE UP AMERICA!

  • Sandra - Wednesday, November 26, 2008, 11:48AM ET  Report Abuse

    • Overall: 1/5

    All Ben does is to dig his hole deeper. This man is a bull market cheerleader masquerading as a financial "expert". If you WANT to ruin your life, please follow his advice, if not, then he's a good contrarian indicator. For some weird reason that escapes me, I read his blather regularly. I guess it's like when I'm compelled to watch a terrible movie, I keep thinking that there has to be a viable reason why it was made. I'm still trying to figure out how any of this "expert's" blather would help anyone to avoid ruining their life...

  • Logical - Wednesday, November 26, 2008, 3:22AM ET  Report Abuse

    • Overall: 1/5

    Come on Ben! Reflate the economy now? Have you ever tried reflating a balloon AFTER it has already popped? You can blow all you want to, but it ain't gonna reflate! All the hot air in the world won't reflate this one - time to get a new balloon. I'll bet you don't know how to do that either! Get an EDUCATION!

  • RussellM - Tuesday, November 25, 2008, 2:43PM ET  Report Abuse

    • Overall: 2/5

    Ben Stein no longer has ANY credibility in this area. I guess his economic theories are only valid when he personally is not hurting financially. As in all disciplines, the fundamentals are key. If I can't run my household on a deficit forever, then the country cannot maintain these enormous debts either. Bailouts and debt financing is BAD economics, both on the micro- and macro- scales. It's time to take our licks now, and not make our children pay for the sins of their fathers. It will be painful, but this situation, like garbage, will not get better with age.

  • Yahoo! Finance User - Tuesday, November 25, 2008, 1:37PM ET  Report Abuse

    • Overall: 2/5

    Hey Ben, Remember how you called it on 18 Aug 2007.. " Financials are unbelievably cheap they are being given away, credit crunch is way overblown, subprime problem is a tiny problem, buying opportunity in financial that I have never seen in my lifetime. stocks heck of lot higher in a year from now. Merrill is so cheap they should give it away in cereal boxes." http://cannonfire.blogspot.com/2008/11/when-winds-of-finance-schiff.html I hope you have the grace and class to apologize to Peter Schiff for the ridicule and scorn you poured on him.

  • John - Monday, November 24, 2008, 10:11PM ET  Report Abuse

    • Overall: 2/5

    Mr. Stein, I cautiously agree with you. As a student of economic history, timely and targeted governmental stimulus would have shortened the Great Depression and decreased consumer pain. My fair rating is premised on the end game with this stimulus package and when you'd recommend we return to a regulated and minimally overseen free market. No one can argue with the real pain and fear that's out there, how to address it while not adopting permanent public control and regulation of our markets is a question that needs to be asked. I am now buying what I hope to be real bargains and not IOU chits held by the Treasury Department in perpetuity. Thank you for your insight and wisdom Ben, I always look forward to your columns.

  • William N - Monday, November 24, 2008, 9:46PM ET  Report Abuse

    • Overall: 2/5

    The sad part about Ben Stein is that he is a professor. How many students have learned their economics from this man. He and Art Laffer were Reagan advisors thus architects of the Reagan economy. These guys were all about efficiencies and economies of scale etc. Well that works when the party is going strong but when the hangover starts then you have to bail out companies to the tune of hundreds of billions of dollars. To fix the economy we need to bring back anti-trust and break up these mega companies. Bring competition back! When you have dozens of companies competing to sell you their product you can have some fail with out wide spread pain. On the other hand when you only have a dozen or so mega companies dictating what you can buy. When one of them or all of them are hurting you have no choice but to bail them out. Competition and small businesses built this country and they kept it strong and flexible able to weather down turns in the economy. Want to create jobs break these mega companies up. each one will have to hire accountants, marketers, managers, etcetera, etcetera, etcetera. Small companies think carefully before moving operations overseas. Small companies create entrepreneurs. What did Welch create....a mega company by buying up other companies. He made a lot of GE shareholders rich but he entrepreneured nothing. Disguted with CEO incomes Pretty hard to pay yourself 100 million when you run a billion $ company. Different story with a 200 billion company. On the other hand, no one seems to mind when Gates, Buffet, Ellison or Jobs taking home big $. Why because they built the companies from the ground up.

  • Bs - Monday, November 24, 2008, 3:35PM ET  Report Abuse

    • Overall: 1/5

    Ben Stein = poor man's Peter Schiff

  • Nima - Monday, November 24, 2008, 4:39AM ET  Report Abuse

    • Overall: 1/5

    Please do read my detailed explanation why Ben Stein is completely wrong: http://www.economicsjunkie.com/reflate-the-economy-now/ What he writes is full of falsehoods and sounds shockingly dilettantish. I can only hope he had a bad day and not much time to write something of substance...

  • Yahoo! Finance User - Monday, November 24, 2008, 12:58AM ET  Report Abuse

    • Overall: 1/5

    Stein's advice is childish. The government's bad public policy decisions have created this problem, and until there is a structural adjustment to liquidate the malinvestment, the problem will persist. Bailout the UAW? Wonderful. $25 billion is just the beginning. What Stein will get is an automotive Amtrack. Oh yeah...his genius "reflation" is also likely to make others unwilling to hold dollars. So when they realize that we are stealing the value of their dollar assets by printing money dollars will come pouring back into the US looking to buy real assets. At that point we can have one of those really fun inflationary episodes - you know, like that trivial thing that happened to Weimar Germany or is happening in Zimbawe. On the hand, a complete inflation induced economic collapse will help Dear Lear consolidate his power. Perhaps we should be pleased. But, in any event, Stein is no economist.

  • AdanR - Monday, November 24, 2008, 12:45AM ET  Report Abuse

    • Overall: 1/5

    Ben, do you even know WHY this won't work anymore? You are asking Americans to give money to companies that got themselves in this mess in the first place, that are going to fail anyway, AND simutaniously prop up a war debacle as well as our troops everywhere but on our boarder. Do you even realize the economy has BARELY begun its meltdown and these are just the first ones to fail? The banks themselves are still claiming UNKNOWN amounts in derivatives and because of it we don't even know which are even solvent. Time to stop acting smart and start learning what is actually going on before giving us an un-researched opinion that got us in this mess in the first place. Also, are you going to gamble with our future and hope China and Japan don't cut your stupid plan off at the pass and buy up our gold before they realize we paid them back in worthless paper money? That is what inflation does you know. IT MAKES THE VALUE WORTH-LESS. Those who listened to reason are not getting screwed. Only the fools. "A fool and his money is soon parted." Just wake up already Ben, China has won all of your money.

  • Turd Ferguson - Sunday, November 23, 2008, 9:55PM ET  Report Abuse

    • Overall: 1/5

    We shouldn't do anything - let the failures fail and we can reset our economy. Our country has been addicted to debt. There are 2 ways out of this longterm malaise: 1) Reboot our manufacturing - we have to start selling products to other countries. Hopefully green tech leads the way as there is no other viable bubble that our history of innovation can push us forward. If we fail to reduce our trade deficit then we will have to do 2) Hyperinflate our way out of debt. China has already made it apparent that they are going to spend money domestically and others will follow (Japan is doing the same, at a lesser extent). Once they quit buying our treasuries, the fed will have to print ungoldy amounts of $ to pay the goverment debts. We will see double digit inflation in 2~3 years. Bailouts and stimulus packages will only prolong the reality and make it even worse in the near future (4~5 years).

  • Yahoo! Finance User - Sunday, November 23, 2008, 8:32PM ET  Report Abuse

    • Overall: 1/5

    The party is over Ben. No matter how much money you pump into this dead horse its not going to help; unless you want to hand out money to everyone and cause hyper inflation. The best thing would be for the markets to bury this carrion swiftly. The market is smarter than you or for that matter or any one person, Congress, Bush, or Obama and company etc., out there. The best course of action is to let the markets take care of this and the government support the small folk with extended unemployment compensation, instead of wall street who contributed to this mess.

  • eyes - Sunday, November 23, 2008, 7:10PM ET  Report Abuse

    • Overall: 3/5

    I like Ben Stein. I have to respectfully disagree with him, this time. There is no magic our government can whip out here. We are now starting to pay for the sins of the past. Read Martin Weiss's newsletter's or listen to what Gerald Celente is saying. Both these guys make their livings being accurate and have been for decades. They both say we are heading for a depression worse than the 1930's. The difference between then and now is we now have 14 trillion dollars of debt and back then America had surpluses. This event that is quickly coming on the US will change America forever. Gerald Celente says getting food will be the number one issue 4 years from now. Wake up.

  • DangerX - Sunday, November 23, 2008, 4:28PM ET  Report Abuse

    • Overall: 1/5

    So do you still think we're not in a recession?

  • benny - Sunday, November 23, 2008, 1:27PM ET  Report Abuse

    • Overall: 5/5

    I almost never agree with ben stein, but it is scary how much we agree here. I would only add that a quick way to help arrest job loss is to reverse the reduction in defense spending for 2009 and actually increase it. There is no good reason at this time to reduce defense spending.

  • replicator - Sunday, November 23, 2008, 11:03AM ET  Report Abuse

    • Overall: 2/5

    Ben, I understand your pain. But your solution is to give more alcohol to the alcoholic, so he he can go on destroying his liver and his life. Excessive lending got us into this problem. We should have gone through the pain of deflation after the the tech bubble. Instead Greenspan printed more money, and here we are today. You are a smart man, but you are panicking. We must heal our wounds, so we can be healthy again. I cannot believe you are advising the bailout of big 3. This will only prolong the illusion of viability. Every American should consider whether they would put their own money on the line to save the Big 3, and then decide, if it makes sense to do collectivelly. I think not.

  • Steve - Sunday, November 23, 2008, 9:34AM ET  Report Abuse

    • Overall: 5/5

    Right on, Ben. WWII was the only thing that pulled us out of depression before and it may require an effort like that again. Maybe we should start rebuilding our bridges, our road and our rails, not to mention an all out effort in green energy technology. It will take not just billions but trillions. Hey, since Reagan, we've gone in debt an addition 7 trillion and what have we got to show for it?

  • Yahoo! Finance User - Sunday, November 23, 2008, 5:13AM ET  Report Abuse

    • Overall: 5/5

    Ben Stein has a better clue about the reality we are facing than most. The truth hurts, but the first steps in solving the problems are in clearly defining them and formulation of plans based on facing the real issues head on. Better times are ahead of us, and we will appreciate them more once we have experienced the painful path we must follow to recreate a prosperous economy.

  • Mark - Sunday, November 23, 2008, 5:05AM ET  Report Abuse

    • Overall: 1/5

    The deflation has to happen. The amount of jobs out there has to decline. That’s what increased productivity does. I am no expert and I am a fan Ben but, the reality we have been avoiding since Regan’s economics is unavoidable. I was in the military from 84 to 04. I am grateful for those economics. However once I got out and started looking at the housing market, the only comment I could make is, “Who can afford these homes?” In NJ I have not seen a single home built that is less than 2000 sqft. What happened to the 3 bdrm ranch, the starter home? McCain was right when he told the workers in Ohio that the jobs they lost will never return. No matter what new products we produce there is going to be someone outside of the US that makes them cheaper. We have to evolve into something we have never been before. It is scary and it’s going to hurt. My gut told me Obama was the man to lead us through this storm. Remember those visions of the future, where machines did all of the work for us? I know that day hasn’t come but does anyone know how those people put food on the table?

  • mikeinalona - Sunday, November 23, 2008, 1:30AM ET  Report Abuse

    • Overall: 1/5

    Guess what Ben, the problem is going to get a lot worse. Government intervention is not going to help. You should have been listening to Peter Schiff rather than laughing at him. It's not too late to buy one of his books, "Crash Proof" if you want some sound economic advice.

  • Yahoo! Finance User - Saturday, November 22, 2008, 9:37PM ET  Report Abuse

    • Overall: 3/5

    Well done, Ben. I read your column regularly and this is probably one of your best articles. I can't say is was as well written as usual, but the content is spot on. I am a supporter of our country and capitalism, but also realize that when the market and economy begin to completely unravel, the government must take aggressive action. Sorry folks, but Laize Faire doesn't work in our current market conditions. There was a reason that the New Deal was put into effect back in the 30's. The reason we had the Great Depression was largely to due the fact the government raised interest rates during difficult times. Can you imagine what would happen if interest rates were raised today? I'd prefer to avoid a depression...

  • Sean - Saturday, November 22, 2008, 6:35PM ET  Report Abuse

    • Overall: 2/5

    The major misconception is the governments can put in a bottom. Sorry Ben, you are wrong, Take a look at the cost that dry bulk shipping companies are charging today versus 6 months ago and you get the picture. One thing the SEC can do to but some brakes on this downward slide is to reinstate the up-tick rule for short selling and get rid of mark to market; wait, it is too late for that. See you at 5000 which is about where we should be. Maybe you will have to move out of Malibu and worry about the things the rest of us do.

  • John H - Saturday, November 22, 2008, 5:39PM ET  Report Abuse

    • Overall: 2/5

    Come on Ben. Adam Smith 101, you cannot control prices. Well, you can in the short term as we did with free money for real estate. However, in the long run you'll suffer from backlash and the law of unintended consequences...like we are right now.

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