The current frenzy of economic stimulus packages sweeping around us like so many forest fires will not — and more importantly, should not — work. The reasons are threefold. First, they are stimulating the perpetuation of a false economy that has caused nightmares for tens of millions. Second, the packages are based on outdated Depression-era models without taking into consideration today’s much different realities. And third, they provide insufficient protection to get people through the tough three to seven years that are to come.

Through the funny-money years of the eighties and the go-go years of the nineties, the money hustle industry created a new vocabulary. The fictional Gordon Gekko in the movie “Wall Street” set the tone. “Greed is good,” Gekko proclaimed. “Greed built America!” The money hustlers put a twist on that. “Debt is good,” they proclaimed. “Never ending growth will pay the bills. Don’t worry. Be happy. Spend.” They lied. Too many bought into the lie.

Home ownership became a “right.” As did the second car, the third vacation, the boat and the country cottage. Mortgages were an “asset.” Borrow as much as you like. Shares were not debts owed to stockholders. They were trinkets to dole out to the public to raise IPO capital just as Peter Minuet used trinkets to buy Manhattan from the Indians. Everything became worthless because everyone knew the price of everything, but none knew the value of anything. The idea of living within one’s means was considered “unfashionable.” Those who did, were considered as ignorant of the “new economy.”

Debt became a commodity. New games called derivatives were invented — with the blessing of the Clinton and Bush administrations as well as Greenspan’s Fed. Bet on anything. Any war, any event, even the weather. Well, a Ponzi scheme is a Ponzi scheme whether in the twenties or today, and suddenly everything old was new again. The new “economy” that is.

A bubble built on bad bets, bad debts, and a self-delusion that made Sisyphus pushing the proverbial rock up the mountain look like an iron-headed realist. Okay you might say, but didn’t we have the same scams leading to the crash of 1929 and the Depression that followed? And didn’t FDR’s stimulus packages — the national recovery programs — work? The answer to both questions is no.

It is true that the scams and schemes of the twenties blew the lid off the economy and sucked capital out of businesses much as today’s shenanigans did. The critical difference is that in the thirties, though money was lost, productive capacity remained. The factories and assembly lines were there. The assets of what is called the “real” economy continued to exist. The United States, Great Britain and even Canada to a point, were the productive nerve centers of the western world. We made stuff! All that was needed was a stimulus — an injection — of capital that had been lost in market speculation to restart the engines. Today is different.

We don’t make most of the stuff anymore. The productive capacity is in China, India and points east. Yes the United States is the largest economy in the world. But again, vocabulary has been perverted. Its size is not measured by what it produces — once called value — but by what it consumes — today called price. In other words dear readers, unlike the thirties, there are precious few economic engines to stimulate. As just one case in point, people like Japanese cars more than American.

What we do have, and what these stimulus packages are trying to save, is an economy that creates debt and hopes to keep it going with ever higher fees and interest payments. The hope behind these packages — both infrastructure spending and tax cuts — is that it will enable people to keep paying interest on existing debts by having temporary project jobs and encouraging them to spend their tax savings on more consumption acquiring more debt still. The prayer the policy makers are chanting is that some new industry will arise — like the Internet in the nineties — to save their collective skins before the massive printing of money creates uncontrollable hyper-inflation. Here’s why there is faint hope for that.

The model of FDR’s 1930s reconstruction that governments of the left and right are using to achieve the above did not have within it three malignancies that plague the west today. First, only some 20 percent of North Americans owned their own homes. Second mortgages were almost unheard of, and first mortgages were given under strict borrowing guidelines with equal equity ratios. There was no such thing as five percent down to buy a home. It wasn’t considered a right. Today’s mortgage debt is so huge that no government can print enough money to cover it. When Fannie Mae and Freddie Mac went under, the debt they had underwritten was conservatively estimated at $5 trillion. That is $1 trillion more than the budget of the United States of America.

Second, credit cards didn’t exist in the thirties. The amount of personal consumer debt in North America is almost on a par with mortgage debt. In Canada alone there is $30,000 of consumer debt for every man, woman and child. Third, the thirties did not have broad-scale sector-wide union agreements in place. Agreements that today leave little wiggle room as workers are rightly furious at seeing the “masters of the universe” enrich themselves beyond the dreams of Croesus.  Just last week President Obama rightly labeled as “shameful and outrageous” the news that Wall Street had paid out $18 billion in executive bonuses. The sixth highest on record in the worst year ever. 

Did our current disaster come on suddenly? No. It was about to happen in the 1990s, but the Internet industry created a new centre of productivity. Did governments learn and tell their citizens to “cool it”, start saving and get out of the bubble? No. Most followed the lead of the United States that in 1999 abolished the Glass-Spiegel Act. That 1933 piece of legislation was critical to FDR’s restoration of the financial system. The Act mandated the separation of commercial banks from investment banks and set up firewalls between banks, insurance companies and brokerages. Financial services companies had to stick to their knitting. Other western nations followed America’s lead and tore down the  barriers that for more than 60 years had protected consumers.

Suddenly financial behemoths sprang up that combined banking, insurance and stocks. All money was played and the big push for more equity capital sucked from the public became a stampede. That led directly to the dot.com bubble of the first years of this decade. Today’s crash should have happened then for the second time. But American Federal Reserve policies of cheap money kept the game going.  One problem though. Since the west wasn’t producing anything but puff, where to raise sovereign debt to finance the cheap money policies? China of course. Since China was producing — and saving in its centralized Stalinist manner — it ended up holding up to a third of western debt. A situation that continues today and is pushing us toward a precipice overlooking a chasm even more frightening than the current crisis. 

So what is to be done? We do need a stimulus. But a stimulus for real people not for fake profits. We need, as a friend of mine reminded me, a paradigm shift. To accomplish that we need statesmanship. And we need our leaders to look not to 1933 for solutions, but to 1973.

In 1973 two disasters happened. OPEC was created and America went off the gold standard. The economy went into a spiral and worse was foreseen. President Nixon, the man who it was said was the only American politician who could go to China without being labeled a Communist, did another surprising turnaround. He called in a Kennedy liberal policy specialist named Daniel Patrick Moynihan - later UN Ambassador and New York Senator - to come up with a plan to protect Americans from a coming economic disaster that could last a full business cycle. Moynihan devised a plan for a Guaranteed Annual Income. He famously quipped, “We subsidize planes, we subsidize trains, why can’t we subsidize people?” 

The plan, amongst other proposals, would have created a floor, 15-20 percent above poverty lines, for people starting at entry level positions in new jobs created at existing businesses through government stimulus. The GAI was not a permanent plan. It would be in place until economic recovery was achieved. It was a parallel track to government dollars going to create real jobs at functioning companies. Not government dollars going to create stop gap infrastructure positions, or bailing out failing businesses without rewarding and encouraging successful companies to withstand the current hard times. It is the model for today. Everyone in government should be forced to read his “Politics of a Guaranteed Income.”

Why do we need it? Because the suffering is greater than we are told. The current unemployment rates we read about are only those people still on the rolls. The percentage of able-bodied Canadians who can’t find work, but are off the EI rolls, is far higher.  These numbers are climbing. And this in a country where less than 10% of the population has a net worth of $5,000 or more. Great Britain has poured out 23 percent of its GDP in stimulus dollars with little to show for it. That’s far above the 13 and 11 percents Canada and the US are considering. Stimulus dollars won’t save failing industries and shouldn’t save the fast-buck artists. We need to let the economy adjust to new realities. Let the bad industries die and make room for new ones. 

But these dollars can save people. Especially our $40 billion plus EI surplus that successive governments have refused to return to Canadians. These dollars are the very dollars that should be pumped into successful businesses, to create new jobs even at below entry level salaries, buttressed by a GAI plan that could even be funneled through employers as direct subsidies or long term loans. The plan would prevent these low salaries from expanding even more our class of working poor.

 Our dollars should be used to cushion people’s lives until there is a real recovery, not a fake recovery doomed to quick collapse. But for even this stimulus to work we need one more ingredient.

We need our leaders to morph from politicians to statesmen. They need to find the courage to speak the hard truths of what brought us to this point and tell their citizens that things must change. That, in the words of Edward Abbey, “growth for the sake of growth is the ideology of the cancer cell.” That consumption for the sake of consumption is quicksand. That living within our means is “in”. That we can rebuild at lower levels, and that’s okay. It may take three years, or five or seven. But that at the end of the day we can finally defeat the threat that Bobby Kennedy warned of 40 years ago. The revolution of rising expectations.