Sam Zell's Solution For The Economy: Doing Nothing

Billionaire Sam Zell  has a simple idea for how his fellow Chicagoan President Barack Obama can best help the economy:  do nothing. It’s not as crazy as it sounds.

“The economic malaise is the result of the fact that people who have [resources to invest] are unwilling to take the risks, because there is no certainty, there is no conviction, on the part of the government, to leave us alone,” the Philadelphia Inquirer quotes Zell as telling students at the University of Pennsylvania.  He called for Obama to  “announce he’s going to do nothing for the next 24 months.”

What the William Randolph Hurst wannabe meant by “nothing” is not clear from the small item.  Does that mean ignore efforts by the Chinese that harm U.S. industry by keeping the yuan artificially low?  How about the Bush tax cuts?  Should the Administration keep them or dump them?  Then there’s the housing market.  Millions of Americans are in danger of losing their homes even if their mortgages have been modified.  A case can be made that all those problems could be resolved by doing nothing.

Take the yuan.  Sure, the Chinese sucked away America’s manufacturing base by keeping their currency low.  U.S. administrations have bemoaned Chinese trade practices for decades.   Now, as the key Midterm elections loom, members of Congress are rattling their sabers, threatening to force the Administration to declare China a currency manipulator.  The question that never gets asked is what happens next if this happens besides a trade war.  Sadly,  even if the Administration slaps 1,000 percent tariffs on Chinese goods, it would do little to bring back well-paying manufacturing jobs that have disappeared as the economy became globalized.  Those jobs are gone forever.

As for the Bush tax credits, there are some economists such as Alan Greenspan and David Stockman, who believe they should be allowed to expire because the government can’t afford them.   Indeed, experts believe that the government would lose $3.7 billion over 1o years if Republicans got their wish and they were extended.   The Democrats’ plan to tax high earners would recoup about $700 billion of that.

Some housing experts have argued for months that government intervention in the market has kept prices artificially high,  preventing them from reaching their ever-elusive bottom.  Writing in the Los Angeles Times, Tom Petruno points out that the government is not going to convince reluctant buyers to invest in a home.

“Now, a grim reality has set in: Despite the still-rich basket of tax breaks for residential property owners, and the lowest mortgage rates in a generation, the pool of willing or able buyers is dwindling, ” he writes, adding that another wave of foreclosures is coming.   “Leave housing to market forces, let prices fall until buyers are motivated to come in, and hope that the economy can stand one final cathartic wave to clear the excesses of the bubble.”

Some may say that we should take what Zell has to say with a grain of salt.  After all, the “grave dancer” vowed to turn around the moribund Tribune empire. His plan flopped and the media company filed for bankruptcy protection in 2008. Creditors also want to sue Zell for causing “massive damage” to Chicago-based Tribune.  That’s all true, but besides the point.

If Zell’s idea sounds harsh, it’s because it is.  But the economic conditions are the worst seen since the Great Depression and sugar-coating that fact does not change anything.  Americans may not like the tart-tongued messenger, but they can’t afford to ignore his message.

–Jonathan Berr