Tag Archives: financial crisis

Biden’s Arrow Hits Home

22 Aug 2012 By in Candidates and Campaigns Tags: , , , , , , , , , 3 Comments


Joe Biden has mastered the political stump speech.  Watch the whole of his controversial campaign speech in Danville, Virginia, and you’ll see a great piece of Americana: a politician who knows how to work a crowd, seeking votes in a way that’s entertaining and folksy.  Biden’s allusion to slavery was hardly a gaffe; it was a logical and powerful way to get across a larger point about class and how Republicans have treated it for several decades.

We know Biden’s speech was a big success, because he was immediately excoriated as a dunce and a racist.  Blowback dominated the media for several days.  Romney huffily declared that Democrats had hit a new low and tried to get us to believe that Biden was a dangerous man whose message of division somehow “disgraced” the presidency.

Both sides questioned old Joe’s fitness and utility: Could he fill the presidential shoes if necessary?  Shouldn’t Obama drop him in favor of the sure-fire Hillary?  Democrats behaved predictably, too: instead of championing Biden and endorsing his underlying point, they grew sheepish.  If only they learned unity, the race wouldn’t even be close.

Puncturing the politics of avoidance
Yes, Biden hit a nerve, and he did it by puncturing the politics of avoidance that has been gripping the country.  Ever since the Reagan era, when Republicans managed to yoke together with one seamless ideology the economic interests of the elite with the social and moral concerns of people far more ordinary, class has been diminished as a potent source of political energy.  Republicans wish their supporters to believe that the interests of the wealthy and the less-so are the same.  To the extent that Democrats can pry this apart and present an alternative vision of class in American society, they will gain an important advantage over a Republican party that’s badly weakened already.

After all, this election is not “about jobs” or “the economy,” as Republicans say so blandly: it is about economic inequality and the role of the super-wealthy in our economic life.  It is about whether people like Mitt Romney, who has the whole world as his oyster, care about this nation’s economy and its ordinary people.

Romney would like voters to believe that his interests and theirs are just the same: that, if you feed the interests of his class, all will benefit; the interests of all classes will be served.  If that were the case, the recession would be ending, because American elites can write the script of the unfolding story.  They can decisively aid in restoring the nation’s economic health.  Leaders of America’s corporate class already have far more power than the president to see to it that Americans are more fully employed.

A party that’s drifted from its noble beginnings
Biden’s bald reference to slavery may well have pricked the conscience of Republicans who know how far their party has drifted from its noble beginnings.  In Lincoln’s time, Republicans were not only the champions of abolition: they were devoted to egalitarianism and to securing better economic prospects for lower-class whites.  The most radical Republicans advocated for full racial equality, a bracing proposition given the time.  Republicans were the ones who wanted to discuss such forbidden topics as slavery; it was Democrats who were proponents of silence, who wanted all discussion of “the peculiar institution” gagged.

Yet even then there were Republicans, such as Horace Greeley, who would not join the anti-slavery fight because they doubted whether the nation’s growing free-market system held out a sufficient promise of prosperity to American workers—even when those workers were white.  In the meantime, the persistence of slavery in America proved beyond a doubt that powerful elites, if left to their own devices, could not always be counted on to do the right thing.

Perhaps it was all that history that gave Biden’s arrow such a powerful zing.

How Much Do We Need?

6 Aug 2012 By in American Conditions Tags: , , , , , , , , 10 Comments

House and fruit stand in Houston, 1943 (Courtesy Library of Congress via the Commons on Flickr)

During the Great Depression, in the 1930s and early 40s, the federal government sent photographers out all over the country to document the condition of the people (and to keep a few more photographers employed).  The effort produced some of the most famous images in American photography, as well as scads of seldom-seen photographs, like this one, now available online.

The pictures capture America at a time when the modern consumer society was just beginning.  Americans drank Pepsi and Coke, bought things on credit, and wore factory-made clothes.  In many parts of the country, though, many Americans still used horses, made what they wore by hand, grew their own food, and did without refrigerators or washing machines.  The “March of Progress” hadn’t yet made it to their neighborhoods, and perhaps some were not all that eager to see it arrive.

Life was tough, but the relative simplicity of Americans’ material conditions brought clarity.  It was easy to see the relation between work and the standard of living people enjoyed.  Then, as now, many Americans lived in a precarious state or in out-and-out poverty.  Society was less knit together in a corporate economy, so the solitude of failure was a specter individuals lived with daily.  The wedge between the hard work of getting and the easy work of spending was already there, but there were far fewer goods to buy.

A tension had already developed, between the industrial output of the US and the capacity of individual citizens to consume all of what the nation made.  As early as the 1890s, the government and corporations began pushing to develop markets for our products overseas, producing the kind of globalism that prevails today.  No one has ever figured out what to do when the goods in the world exceed what the human population wants or needs.

Today, in a time of high long-term unemployment, commentators fret about “low consumer confidence.”  We’re told this is the reason American corporations are reluctant to hire.  Yet it’s perverse to hope that Americans will spend when they are in debt, unemployed, and impoverished.  It’s amazing how much more “confident” a consumer feels when he or she has a paycheck or a real wad of money.

Corporations and banks show their contempt by sitting on hordes of cash rather than making it a priority to hire American workers, which would ease our collective difficulties.  Meanwhile, we have lost sight of economic independence as an important goal of a free people.  In the midst of this antagonism, we need to keep asking, how much do we need?

Top image: House and fruit stand in Houston, photographed by John Vachon, 1943,
from this source.

The European Muddle

11 Jul 2012 By in International Tags: , , , , , , , , 8 Comments

Like many great issues of the day, the euro mess is difficult to conceptualize.  Why not take a stab at it, though, since it’s something that could cause the US economy to collapse?

Here are links to a few graphics encapsulating different aspects of the European problem.  A few insights can be gained by interpreting them with our own 2008 financial crisis as a point of comparison.

The European Union faces at least two complex interrelated problems.  The first has to do with the condition of banks; the second has to do with the indebtedness of member countries.  There is also a third problem, which is more political.  It has to do with the structure of the EU itself and the poor tools it has for redressing “state-level” problems (critical weaknesses within member-nations like Greece and Spain) that threaten the euro’s value and stability.

Credit imbalances within the euro zone
The integration of nations within the eurozone encouraged capital flows within the community, while creating imbalances that threaten it, should the banks within one of the weaker countries fail.

This wonderful set of graphs published by the New York Times shows the interrelation among creditors and borrowers by country.  Done in late 2011, the graphs offer a general idea of how the stronger European economies—France’s in particular—would be affected if the banks of Greece and Italy were to go down.  French banks have many loans outstanding there and would incur grave losses, possibly fatal ones, were their weaker counterparts to fold.

Unlike in the US, the euro-zone lacks a mechanism like the Federal Reserve, which capably intervenes to stabilize and close or sell ailing US banks if necessary.  In 2008, the Treasury and Federal Reserve averted a general financial meltdown in the US this way.  They intervened directly in the affairs of troubled banks in the interest of keeping the whole banking system operating.  The panic of failing banks was mitigated;  otherwise, it would have spread like a contagion.  Our banking system was supported, and the problem was treated as a matter quite separate from that of the federal government’s own indebtedness or patterns of borrowing.

Until recently, the European Union could not behave similarly: it could not act to help banks, it could only give money to sovereignties.  On June 28th, however, the EU’s member-nations agreed to begin lending money to banks directly, a measure that untethers these two problems and allows a more flexible approach aimed specifically helping banks that might fail.  Nonetheless, it remains to be seen whether this will be much help, as the level of capital needed to stabilize the banks is very large.

Rising sovereign debt
Which leaves the other big problem: the rampant government spending in many EU countries, illustrated in this set of maps, also published by the New York Times.  The maps indicate the significant variation in the spending habits of the governments that make up the European Union.  In many of the EU countries, however, including some of the strongest—such as France and Germany—sovereign debt as a portion of GDP has been growing dramatically.  The difficulty of reining in spending and bringing the most profligate governments in line has led to popular unrest as well as political conflict over austerity measures and proposals for stringent fiscal reform.

It’s not clear, though, whether these disproportionately high debt burdens pose a threat to the long-term health of many of the stronger EU countries.  The more that the elements of the crisis can be differentiated and handled pragmatically on a case-by-case basis, the better the prospects for amelioration will be.  This is definitely a case where what’s good for the goose is NOT good for the gander–or in this case, more fitly, for the PIIGS (the acronym for Portugal, Italy, Ireland, Greece, and Spain).  Helping the most distressed banks may at least buy the EU time to address the more politically fractious issue of how to restore fiscal balance—a very different proposition in Greece than it is in France or Germany, and a more sensitive issue still for the euro zone as a whole.

RELATED:
The Sovereign Debt Exposure of the EU’s 10 Strongest Banks, Forbes.
Paul Taylor, Euro Zone Fragmenting Faster Than the EU Can Act, The Independent (Dublin).

How the Fed Makes Us Lazy—and What We Can Do

8 May 2012 By in American Conditions Tags: , , , , , , 5 Comments

http://upload.wikimedia.org/wikipedia/commons/thumb/3/3f/Ben_Bernanke_official_portrait.jpg/512px-Ben_Bernanke_official_portrait.jpg
This is not a post about hating the Fed and how we should get rid of it.  This is a post about the rest of us and how convenient it is to have the Fed to complain of.

I was tempted to title this post, “The rabble are out to crucify Ben—there’s even a Judas” (now that Paul Krugman, the Fed chief’s former Princeton colleague, has taken to assailing Benanke’s performance in print).  But that would have been just one more example of the phenomenon I’m out to criticize: finger-pointing.

It would be tough to judge a finger-pointing contest these days.  As the economy flails in the long wake of the financial crisis, everyone in every party seems to be training to become a finger-pointing champion.  What interests me about the attacks on the Fed, however, is that even anti-government types now seem caught up in thinking that tinkering with the government is the key to solving problems that—let’s face it—the American private sector created.

The federal government is powerful, but more powerful still are the aggregated interests that pump out more than $15 trillion worth of goods and services a year.  That was our GDP in 2011, a CIA Factbook figure.  If you hold a job, work in a profession, run a multinational, or own a small business, you are part of that great engine.  Simply put: we are the economy.  The mess is ours.

Perhaps this is why we feel such scorn for Ben Bernanke, a man so sincere and conscientious it’s irritating.  Love him or hate him, it’s hard to claim he isn’t doing his utmost to fulfill the Federal Reserve’s dual mandate, which is to stabilize prices AND move the country toward full employment.

That’s right: one soul at the helm of the Federal Reserve, believes that, by controlling the amount of money in circulation, he can sufficiently influence the sort of corporate decision-making needed to end joblessness.  He hopes that, by tweaking our monetary policy, he can prompt our American brothers to give another American brother a job, until every brother and sister in our economy is once again working.

This is why, in Mr Bernanke’s increasingly frequent public appearances and statements, he can be heard fretting about, say, whether long-term unemployment could lead to a permanent loss of human capital in the economy.  He truly believes that getting all of America back to work is his responsibility.

He may be the only American who feels that, unfortunately.  This is why hating the Fed is so misguided and self-deceiving.  Hating the Fed is a cop-out, a lazy habit that absolves the rest of us from looking around us and asking who else might bear some responsibility.  Our national preoccupation with monetary policy is a convenient dodge, diverting us from the fact that we ourselves could do something.

We are the economy.  Regardless of the shortcomings of the Fed and Mr Bernanke, we owe it to the jobless to recognize their lot as a social, civic, and humanitarian problem, one that’s in our power as a society to remedy.

Should we destroy the one thing that’s working?
Obviously not.  The Fed would matter a lot less if we could manage to get some other things working as well as it does.  If we didn’t have institutions like the Fed, it would be up to Americans in their respective states and communities to figure out how to alleviate joblessness and destitution and restore prosperity.

This was our lot earlier in our history, when Americans operated with a mere fraction of what now passes for economic understanding.  In those times, punishing downturns such as those occurring in 1837, 1873, and 1893, led not only to protracted suffering but also to constructive cultural and social ferment, an outpouring of philanthropic zeal, and more than a little genuine soul-searching.

The Panic of 1837, for instance, prompted the formation of some of our earliest urban relief organizations, while the banking crisis of 1856 gave way to a religious reawakening in 1857 known as “the Businessmen’s Revival.”  Chief among the converts were Manhattanites who concluded their own godlessness and greed were to blame for the economic adversity they were suffering.  Such heartfelt contrition and public avowal of responsibility, even in secular form, have been all but missing from our present-day financial crisis.

We can’t hope to lessen joblessness if we don’t recognize our obligations to one another.  We can’t hope for national prosperity when so many of our fellow Americans are jobless and poor.  The common-sense idea that we must care for one another, even if only for selfish reasons, is crucial if we are to re-energize our economy.  It might not be an idea Ben Bernanke can teach us, but it sure is one that we can use.

Want help  •  Foreswear laissez-faire  •  Use all the tools
Hire a fellow American  •  Talk to the rich guy

RELATED:
Susan Barsy, Fiscal Policy is not Economic Policy, Our Polity.
Dean Baker and Kevin Hassett, The Human Disaster of Unemployment, New York Times.
Rick Newman, To Fix the Federal Reserve, Fix Congress First, US News.
George F. Will, The Trap of the Federal Reserve’s Dual Mandate, Washington Post.
Ken McLean, The Fed’s Dual Mandate Dates to a 1946 Act, Washington Post.

Image: Official portrait of Federal Reserve chair Ben Bernanke, from this source.

Fiscal Policy is Not Economic Policy

19 Mar 2012 By in Tax policies Tags: , , , , , 5 Comments

One of the strange features of the period we are living in is that discussions of fiscal and monetary policy have pretty much preempted a more direct examination of structural problems in the American economy.  These topics have become our obsession, precluding direct debate about what sort of economy we want to be.

Perhaps because Americans are phobic about the idea of having a larger economic vision, we do not talk about how we would like the various parts of our economy to function together for our greatest well-being.  Instead, we talk about monetary policy (the Fed and the money supply) and fiscal policy (the role of government as a taxing and spending agent), as though getting these two parts of the equation right will, in themselves, produce a national economy that is prosperous and serves the various needs of the citizenry.

Perhaps it’s inevitable, because these are the two parts of our vast economic system over which officialdom can hope to exert control.  Almost occluded is the whole world of work—the whole world of enterprise—, the aggregate shape of which should always be our main point of reference.  Anti-statists though we are, we focus on government action more than on what American workers and companies are actually doing, or on the cultural and practical developments that could help them continue more happily, successfully, and harmoniously.

Instead, all roads lead back to the government, the federal government, which, as the economy has grown, so too has it, grown to be a huge economic agent, one so huge and complex that citizens can scarcely apprehend its many functions.  The government’s role as an employer—as a regulator—as a consumer—is massive.

Readers of this website have noted already that, while public discussion of government spending often focuses on social benefits distributed to the ill, the poor, and elderly, the government gives mightily to other economic actors, whether in the form of tax breaks, farm subsidies, employment, military spending, or other government contracts, forming a great gift-cycle that is myriad and so circular!  Because, of course, we pay our part for all of these things.  It’s all so different from the days, long long ago, when there were no income taxes, and the government’s main functions were running the P.O. and sending farmers experimental seeds!

Notwithstanding the benefits that might follow from keeping our sights trained on creating opportunities for American labor and improving the character of our own economic activities, we are entering a period when fiscal policy will remain at the center of public consciousness, where more and more attention will be trained on issues of taxation, and on tax reform itself, of all things.

Federal Revenues & Expenses as a Percent of GDP, 1981-2012

Image: from this source

RELATED:
The Map of Federal Benefits
Help Understanding the Federal Budget
Eduardo Porter, “A Nation With Too Many Tax Breaks,” New York Times, 14 March 2012.
GRAPHIC: “Who Gets the Breaks and Benefits,” New York Times, 14 March 2012.
Tracy Gordon, “What States Can, And Can’t, Teach the Federal Government About Budgets,” Brookings, March 2012.
GRAPHIC: “Government Spending by Level, as a Percentage of GDP,” Brookings.