by Eric Margolis - The Smirking Chimp
After invading Afghanistan, Iraq, Somalia, turning the Muslim world against America, alienating our allies, authoring the fiasco in Georgia, and presiding over the meltdown of Wall Street and America's banks, it would seem impossible the Bush administration could produce another epic disaster. But it has.
In its final days in office, the White House has engineered an historic nuclear deal with India that Congress, unaware of the import, approved last week.
President George W. Bush has been pressing for this treaty since 2005. Its passage by Congress is being hailed as a major foreign policy triumph by Republicans. Many Democrats also supported the deal under intense pressure from industry lobbyists.
Far from a triumph, this short-sighted strategic agreement with India could very well come back to haunt America. Many Indians feel the same way: furious debate over the nuclear deal almost brought down the coalition government of India's prime minister Manmohan Singh and barely scraped by India's parliament.
The agreement will now allow the U.S. to sell nuclear fuel, reactors and technology to India, supposedly for `peaceful energy use.' India has been under a U.S.-led nuclear trade embargo since it tested nuclear weapons in 1974 and 1998 and refused to sign the Nuclear Non-Proliferation Treaty. India has long complained it was a victim of western `nuclear apartheid' that allowed the great powers weapons of mass destruction but denied them to other nations.
India agreed to open 14 of its civilian reactors to inspection by the International Atomic Energy Agency. But its eight nuclear reactors producing plutonium for nuclear weapons are exempt from any inspection under this lopsided agreement.
Like many rapidly developing nations, India suffers chronic shortages of power. It has long lacked enough nuclear fuel to power its 22 reactors, some of which this writer has inspected.
Severe shortages of fuel have held back India's nuclear weapons program, which is estimated at 200 warheads and annual production of more than 286 pounds of enriched, weapon's grade plutonium, according to former high-ranking officer of India's intelligence agency, Research and Analysis Wing.
President Bush's `foreign policy triumph' means that U.S.-supplied nuclear fuel will now keep India's civilian reactors running, allowing Delhi to divert precious nuclear fuel to its weapons program.
This deal negates thirty years of US efforts to prevent the spread and development of nuclear weapons.
Advanced U.S. nuclear technology will now flow to India, supplementing that already supplied by India's second largest arms supplier, Israel. The gates have also been opened to U.S. arms exporters to sell state of the art military equipment to India, and to major heavy equipment suppliers like General Electric. Some business groups, giddy at the prospect of this commercial cornucopia, have estimated potential sales to India at $175 billion over the next 25 years, but that figure appears a gross exaggeration made to sway Congress.
So Washington has now blessed former pariah India as a legitimate nuclear power state. This radical change in U.S. policy comes at a time when Washington is threatening war against Iran for possibly thinking about nuclear weapons, doing its utmost to get North Korea to disarm, and talking about 'taking out' Pakistan's nuclear arsenal. This blatant double standard has further enraged the Muslim world against America which was already furious over Washington's closing a blind eye to Israel's large nuclear arsenal, much of it built with purloined U.S. technology and materials.
Pakistan's nuclear arsenal was developed in response to India's 1974 nuclear tests. A U.S. conventional arms embargo on Pakistan forced it to rely increasingly on nuclear deterrence. India developed nuclear weapons after China tested its first nuclear devices.
Bu underwriting and expanding India's nuclear arsenal, the Bush administration's born-again Cold Warriors were clearly trying to build up India as a counter-weight to China. My book, 'War at the Top of the World,' postulated that India and China would clash over their disputed Himalayan border and Burma sometime in the first half of the 21st Century. Bush's nuclear gambit has raised the prospects of such a clash of Asian titans.
Beijing has reacted with quiet fury to the U.S.-India nuclear deal, calling it an example of growing U.S. hostility and a dire threat to China's national security, which it certainly is. A nuclear and conventional arms race between China and India has been under way for years, and is accelerating. Washington is pouring gasoline on these fires.
Instead of playing off India against China, Washington should be striving to create the strategic and diplomatic environment to peacefully accommodate the emergence of these new great powers.
Not only does the U.S.-India nuclear deal undermine nuclear non-proliferation and regional stability, it also raises a serious new strategic threat to the United States.
The Senators and Representatives who voted for this profoundly unwise deal simply had no idea that India is fast-emerging as the world's newest strategic nuclear power -- and one whose increasingly long reach will soon threaten the U.S. While fulminating against Iran, which has no nuclear weapons and no long-ranged delivery systems, Washington will now aid India to build nuclear armed inter-continental ballistic missiles (ICBM's).
For the past decade, India has been quietly developing a series of ICBM's under cover of the Indian Space Research Organization (ISRO). The GSLV-III heavy space launcher, which India has used to put numerous satellites into orbit, has been transformed into its new, three-stage Surya ICBM with a range of 6-7,000 miles. A missile that can launch heavy satellites can also deliver warheads at long range.
Why does India need ICBM's? India's Agni-III medium range nuclear-armed missile can cover nearly all potential enemies, such as China, Iran, and Russia. India's short-ranged Prithivi missiles can cover all of Pakistan.
Over 60% of Indians subsist on less than $2 daily. About 75% lack indoor plumbing. Yet India, one of the world's poorest nations, has embarked on a buildup of hugely expensive strategic arms that has made it the world's third or fourth nuclear weapons power after the U.S., Russia, and Israel.
Since India is most unlikely to war with Europe, Australia, or Latin America, the only other conceivable target for India's long-ranged ICBM's would be the United States. Thanks to President Bush and the powerful pro-India lobby, the US will now help India with the high-speed computers and electronics to make its missiles more accurate, powerful and long-ranged.
India is also rapidly developing a new sea-launched missile with a 450 mile range, `Sagarika.' This nuclear armed weapon will complete India's nuclear triad of air, land, and sea-launched weapons. `Sagarika,' carried on up to five new strategic missile submarines India is building, must also be counted a potential threat to North America.
India's growing fleet of Russian-supplied attack submarines, like the formidable 'Akula' are armed with the world's fastest and deadliest anti-ship missile, 'BrahMos,' a weapon designed to sink aircraft carriers. Besides India, the only nation operating carriers in the Indian Ocean is the United States Navy. Indian strategists claim this ocean as India's `Mare Nostrum.'
India is emerging as a great power and has every right to nuclear self-defense against hostile neighbors China and Pakistan. India is also a stable democracy with a cautious government that is not about to launch nuclear war. But it seems clear, at least to this long-time regional strategist, that one day soon, India's growing power will bump into that of the world's receding hegemony, the U.S. This is most likely, as India expands its power into the oil-rich Gulf and Indian Ocean.
Selling India nuclear fuel and technology that could one day threaten US national security is dangerous and counter-productive. It's also folly driven by short-term financial greed that blinds the deal's proponents to the nation's security.
The first target of India's ICBM's will be Washington. As Marx so rightly observed, the capitalists will sell the rope with which to hang them.
Click here to see John McCain's Rage
Everybody's Got One!
Submitted by Michael Moynihan NDN Blog
New York City -- In his classic 1841 book Extraordinary Delusions and the Madness of Crowds, Scottish journalist Charles Mackay pinned the blame for financial panics on the herd instinct. As interpreted by financier Bernard Baruch who wrote an introduction to a reprint published after the 1929 Crash, otherwise intelligent people in a herd "act like blockheads." As fear trumps reason and emotion rules, people in panics lose their ability to act rationally and instead move with the herd.
While Mackay's analysis was prescient for its day, if panics were due only to irrationality, they would be a lot easier to solve. Neither Mackay or Baruch had available to them modern tools for understanding decision making by participants in a market. However, the branch of economics known as game theory suggests that people acting entirely rationally can still cause a disaster. And this, more than just irrational panic, is the problem we face today.
As bubbles inflate, it can be entirely rational to go with the herd since, as the saying goes, "the market can stay wrong longer than you can stay solvent." And when the market crashes, it is rational to sell with the herd as well. At the moment, it is all too rational for banks not to lend to other banks whose balance sheets they mistrust -- the root cause of the current freezeup in credit markets. Thus, the current panic cannot be resolved merely through the return of calm and rationality alone.
The best known game in game theory is the so-called prisoner's dilemna. Without going into all the hoary details, it describes a case in which two people, if they act in their own interests, ie rationally, achieve a worse outcome than if could only cooperate.
This problem is known as a collective action problem. A simple version might be two children who want the same toy. If they share the toy, they both benefit. However, if they fight over the toy, each hoping he or she can wrest if from the other but break it, neither gets to play, a worse outcome than if they had shared. Similar situations occur all the time in business negotiations and diplomacy as in international disputes that lead to costly wars.
In the current financial world of complex derivatives that have sliced and diced the rights to streams of income among a galaxy of players, some regulated, some not, in the hope of spreading risk, what we have is a collective action problem on steroids.
To provide just one example, mortgage holders are currently engaged in a game of chicken with borrowers. Too often, mortage holders have been unwilling to modify loan terms so that borrowers can actually repay. The result is foreclosure and the forced sale of the asset, a lose-lose situation for both parties in which each achieves a worse outcome than if they had worked out a deal. Yet it is rational for each party to hold out for a better deal.
Fortunately, there are several answers to collective action problems. All involve shifting the decision from a collective or group to a single person able to cut the Gordian Knot to do what is best for all concerned. This can be achieved by turning the matter over to a higher power such as a court or judge. It can be achieved by the government passing a law that determines how the spoils are divided. It can be achieved by the two parties merging into one. Or it can be achieved, if the parties will need one another in the future -- though this would not seem to help in the current case.
In the Panic of 1907, JP Morgan locked the heads of finance of the day in his library and forced them to come together to provide funds to stop the panic. More recently, in 1998, New York Fed President Gerald Corrigan knocked Wall Street heads together to get them to bail out Long Term Capital Management (with only Bear Stearns refusing to play ball). If you seek a more extreme measure, in the famous panic of 33AD, Tiberius banned all interest payments for three years among other measures. One of the disappointments of the management of the crisis so far has been the inability of the Fed to force Wall Street to act together in its collective interest. There has been no shortage of meetings with the Wall Street titans locked in a room. Again and again, however, they have put their individual interests ahead of their group welfare and the Fed has come up short in forcing them to work together.
In contrast, earlier this week a number of Attorneys General negotiated a win-win settlement with Countrywide that cut through the Gordian Knot by modifying loan terms to make loans sustainable for customers. This is a good example of a higher power, in this case the government, settling cases involving borrowers and a lender in a way that will ultimately benefit both -- but that the two sides negotiating alone probably would never have achieved.
To tackle the collective action issues in the current crisis, the Fed, Treasury and other regulators, attorneys general and judges working with the Congress should take the following steps:
Pursue more settlements such as that with Countrywide that keep people in their homes.
Get tougher in forcing financial institutions to work together to solve the crisis.
Accelerate the process of merging weaker banks into strong ones.
Work to replace the disaggregated complex securities that currently splinter ownership into simpler securities amenable to decisionmaking. In this regard, a plan that replaces unsustainable loans with sustainable ones -- but that does not give a blank check to banks as with the McCain plan -- would be helpful.
In the context of real estate securities, where legally possible, pass rules simplifying loan terms and allow bankruptcy judges to modify loan terms.
These steps are needed to address the very real collective action problems that, until remedied, will continue to feed the financial crisis even if fear subsides.
by Stephen Pizzo - News for Real
Franklin Roosevelt understood that the fastest, (and maybe only,) way to revitalize a devastated economy was with gigantic government-funded public works projects. And he was right. FDR’s national infrastructure programs not only pulled the US out of the deepest depression in our history, but helped us win a world war and set the foundation for nearly a century of dynamic growth and prosperity.
Today we have another example of FDR’s genuis in action — only it’s not happening here, but in Iraq.
Yes, Iraq. While our financial markets plumb new lows with each passing day, the Baghdad stock market booms. Iraq’s stock market may be the only one in the world going up these days.
New York Post
STOCKS SOAR! (IN BAGHDAD)
October 10, 2008 – Now it’s stock and awe in Baghdad!
As the Dow plummeted nearly 700 points yesterday to fall well below the 9,000 mark, the Iraqi stock exchange - where this broker was merrily keeping up with her booming business - was flourishing, buoyed by four-year lows in violence and hopes of a reconstruction windfall.
Last month, Iraq’s general index went up nearly 40 percent, about the same percentage the Dow dropped over the past year. The jovial trading-floor mood is reminiscent of Wall Street’s bygone “greed is good” era of the 1980s.
The United States has poured more than $600 billion into the war-torn nation, and some experts believe the total cost could be in the $2 trillion range.
All that US taxpayer money wasn’t wasted bailing out Iraq’s banks or it’s investor class. No, instead huge chunks of that money went into reconstruction projects, creating jobs and, not just rebuilding Iraq’s crumbling infrastructure, but modernizing it.
Thanks to FDR Americans got the Golden Gate Bridge, the beginnings of a nationa highway system, Hoover Dam, the Tennessee Valley Authority, the CCC, the WPA, Social Security and so much more.
Thanks to George W. Bush Americans got Bear Sterns, AIG and $700 billion in toxic, worthless or near-worthless Wall Street-created paper. (Derivatives)
And the Bush administration isn’t done. They have more plans. Unfortunately those plans do not include building roads, bridges, schools or providing all Americans with health care. And there will be no jobs programs like the WPA either. Instead the administration announced it will start using yet more taxpayer money to become partners — not with working Americans — but with bankers. Secretary Paulson announced yesterday that their next move will be to pump fresh liquidity into “troubled banks” becoming co-owners of those banks.
Let’s think about that for a second.
Question: How did we get into this mess in the first place?
Answer: A gross lack of federal oversight and regulation.
So, how does the Bush administration plan to respond to the disaster that resulted? Well of course, to make those very regulators co-owners of the banks they failed to properly regulate in the first place. BRILLIANT!
Once in those bank’s corporate boardrooms, those regulators will quickly find themselves obsessing over quarterly profit/loss projections and chatting up investors on conference calls, assuring them that the future of “their company” looks bright. They they will go out and do whatever it takes to achieve those promised quarterly benchmarks — even if they have to “fudge” the numbers to make it happen. Wanna bet?
And finally, has anyone in the Bush administration pondered this question:
Once regulators become bankers, who will regulate the regulators? (Did I just hear the sound of one, one-handed regulator clapping?)
The administration, of course, argues that going into partnership with troubled banks is only way to get liquidity into hundreds of insolvent banks.
Really? FDR wouldn’t disagree, and neither do I.
The traditional way banks get liquidity is customer deposits. Therefore, if the goal is to get banks back on their feet, and to do so in a sustainable manner, the way to do that is to do whatever it takes to assure that Joe and Jane Sixpack have jobs. And that those jobs provide salaries sufficient for families to live on and with something left over to put in the bank each month. (Duh!)
But remember, this is a Reagan “trickle down” administration. They believe that the way government creates a robust economy is to do whatever it takes to assure that the 2% of the folks at the top are fat and happy. That way, these trickle-downers believe, the rich will hire more gardeners and housekeepers thereby stimulating the economy, top down.
That didn’t work when Ronald Reagan tried it and it didn’t work for Bush either. And it worked even less for the rest of us. Because it takes a lot more than a few hundred thousand gardeners and housekeepers to clean up messes of this size so the American economy can bloom again. It takes tens of millions of carpenters, road, dam and bridge builders, daycare workers, teachers and factory workers to do that.
Trickle UP works, Roosevelt proved that. Trickle down is a fraud, and we are living the consequences of that cynical, bankrupt philosophy today.
Meantime our $10 billion a month is at least doing for the Iraqis what we can only wish the Bush administration would do for us.
Is Henry Paulson a crony communist or a businessman? The answer could be the difference between economic disaster and recovery.
Understanding Paulson's role in stopping-or fueling-the credit crisis requires a review of two axioms from Economics 101: 1) A credit crisis occurs when banks stop lending and 2) The amount banks can lend is a multiple of the capital in their vaults. Therefore, ending a credit crisis means prompting new lending-and that means maximally increasing bank capital.
Enter Paulson, the former Goldman Sachs executive and current Treasury secretary. The bailout he fearmongered through Congress aims to waste almost a trillion taxpayer dollars buying banks' bad mortgages-a scheme all but ensuring a disastrous outcome.
If Paulson pays banks exactly what their mortgages are worth, he will not increase banks' capital (or their lending ability)-he will merely convert one asset (mortgages) into another (cash), making no impact on the credit crisis. If, to protect taxpayers, he buys mortgages at lower prices than banks list them, banks will have to write down their capital and consequently contract lending-and the credit crisis will worsen. If Paulson overpays for mortgages, he may marginally augment bank capital, but also incur massive taxpayer losses when he later resells the mortgages at their real price.
The silver lining is a little-noticed provision in the bailout bill allowing Paulson-if he chooses-to buy ownership stakes in banks. According to Robert Johnson, the Senate Banking Committee's former chief economist, this would cost roughly $375 billion less than the mortgage-buying plan-and, better yet, more aggressively attack the credit crisis.
Mortgages may be underpriced today, but they retain some value on banks' books. So rather than purchasing mortgages (a capital-neutral transaction), Paulson could buy bank stock, infusing banks with new capital on top of their mortgages. That would exponentially increase lending capacity, prevent taxpayers from buying toxic assets, give the public a share of future profits and grant regulators ownership leverage to restructure bank management.
This is where Paulson's personal proclivities come in.
A crony communist looking to socialize risk and privatize gain would consider these options and choose to buy mortgages-that is, choose to ignore the credit crisis, reward discredited executives and permit banks to keep any subsequent profits-all while inhibiting a potential government-mandated housecleaning of Wall Street. Indeed, the Financial Times' Wolfgang Munchau says Paulson's mortgage-buying program is driven by "a wish to benefit the investment banks he once chaired, and which stand to gain handsomely from such a package."
A businessman, by contrast, would limit taxpayers' exposure, give us a stake in future gains and demand management control. He would, in short, treat taxpayers like Warren Buffett treats his Berkshire Hathaway shareholders when buying banks with their money.
This is how Sweden successfully confronted its banking crisis in 1992, and how England is addressing its own meltdown today. In fact, world leaders are citing our crony communism as a cautionary tale. "This is not the American plan," said British Prime Minister Gordon Brown in announcing his bank rescue. "We will have a stake in the banks-we are not simply giving money."
The bailout bill's failure to make this course of action mandatory should have killed the legislation in Congress. But banking CEOs and their lobbyists turned "should have" into "didn't." They love crony communism and hate government ownership stakes because, as financial analyst Luigi Zingales says, "Nobody likes to pay for their own mistakes-it is much better to have the taxpayers pay."
Considering the opposition, then, it is a miracle any ownership stake language slipped into law. Whether Paulson now uses that language will signal how deep Washington corruption runs.
by Mark Weisbrot - Common Dreams
It is now clear the approval by Congress of President Bush's $700 bailout package on Friday October 3rd has done nothing to ease the current financial crisis. Credit markets have worsened for several days after the bill passed the Congress. The stock market also plummeted to nearly ten-year lows.
So much for dire warnings from the Bush Administration that Congress was risking a Great Depression if it did not quickly fork over the dough. The bailout's supporters said Congress had to do something to unfreeze the credit markets. It didn't work.
There is a basic misunderstanding of the current financial crisis and economic recession that is widespread. Most people think that the current economic downturn - which will be officially designated a recession some time in the near future - is the result of the financial crisis. But this is not true. The current recession is mainly the result of a collapsing housing bubble. This bubble of more than $8 trillion dollars accumulated between 1996-2006, and it is only about 60 percent deflated so far. This means that even if all the problems in the financial system were miraculously solved tomorrow, the United States would still be facing a serious recession.
Of course the financial crisis can make this worse, as financial institutions cut back on lending and short-term interest rates for commercial borrowing rise. And we are indeed facing a serious financial crisis. But the bailout package is a wasteful and inefficient way of dealing with the problem of banks holding bad debt, mostly related to mortgages gone sour in the housing bust. It enables the U.S. Treasury Department to buy up "troubled assets" - mostly mortgage-related securities - from financial institutions, at prices that will likely be much higher than they are worth.
Economists across the political spectrum saw this as a wasteful and inefficient way to fill holes in banks' balance sheets. Ordinary citizens and taxpayers saw the bailout as an enormous rip-off, and flooded Congress with phone calls, defeating the bailout on its first vote.
Indeed, the most important ways that our government is currently holding the financial crisis in check do not involve overpaying banks for bad assets. The Federal Reserve and U.S. Treasury have intervened repeatedly to pour liquidity into the banking system. They have agreed to federally insure $3.4 trillion of money market mutual funds held by millions of Americans. This week the Fed created a new facility to buy commercial paper, the short-term debt issued by banks and corporations, where lending has been shrinking. The Federal takeover of Fannie Mae and Freddie Mac, and the nation's largest insurer, were also necessary to preserve the stability of the financial system.
All this is just the beginning of cleaning up the mess that has resulted from a de-regulated and un-regulated financial system gone wild. The government will have to take over more insolvent financial institutions and provide capital to others. It will have to take steps to help homeowners, to minimize foreclosures and evictions. And it will need to provide the largest fiscal stimulus package since the Great Depression, to prevent this recession from dragging on for years. The worst part about the bailout is that some politicians will say we can't afford the necessary stimulus because we just added $700 billion to the national debt.
Americans will have to fight for measures that protect the public interest, not the interests of those who made this mess. Treasury Secretary Henry Paulson made $163 million as CEO of Goldman Sachs in 2006. Now he and his former colleagues at Goldman are running the Wall Street bailout.
During the Asian financial crisis ten years ago, there was an expression for this kind of system: "crony capitalism."
________________________________
Statement on the Need for Coordinated Stimulus
By Dean Baker and Mark Weisbrot
The current economic crisis is the result of an extraordinary period of extreme economic mismanagement. The world's central banks, most importantly the Federal Reserve Board in the United States, made the decision to ignore, if not actively cultivate, the growth of asset bubbles. This was the case with stock market bubbles in the 90s and housing bubbles in the current decade.
They compounded this mistake by ignoring the explosive growth of credit and new complex derivative instruments. They allowed financial institutions to become hugely over-leveraged, ensuring that the collapse of the bubble would lead to major financial disruptions.
Finally, they failed to recognize the seriousness of the problem, understating the size of the problem at every step. This has slowed efforts to muster an adequate response to the situation. President Bush and other political leaders markedly worsened the situation when they raised the specter of the Great Depression and otherwise sought to raise fears in order to gain public support for the bank bailout package.
The meeting this weekend of the G-7 provides an extraordinary opportunity to begin the reversal of this dismal record. First, it is necessary to have a coordinated financial and monetary policy to stem the immediate financial crisis. This will require bank bailouts that focus on the direct injection of capital into the banking system, following the example of the United Kingdom earlier this week.
The financial system will also benefit from further cuts in overnight lending rates, especially by the European Central Bank (ECB). The ECB's focus on concerns over inflation at this economic junction is almost as foolish and potentially more harmful than the decision to ignore the growth of the housing bubble.
The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush's scare tactics for promoting his bank bailout.
The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.
It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80years later.
Mark Weisbrot and Dean Baker are Co-Directors of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).
By Joshua Holland, AlterNet
A survey of what some of the best thinkers believe we're facing in the coming months and years -- and the best ways to prevent complete disaster.
As the financial crisis gains steam, moving from overextended American households to global banking giants, fear of a major crash is spreading. Talk of "Another Great Depression" has entered the mainstream discourse, 1 out of 6 homeowners are "under water" -- owing more to the banks than their houses are worth -- and $2 trillion of retirement wealth has evaporated over the course of a few short months. The markets have not been "calmed" by the government's heavy interventions; the Dow Jones Industrial Average touched a five-year low this week, and is now 40 percent below its peak of one year ago.
The question on most people's minds is just how far and deep the fallout from the crisis will go. Are we looking at the kind of recessions we've seen -- and survived -- in the early 1980s, early 1990s and at the beginning of this century, or are we staring into an abyss that will be far more painful, one that will profoundly transform our lifestyles?
There's no definitive answer. We're in uncharted waters, and anyone who says they know what will transpire in the next few years is selling snake oil. But some deep thinkers who have a solid command of the structures of the global economy can help us understand the best- and worst-case scenarios, the way the crisis is changing some of the economic establishment's most cherished and long-standing assumptions and what role government -- the American government and those overseas -- might play in minimizing the damage created by Wall Street's excesses.
I contacted a number of leading experts this week -- all highly respected in their field -- to get their reads on the possible impacts of the financial sector's meltdown, the likelihood of the recent bailout having the desired effect and where we might go from here.
There was quite a bit of consensus on several points. First, all agreed that we're in the early stages of a deep recession. Second, most believed that it was in no way inevitable that the crisis would develop into a full-blown 1930s-style depression, and some were skeptical that such an event is even possible in today's economy. Third, all agreed that the length and depth of the crisis would hinge on the actions taken by governments in the coming months. Finally, there was something approaching a consensus that the economic and political establishment has been deeply shaken by the events of recent months, and that the banking mess might lead to a very different approach to governing the "free market."
The Worst-Case Scenario
In a nutshell, the lack of transparency in the system -- the fact that nobody knows precisely who's holding what liabilities on their books -- has the potential to lead to a global loss of confidence among investors and institutions, and what would effectively be the modern-day equivalent of a bank run on the myriad institutions that hold (or guarantee) "toxic" debt-backed securities.
That prospect has already led to a near-freeze in the flow of loans that individuals and businesses require, and if the credit system doesn't shake loose it will make the economic contraction that's already begun longer and more severe and lead to further financial losses.
That might create a vicious cycle in the "real" economy, as jobs are lost, people lose their homes, local governments' revenues -- in the United States, based largely on property taxes -- are cut and their work forces slashed.
As Max Wolff, an economist at the New School, wrote me via e-mail, "we're dependent on our banks. Thus, their pain is ours. Millions will be fired. Retirements will be decimated. Opportunity will vanish, (and) consumption will fall. Everyone is already deeply influenced. This will become more obvious and more painfully evident with each passing day. When it rains on the top of the hill, those who live on the bottom of the hill drown." He added, "there's now a major flight from all risk assets" which will "cause massive pain and dislocation in the developing world." Wolff predicted that "large sections of the consumption economy" will vanish, which will "slam into the leading exporters' markets and undermine much of the recent surge in commodity prices."
"We have now baked a severe and largely global recession into the cake," Wolff said. "The losses are already way too large to swallow. ... The numbers about failures from car dealerships, stores and many small businesses are alarming and will get worse." He added: "The epicenter of the crisis is already shifting out of America and finance."
That point was echoed by Walden Bello, a giant in the global justice movement and founder of the Third World Network, a group of NGOs focusing on development and poverty relief. Bello offered that "given the globalization of national economies over the last two decades, the downturn is going to be a synchronic one, and there is going to be no decoupling of one region from another." The crisis in the United States will continue to expand worldwide, at just the moment when international cooperation is most necessary. "For instance," Bello said, "China's main market is the United States, and China purchases many of its industrial inputs and raw materials from Japan, Korea and Southeast Asia. So Japan and Southeast Asia cannot rely on Chinese demand to make up for a fall in U.S. demand. China, East Asia and the U.S. are tied together like prisoners on a chain gang."
Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts, thinks there's "a good chance this crisis will become a general crisis, pushing unemployment up to the 10 percent level, as we experienced in 1982-83. This would mean a severe slowdown for everyone," regardless of whether they're in the financial markets or struggling to keep up with a mortgage. "A severe employment crisis would hit lower-income people the worst -- that is, people who have little savings and rent, rather than own, their homes," he wrote me via e-mail. Pollin also believes, "the odds are closer to the worst- rather than the best-case scenario, mainly because I think we are already too far gone for this to be a mild downturn, no matter how successful" the government's bailout of Wall Street might be.
Is a Major Crash Inevtitable?
"I won't go so far as to draw parallels with the Great Depression," James Galbraith, a senior scholar with Bard's Levy Economics Institute, told me by phone. "I don't think that's appropriate."
In the best-case scenario, Galbraith said, "the government has the power and should use it, first of all to secure the liquidity of the banking system and the payment system, and then to resolve the underlying housing problem. These things should be done, can be done and if they are, the whole experience would be relatively mild. I mean, it'll be severe by the standards of the past 20 years, but it can be contained and resolved in the next two to three years." He predicted that "if the system is kept liquid," the crisis may be short in duration. "What will happen is that the financial sector will shrink, it will disintermediate, but it will not collapse."
When I interviewed Dean Baker, co-director of the Center for Economic and Policy Research, two years ago, he was one of a very few voices warning of the dangers the housing bubble posed to the larger economy (at the time, he had been discussing it for a couple of years). This week, Baker said that the best-case scenario for the underlying housing market would be for prices to "quickly fall by 10 to 15 percent, returning to their long-term trend levels." That would allow the real estate market to begin to clear "a vast overhang of vacant properties" and unfreeze the credit markets.
In the bigger picture, Baker argued that the recession, while painful, might be mitigated by "large injections of government stimulus ($300 billion to $400 billion) combined with a substantial fall in the value of the dollar." A broader stimulus package -- cash injected into the economy to help keep goods and services moving -- "can sustain demand in 2009, while the fall in the dollar can begin to boost net exports in the second half of 2009 and 2010." Baker added, "even in this case, unemployment is almost certain to rise above 7 percent by early 2009, but hopefully will not get too much higher."
Although Pollin is not optimistic about the prospects of a quick recovery, he told me that in his view the best-case scenario "at this point would be a mild recession that lasts roughly a year. This would be similar to the recession that occurred after that last financial crisis, the 2001 stock market crash. In that case, unemployment rose to only about 6 percent, where we are now. Financial markets would stabilize over the next six months."
A Positive Outcome Will Require Good Governance
All of the experts I surveyed agreed that the modified "Paulson Plan" passed by Congress won't work, but many also thought a large injection of cash into the banking system was a necessary first step. The crucial factor in our economic prospects for the coming years is what will follow next.
Robin Hahnel, an economist at American University, told me that "while it's not necessary for the U.S. financial crisis to become a world financial crisis, and for the U.S. recession to become a depression of the magnitude and duration of the Great Depression of the 1930s, if the short-term, medium-term and longer-term responses continue to be as incompetent as the short-term response in the U.S. has been so far, this worst-case scenario could happen." Hahnel noted that "for the most part, governments in Europe have gone about their bailouts in a competent way -- building up equity in stricken financial institutions by buying shares, making loans to banks in exchange for banks making the loans they have refused to make so far, and making credible government guarantees to depositors."
Pollin agreed. "I do think the bailout will contribute to stabilizing global financial markets, relative to a situation where the U.S. government did absolutely nothing," he said, noting that it was inaction that resulted in the demise of Lehman Brothers -- the decision "to allow the free market to work as its supposed to" -- and that "led to the total panic that has since gripped markets."
But, he added, "that doesn't mean that this was the right bailout strategy. It wasn't. Indeed, it was close to being the worst possible strategy ... because it did nothing to assist homeowners who face foreclosures; it contributed to the sense of panic by emphasizing this huge sum -- $700 billion -- coming out of the Treasury, when in fact, the Fed could have managed the crisis without any tax dollars being committed." He added that the plan "didn't offer any measures to regulate the markets and thereby create a sense of stability moving forward."
Pollin laid out steps that he believed must follow the government's interventions thus far if we hope to stave off a far deeper crisis, including: a new system of financial regulations; increasing the cash reserves required of institutions that deal in the speculative economy; restructuring people's mortgages; and a significant economic stimulus package designed to "create jobs and get people a new stream of income."
Baker emphasized that "paying too much for banks' bad assets is a very inefficient way to address their main problem -- they're under-capitalized" (meaning they don't have enough cash on hand to cover their potential liabilities and also make new loans). In calling for a major stimulus package for the "nuts and bolts" economy, Baker noted that it's "far more efficient to directly inject capital."
Galbraith told me that the "Paulson Plan" was an "act of desperation from an overwhelmed Treasury Department" and that to the extent it might "do anything at all" it would do so "both inefficiently and slowly." He was adamant that it had to be considered as only a first step, and that other measures must follow in short order.
Galbraith said it's "absolutely essential" that the government do more to protect homeowners. "If nothing is done, the fact that there is excess inventory of 4 million homes in foreclosure and many more to come" will be a drag on the housing and credit markets "for a long time."
But that's just the first of what he called "three necessary steps" for stabilizing the "real economy." The second is dealing with the inevitable fiscal crisis that will face states and localities, which "will be cutting expenditures as their property taxes implode." Galbraith urged the federal government to bail out struggling local governments with revenue-sharing plans and infrastructure investment, "on the condition that they maintain their level of spending," meet "their public sector needs" and avoid "mass layoffs of their work force." Finally, Galbraith said, the elderly and near-elderly who have seen their retirement accounts take a heavy hit are going to need help -- through increased Social Security payments if need be.
If those steps aren't effective, Galbraith suggests that more dramatic measures be taken, including a temporary suspension of the payroll tax, which would give every working person (making under $97K per year) an effective 7.65 percent raise to make ends meet, while giving businesses a tax break on their payrolls.
Those measures would greatly expand a budget deficit that has already become bloated during the Bush era. But, as Pollin pointed out, "The fiscal deficit in 1983 was 6 percent of GDP -- that was under Reagan -- and that pulled the economy out of crisis then. Right now, the fiscal deficit is in the range of 3 percent of GDP. Increasing the deficit to, say 5 to 6 percent of GDP now would inject more than $300 to $400 billion in new spending into the economy -- to go for state and local spending on schools and health care, investments in energy efficiency and renewable energy, raising unemployment insurance benefits and food stamps."
Reason to Be Hopeful, as a Failed System's Flaws Are Exposed to the Light of Day
It was during an earlier economic crisis that Richard Nixon famously said, "we're all Keynesians now." According to those I contacted, that's more true today than at any time in recent history; there's broad agreement in Washington that more government action will be required.
When I asked Galbraith about the prospect of running up large deficits, he responded that today "no serious person" in the economic establishment is a deficit hawk, adding that "it's striking how quickly consensus is moving" in Washington toward the idea that a major bailout of the "nuts and bolts" economy is needed. (Deficit spending to kick-start the economy during a downturn, as opposed to financing tax cuts for the wealthiest or paying for wars of choice, is a tried-and-true policy tool.)
Despite the general consensus among the experts I surveyed that we are almost certainly headed into very rough waters, there was cause for optimism as well, in that most agreed that aggressive and coordinated actions by government could contain the damage. More importantly, the bright spot in this crisis may be (stress on the word may) the blow it deals to the center-right, anti-regulatory paradigm that has guided economic policymakers both at home and in many of the world's capitals over the past three decades.
Of that paradigm, Bello said, "goodbye to all that," adding, "We should not underestimate the sea change that is occurring. Neoliberalism and free-market fundamentalism have been severely discredited, as has globalization." He predicted that "capitalism itself will come under severe questioning, and many will think that regulating or re-regulating it is not enough. I think you will find the same fundamental questioning happening throughout the world." He added, "Radical economics and Keynesian economics will regain respectability, and neoclassical or neoliberal (trickle-down) economics will be delegitimized."
Pollin wrote that he has hope that "the commitment to financial deregulation by mainstream economists and politicians -- Democrats as well as Republicans -- is now dead." He added: "It is time to recognize that unregulated financial markets always have, and always will, cause financial crises. There are no historical exceptions to this observation at all. This point has to be grasped."
According to Baker, the degree to which that point sinks in is an open question. "In principle," he said, "the Wall Street mentality that has dominated the political thinking of both parties should be on the defensive. These guys had it all their own way, and it led to a colossal disaster." But, he added, "in this country, failure doesn't count against you. It will be necessary for progressives to demand an end to Wall Street-driven policy. If there is successful organizing on this front, then it is possible that the next administration will take a very different course. But the Wall Street boys have to be pushed away -- they will not surrender power voluntarily."
Hahnel offered a word of caution, noting that "80 years ago people thought (unregulated) free market finance was dead. If the funeral had a name, it was Glass Steagall (the New Deal-era legislation that made banks choose between issuing mortgages and securities). In 1999 Phil Graham, Robert Rubin and Bill Clinton killed Glass Steagall, signaling the return and triumph of free market finance. Hopefully this crisis will kill free market finance once and for all. 'Never again' is the appropriate response."
He added what was perhaps the most salient point: "I hope this lesson will be the beginning of a larger lesson: The economics of competition and greed does not serve us well."
by David Michael Green - Common Dreams
So, um, prolly you've heard by now that we're having this little problem with the economy, eh?
Yeah, as a matter of fact, it's starting to look like more than just a little problem. It's starting to look like 1932 again. And, who knows beyond that? What is there to say that 1932 is the baseline? Just because the Great Depression is the worst scenario we've yet to experience, that sure doesn't mean that it is the worst we could experience. With astonishing amounts of governmental and personal debt sloshing around the world in a hugely globalized economy, who's to say that we aren't now headed for the Even Greater Depression?
Oh, and, let's also not forget that even that isn't necessarily the end of it. Last time the global economy imploded this bad, it got one helluva lot worse before it got better. The only thing that could ever have made the 1930s look good was the 1940s. There's no reason to necessarily believe that that part can't happen again as well. If we're stupid enough to repeat the mistakes of the Gilded Age, surely belligerent, nationalist, chauvinist Americans (and Chinese, and Frenchmen, and Russians) are also stupid enough to launch another world war or two in order to chase down scarce resources like oil or gold. Or food. Or water.
Leaving aside for the moment any threats of world war, the only good news I see in our current economic crisis s that at least we're eighty years down the road from when Franklin Roosevelt broke the psychological barrier previously preventing brainwashed Americans from owning a government that actually helped them, as opposed to allowing themselves to be owned by a government of oligarchs who were helping themselves. This time, if people are hungry because there's no money, and cold because heating oil costs so much, and weathered because they've been tossed out of their homes, and frightened because they've got no job and no healthcare coverage - if we arrive at that state, watch what's left of the psychological barriers crumble like George Bush's job approval ratings or John McCain's lofty principles about running a high-minded campaign. Watch desperate Americans embrace socialism as if they were the lost children of Chairman Mao waking up from a long nightmare of capitalist errancy.
What we're witnessing now is the complete and utter repudiation of Reaganism-Bushism, of course, but it runs even deeper than that. Not just the hyper-kleptocratic version of the American economic system is being left in shreds, but even its more moderate baseline version - the Eisenhower model of nice, gray-suited capitalism - is now also on the chopping block. Even that form of capitalism - quaintly tame by today's standards of astonishing rapaciousness - was never sustainable, and part of what we've been seeing this last decade is all the ruses by which we had greedily squeezed out more than our fair share of the pie now angrily biting back. The wars, the environmental rape, the exploitation of nice little brown people all around the world (and, after all, isn't that why Jesus made them?), the borrowing against our children's future, the tax avoidance free-riding, the credit card economy, the exporting of jobs to explode profits, the gluttony of 300 pound Americans and their SUVs and the giant screens on which they watch ‘reality TV' (a nice euphemism for humiliating degradation) - these are all screaming out to us simultaneously today, in an excruciating cacophonous harmony from Hell, that THIS MUST END NOW.
And, boy, did we ever have it coming. I just want to go on record and say to any historians from the 26th century who might be reading this: "Yes, it does say ‘American' on my birth certificate, but I want you to know I wasn't part of this! I did my best and kept shouting out about our national stupidities. And I always voted for the Green Party!"
Yeah, it's true, I'm afraid. We're going down in history as the stupidist and the shortest-lived of empires (even the Belgians did better than this, plus, they make great beer). And well we should be so considered, too. Do they have Darwin Awards for countries, like they do for individuals, who find uniquely imbecilic (though highly entertaining) ways to remove their DNA from the collective gene pool (you know, like getting really stoned and then playing your electric guitar in the swimming pool)? They should! And who could possibly trump America, we who gluttonously slurp up oil in order to live like global pigs, sending the proceeds to fund terrorists with ideologies from the 13th century and weapons from the 21st to attack us? We who chant "Drill, baby, drill!" when the giant planet-wrecking asteroid of global warming is headed right for us. (Even the real dinosaurs come off looking better than our human imitations of them, since they at least had the excuse of actually having pea-sized brains to explain why they behaved as though they had pea-sized brains.) We whose government's insatiable spending sprees on high priority items, like wars that diminish our national security and corporate welfare for oil companies or giant agri-corporations, we fund by allowing China, our rising rival for global power, to own our debt, and therefore to own us.
And what's that old line about the first time being tragedy and the second folly? The most astonishing thing about the economic nightmare we're now entering is how little we learned from having already gone through this before. We're not even talking about ancient or foreign history here, people. You don't have to force Americans to go watch some History Channel documentary on Charlemagne to figure this one out. It wasn't that long ago that we went through exactly the same process, ourselves, right here in gool ol' ‘Muricah. Christ, there are people still alive today who experienced it first hand. You'd think, having found out in the 1930s precisely what happens when you let monstrously greedy people who have their hands on the levers of the global economy go on unregulated bacchanals of decadent self-aggrandizement, that we'd want to avoid that sort of thing in the future, eh? Perhaps we'd even vow "Never again", just like we did after the Holocaust. (But then, given the mass murderous Soviet and Chinese purges which came after Auschwitz and Treblinka, along with the genocides of Cambodia, Rwanda and now Darfur (not to mention Vietnam or Iraq), maybe that wouldn't be such a great promise to make...)
And even if the American people couldn't make the connection between present circumstances and past analogues, am I the only knucklehead who finds the whole deregulation mania something of an odd idea just at a conceptual level? How is it that the same people who always jump up and down in passionate support of tough crime laws, loads of jails and busy state killing machines, don't seem to apply the same logic to nice, white-collar crimes? I mean, if you need a law to deter people from committing murder, why don't you need regulations to prevent them from committing greed? And, wouldn't it make a lot of sense to have these laws, especially in places where the capacity exists for such tremendous harm to be done? A murder takes a life and wrecks a couple of families. That's horrible, and should be prevented wherever possible, and punished where not. But would it be too much to ask that we also have laws and punishments and regulations to help prevent white-collar crimes that can wreck an entire global economic system, bringing wholesale grief to hundreds of millions of people, and no doubt producing boatloads of deaths in their wake, all in the name of satiating the greed of already fantastically wealthy people? Indeed, we have the first of these victims on the scoreboard already. This week a Los Angeles man who lost all his money in the stock market shot his wife, three sons and his mother-in-law before then killing himself. Get ready for more of the same, and most of them won't be suicides, I can tell you. They'll be homicides. Murder by greed.
And even if America's so-called justice system can't bring itself to punish Wall Street thieves for serial homicide in this case, would it be too much to ask for a little government regulation to prevent a handful of kleptocrats from crashing an entire global economic order and spreading death, destruction and misery across the planet, just so that they could milk the last remaining pennies from the golden goose, its bloodied carcass lying twisted and prostrate across the trading room floor, nothing but lead spilling out of its slashed belly? Ah, but that would not be capitalism, eh, Mr. Graham? That would be fettering innovation, right, Mr. Greenspan? That would limit Holy Growth, no, Mr. McCain? And we can't have that.
I don't really understand the perverse psychology of people like these Wall Street masters of the universe, whose desire for additional wealth seems incapable of being satiated. Personally, I don't think I'd know what to do even with the mere pittance of a million bucks, so it's really hard for me to figure it out when I see them feeling so hyper-compelled in pursuit of throwing tens of millions more on top of their existing piles of hundreds of millions. I mean, you can only sail on one yacht at a time, right? You can only live in one mansion at a time, right? You can only sleep with one gorgeous call girl at a time, right? Oh, um, okay - well, never mind that last part. But you catch my drift here, no?
In truth, when I look around this fine country that calls itself my home, I have to conclude that it's actually me who is the anomaly. I'm not sure what genetic quirk or what massive failure of the educational machine produced a freak like me, but - apart from not wanting to go into debt, and from owning a handful of very modest toys like a computer or guitar - I really don't give a shit about money. Go figure, eh? You know, my car, bought used, is ten years old. I think. I don't really remember for sure what model year it is, though I'm pretty sure I could tell you how many cylinders it has if I stopped to ponder the question long enough. This strange absence of an unending greed for Money! and Things! seems to leave me way out in the bizarro fringe outcast category within what passes for a culture for those 300 million inhabitants in the middle of the North American continent. Just ‘cause I don't constantly seek cash, or measure myself by the size of my wallet, I'm like six standard deviations from the norm in the disaster affectionately known as America.
And just how disastrous is our national disaster? Leave it to Sarah "The Embarrassment" Palin to answer best. She illustrated the other night in her ‘debate' with Joe Biden how deep the country has sunk these last decades into the miasma of a culture of petty selfishness, and an ethos of pathetic greed. She reminded us that in Middle America, where she and "Todd" (hey, you scary monster, I am not on a first-name basis with your First Dude husband, and I don't ever want to be) purport to live, paying taxes is not patriotic. Biden's response should have been to ask whether all the Americans who've paid all the billions in tax increases in every war America has ever fought prior to this one were unpatriotic, or just suckers. He should have asked who she expected would pay for the body armor to protect her son in Iraq (as if they're gonna let that kid anywhere near any real danger), for our roads, our schools, our post offices, our Army and Navy, our Social Security benefits or our police officers. For that matter, he might also have asked who would pay for Air Force One, who would pay for the tens of millions of public campaign funds now being spent by the McCain-Palin campaign, or who would pay for the army of bank regulators we'll need to clean up the economic mess her ideological soul-mates have left us.
Still, I can't help thinking that millions of Americans sat at home watching this, enthusiastically nodding their head in support of her lunacy. Let's face it, after a generation or two of Reaganism-Bushism permeating the culture, no politician can even talk about raising taxes in America anymore without risking career suicide. It has become the new third rail of American politics. And that says so much about us. Because, not only do we want all the benefits of government, but polling data clearly shows that we actually even want the government to do a lot more than it is already doing. And yet, at the same time, selfish, narcissistic Americans have been well trained now by pandering right-wing politicians to expect it all for free. Cutting taxes without simultaneously cutting expenditures (let alone while massively increasing expenditures) is one of the single most recklessly irresponsible acts a government can undertake. Since the only solution to the deficits that must ensue from this simple math is to borrow the difference, the polity in question is simply taking its desire to live large and handing it off in the form of a problem for someone else to deal with, on top of their own problems. Plus interest on the loans, of course. And who is that someone? Faraway foreigners? Some despised underclass? The millions we've incarcerated as criminals, perhaps? Not at all. The crime runs even deeper than that. It's our own children who are getting the bill.
Which is precisely what we've been doing. I saw Californian voters, when I lived there, launch the modern taxpayer revolt movement by passing the infamous Proposition 13, which took a meat-cleaver to property taxes in the state. Never mind that the effect would be the same on California's schools, which are largely funded by property taxes. They went from being the best in the country to nowadays hanging around with Mississippi, down at the bottom of the list. But who fucking cares, anyhow? People got their bloody tax cuts, and they got to buy that nice, shiny new car they wanted with the money. So what about the kids?
And so it has gone these last decades, tax cut after tax cut in America, which really means tax transfer after tax transfer. And now we have a ten trillion dollar debt we are passing along. So that means that the next generation will have to pay enough in taxes to run the government then, plus the share that the current generation didn't really feel like paying to run the government today, plus interest on that borrowed amount. What does that mean, up close and personal? If, right this very moment, we somehow stopped adding to that pile more debt and more interest every day, and just handed out the bill for what is currently owed, it would average out to $67,000 for each and every taxpayer.
I know what you're thinking. That sucks, eh? Well, at least the good news is what you got for it. For instance, a really expensive war in Iraq that diminished American national security. And the chance for really, really rich people to become really, really, really rich people through humongous tax breaks. How about a GOP pork-barrel spending spree - including the Bridge to Nowhere - of unprecedented size in American history? Huge oil and agricultural company subsidies? A giant prescription drug bill which provided corporate socialism for drug and insurance companies? A chance for George W. Bush to frolic in the White House for eight years? I'm sure every American, working some job they're not particularly fond of, won't really mind the extra hours they have to work to pay for all this. Especially since, if you make, say, 15 bucks per hour, that would only translate to 4,467 hours you'd be working to finance your share of this past years' pig-out. Based on a forty-hour work week, that's roughly two-and-a-quarter years worth of your life. When you look at it that way, it doesn't seem so bad, does it? And, again, that's just if we stop deficit spending now, and stop accruing interest now. In fact, we're actually deficit spending about another $400 billion per year, every year, which just gets added to the pile (and lots more, as well, if John McCain is able to slash taxes on the wealthy even further). Moreover - maybe it's just my pessimism kicking in here, but - I don't think the Chinese or our other creditors are going to be much inclined to waive the interest accruals due to them for financing our decadent little party. So, in fact, the above accounting of our national and personal liabilities are actually rather, ahem, conservative. In every way imaginable.
But, of course, America's problem is way deeper than one kleptocratic president or even a generational binge coupled with a three decade long vacation from responsibility, not to mention rationality. We have established a pervasive culture of greed, and that's one angry chicken that has now come home to roost. What's worse, we've lost the capacity as a society to even imagine an alternative ethos to guide us, though the looming economic tsunami may be just the thing - and likely the only thing - big enough to get us thinking once again.
This massive poverty of imagination is what is killing us now, undermining us at the most fundamental levels of societal identity. To grasp the magnitude of our problem, consider how we socialize our citizens and how our culture sets the priority structure of their values and aspirations. Sure, some Americans think it is noble and wonderful to pursue careers which serve the public interest, but most are taught, and simply accept, that one should aspire to making boatloads of money, and that the measure of one's achievement is the size of their bank account and the number of toys parked in the driveways of their McMansions. I am constantly astonished by the quantity of Americans whose expressed goal in life is simply to make lots of money, which I find especially bizarre since they don't seem to have any particular use in mind for all this cash. What this phenomenon has long suggested to me is a country full of sheep so unoriginal in their thinking that they can't even figure out what to aspire to on their own, and a society so bankrupt in its morality that it feeds them the goal of wanton greed to fill that yawning void.
All that's bad enough, but, besides the current economic meltdown and a society populated by moral midgets, there are also other repercussions to this ethical failure and this poverty of imagination. Chief among these is the false choice we are always presented between governance in the public interest, on the one hand, and prosperity, on the other. This bogus diversionary tactic forms the central argument of the economic predators who've been bleeding the country of its wealth (and, in fact, prosperity), as to why we can't have regulation. You know, all that Washington red tape (you can't profit off of pollution, you can't exploit children as factory workers, you have to pay a minimum wage - horrible restrictions like that) will keep innovators from innovating and entrepreneurs from, uh, entrepreneuriating.
And, you know what? They're actually more or less right. They're right if, that is, you accept as a predicate would-be innovators and would-be entrepreneurs who are only motivated by an ethos of personal greed, which has been duly pounded into them through the socialization processes of a society that lost its mind and its moral bearing decades ago. Sure, okay. Under those conditions it's probably true that most people will only work for themselves, and will only be motivated by self-interest. But what if we taught these people something different, right from the get-go when they were toddlers, and reinforced those different values throughout their adult lives? What if we taught the members of this society to value the community's welfare as much as their own? What if we taught them that massive personal wealth was not only not the highest achievement to aspire to, but actually a sort of crass and tacky goal, only to be found amongst the most juvenile and selfish in the society? What if we strongly imprinted the idea among our people that improving the welfare of the country (or, gulp, the world) is an important life aspiration, and that those who do so are considered among our most admired countrymen, rather than those who have acquired the money to purchase bitchin' toys and trophy wives? Is it not possible that our citizens would innovate, and that they would be every bit as motivated as they are today by greed? Maybe even more so?
And, therefore, could we not transcend this false choice of good governance versus prosperity? (Not to mention the fact that whatever prosperity we've experienced of late is not going to the society, anyhow. In the last three decades, while GDP has grown at a handsome clip, the middle class - and, of course, we've long ago now abandoned even talking about those below middle class status, let alone fighting a war on poverty - has not even stood its ground, but rather has actually lost overall purchasing power. That, of course, leaves only one mathematical explanation for what has happened. You guessed it. All that growth in national wealth has gone to the already richest Americans.)
You know, I'm not a subscriber to the prescriptions of communism for constructing the best system of political economy, much as that might come as a shock to any conservative reader of this piece. And I think it's fair to say that the world's experiments in communism to date - to the extent they weren't actually just experiments in totalitarian brownshirtism - failed in large part because they possessed just the opposite flaw as that described above. They attempted to build economic systems on the equally false notion that selfishness can be completely erased from human psychology as a motivating force. It can't. And any system dependant on that proposition for its success will have none. But, by the same token, a system that is built on the premise that people are only motivated by selfish greed, and therefore can only produce prosperity by letting every actor pursue their own self-interest, unfettered by any societal concerns, is an equally disastrous notion.
And such a society is equally bound for the ash heap of history, just as was the Soviet Union or Maoist China.
In fact, I ‘m pretty sure that's just exactly what the cosmos is screaming in our ears, at about 150 decibels worth of volume, right at the moment. The only question is whether we are so deaf we can no longer hear the warning call, even when it's broadcast over a galactic PA system.
But just in case, here it is. Newsflash for America! This just in! Sorry to burst your little bubble, people, but it turns out, after all, that...
Greed is not good.
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