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Sunday, Nov 8, 2009
Andrew Leonard writes good, advanced, nuanced stuff every day, about economics, in his blog "How the World Works." This article is a little more general, a little more sensational than usual, but it deserves better responses than some of this knee-jerk rant.
This is a forum for coming up with new approaches. Please think and advance the discussion. Do not just replay all the conventional wisdom that has led us to this economic brink.
Nor does your cluelessness about history. Nor does your mad desire for yet more governmental regulation. Allow me to make a few points.
Prior to the Great Depression (GD), there was no unemployment insurance, Social Security, Medicare/cade, Workman's Comp, Welfare, FHA, etc, etc. Some of these social safety net features we can thank FDR for; some belong to later administrations. They're still in place. Reasonable men may disagree about how robust these safety nets are as compared to earlier times but your claim that we less prepared for a downturn than since the GD is so totally specious as to be bogus.
The housing market today is fundamentally different than it was in 1929. This difference is neatly caught by Adam Smith (pseudonym) in his 1979 book Paper Money where he says "...but your home isn't an investment, it's where you live." How is it that they ceased to be a home and became an investment (which have the habit of increasing and decreasing in value)? Whew! That would take pages and pages. I will point at two things: the death of the Savings and Loan, and the removal of the wall between investment and commercial banks. These two structures were put in place after the GD. The first allowed people to get low interest mortgages for their home (which weren't investments at the time). The second ensured that commercial banks weren't using uninsured, speculative investment bank paper for their reserves. The reason investment banks weren't regulated like commercial banks with reserve requirements etc is because they weren't insured and they couldn't borrow from the Fed. But that was OK because commercial banks couldn't hold their paper so if an investment bank failed, a bunch of fat cats lost their shirt but the banking system would be safe. Thus I agree with you that the proposed changes in regulation are bullshit. This is not a regulation issue. It is a fundamental financial system structure issue (which is not done via regulation). The current system doesn't need more regulation, it needs restructuring.
Your expostulation does an excellent job of ignoring the role of business. Business is the engine that provides jobs that allow people to make money and buy houses, cars, etc, etc. You and your beloved regulations have been choking business for decades (when it takes 20 permits just to be able to raise logs from the bottom of Lake Superior that have been sitting for the last 100 years, you know something is seriously wrong. Even The Economist has poked fun at the over regulation of US society). When that happens, business is going to move (hint: that's called overseas). When the jobs go, your wealth goes.
I do agree with you about the 1%/20%. It's obscene. And the argument that they are more productive is also bullshit. Bill Gates, productive? Puleeze! He's a notorious monopolist who not only got to keep his monopoly but also his money because of Bill Clinton's justice department (BTW, this is being written on a Mac). And how about those poor executives at NW Airlines who became multi-millionaires (again) because they had to work their poor fingers to the bone to get NWA out of bankruptcy? Nobody mentions that they got NWA into bankruptcy in the first place but apparently that's merely a detail. Or the multi-million dollar severance packages for failed CEOs? Productive? I don't think so. In my darker moments I think that executives who make more than some nominal multiple of the average wages that they pay the people who actually do the producing should be taxed at 99.99% for everything over that nominal multiple.
that this recession will be anything like as bad as the Great one is nonsense. The recession of the thirties was preceeded by 10 years of productivity growth unknown before then or after. The 1920s saw productivity grow at an average of 5.3% per year. That's a record to say the least. The most recent 10 years have produced productivity growth of less than half that. It's no surprise that, after that record growth, inventories were stratospheric and prices and wages dropped.
Add to that the fact that government is much more active now than it was then at the job of redistributing income downward and it's clear that this recession will bear no resemblance to the one of the 1930s.
timbuktom writes:
"Andrew Leonard writes good, advanced, nuanced stuff every day, about economics, in his blog "How the World Works." This article is a little more general, a little more sensational than usual, but it deserves better responses than some of this knee-jerk rant."
I checked out the blog -- seems entirely knee-jerk: "Find an economic problem? Regulate more! Never investigate if the problem was caused by previous interventions."
"This is a forum for coming up with new approaches. Please think and advance the discussion. Do not just replay all the conventional wisdom that has led us to this economic brink."
The conventional wisdom being Leonard's pertual call for bigger government?
Back in the 1920's and '30's and thereafter, America enjoyed cheap oil, and plenty of it. Our modern economy is based on the concept of cheap, abundant oil.
Unfortunately, oil is now no longer cheap nor abundant. In fact, supplies are running out due to depleted reserves, aging refinery equipment, and increased global demand (including increased demand in the countries that export the stuff). On top of that, much of today's oil reserves are in countries which are politically unstable, don't like the U.S., or both. In other words, a perfect storm that is and will continue to reduce the amount of oil available to the U.S. economy, while at the same time driving up its prices.
And yet, our economy and very way of life is still geared toward cheap, abundant oil. We haven't adapted to the new reality. So if you add all of that on top of the current financial turmoil, what you're left with is scary, scary conclusions.
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Salon headlines in your mailbox
