'Anonymous Liberal' makes a very good point about bipartisanship:
The Beltway centrist crowd is obsessed with the non-sensical notion that in order to demonstrate his bipartisan bona fides, a president should nominate members of the other party to serve in his cabinet. Even though Republican presidents never seem to succumb to this pressure, Democratic presidents always do. That's why Obama nominated Republican Senator Judd Gregg to be his Commerce Secretary, a move that, not surprisingly, didn't end up working out too well.
I'm all for bipartisanship in certain contexts, but the reality is that there are fundamental ideological and policy differences between the Republican and Democratic parties. Consequently, if you nominate a Republican to carry out a Democratic president's agenda in an area where the two parties have fundamental disagreements, the result is never going to be a good one.
I think it's important for Obama to continue to appear respectful and bipartisan in his general governing approach, if for no other reason than to provide a contrast with the never-ending immaturity and childishness of the GOP. But the best way to do that is by sitting down and talking to Republicans, not putting them in charge of various executive branch departments.
Saturday, February 14, 2009
Reviving Securitization
Peter Schiff, one of the recognized contrarian economists who forecast the crash, wrote yesterday that Geithner and company are trying to restoke the securitization market as the way to revive the economy. Bad idea.
In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner’s plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008 securitization, more than anything else, permitted Americans to borrow more than they had ever borrowed before.
Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit. Geithner is making the false assumption that cleaning up and rebuilding the securitization market is a prerequisite for a healthy economy.
Our nation’s short history with wide securitization has simply shown that the process can lead to massive mispricing of assets and risk. By artificially rebuilding the securitization market, and committing taxpayer funds as collateral, the U.S. economy will be pushed farther and farther out on a leveraged limb, until no amount of market medicine can prevent a total economic collapse.
In truth, the only vital function provided by securitization was that it offered foreign savers a pathway to lend directly to American consumers, and Wall Street executives a new asset class to over-leverage for massive profits. Our economy must dispense with these gimmicks if it hopes to pursue a meaningful recovery.
After more than a decade of unsustainable borrowing and spending, the private sector is currently attempting to restore balance through reduced consumer and mortgage credit, greater savings, and lower asset prices. With its trillions of dollars of credit injections and stimulus programs, the government hopes to allay this process by force-feeding Americans a diet of more borrowing. They feel that a restored securitization market will help. It won’t. It will just grease the skids for a quicker collapse.
Credit, whether securitized or not, cannot be created out of thin air. It only comes into existence though savings, which must be preceded by under-consumption. Since savings are scarce, any government guarantees toward consumer credit merely crowd out credit that might otherwise have been available to business. During the previous decade too much credit was extended to consumers and not enough to producers (securitization focused almost exclusively on consumer debt). The market is trying to correct this misallocation, but government policy is standing in the way. When consumers borrow and spend, society gains nothing. When producers borrow and invest, our capital stock is improved, and we all benefit from the increased productivity.
This reaffirms my fears the Geithner and Summers are simply proposing ways to return to the status quo ante of our over-leveraged economy. If so, they are not thinking outside the box of the last two decades, and this is a recipe for only worse disaster down the road.
Please tell me this isn't so. How is this different from Bush economic policies?
In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner’s plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008 securitization, more than anything else, permitted Americans to borrow more than they had ever borrowed before.
Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit. Geithner is making the false assumption that cleaning up and rebuilding the securitization market is a prerequisite for a healthy economy.
Our nation’s short history with wide securitization has simply shown that the process can lead to massive mispricing of assets and risk. By artificially rebuilding the securitization market, and committing taxpayer funds as collateral, the U.S. economy will be pushed farther and farther out on a leveraged limb, until no amount of market medicine can prevent a total economic collapse.
In truth, the only vital function provided by securitization was that it offered foreign savers a pathway to lend directly to American consumers, and Wall Street executives a new asset class to over-leverage for massive profits. Our economy must dispense with these gimmicks if it hopes to pursue a meaningful recovery.
After more than a decade of unsustainable borrowing and spending, the private sector is currently attempting to restore balance through reduced consumer and mortgage credit, greater savings, and lower asset prices. With its trillions of dollars of credit injections and stimulus programs, the government hopes to allay this process by force-feeding Americans a diet of more borrowing. They feel that a restored securitization market will help. It won’t. It will just grease the skids for a quicker collapse.
Credit, whether securitized or not, cannot be created out of thin air. It only comes into existence though savings, which must be preceded by under-consumption. Since savings are scarce, any government guarantees toward consumer credit merely crowd out credit that might otherwise have been available to business. During the previous decade too much credit was extended to consumers and not enough to producers (securitization focused almost exclusively on consumer debt). The market is trying to correct this misallocation, but government policy is standing in the way. When consumers borrow and spend, society gains nothing. When producers borrow and invest, our capital stock is improved, and we all benefit from the increased productivity.
This reaffirms my fears the Geithner and Summers are simply proposing ways to return to the status quo ante of our over-leveraged economy. If so, they are not thinking outside the box of the last two decades, and this is a recipe for only worse disaster down the road.
Please tell me this isn't so. How is this different from Bush economic policies?
Narrowing the Gap
The WaPo reports on executive compensation control measures inserted in the new stimulus legislation, reportedly by Senator Dodd. This is good, this is good.
The stimulus package Congress passed last night imposes new limits on executive compensation that could significantly curb multimillion dollar pay packages on Wall Street and goes much further than restrictions proposed by the Obama administration last week.
The bill, which President Obama is expected to sign into law next week, limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. With the measure, lawmakers seek to address public outrage over extravagant Wall Street paydays even as taxpayers bail out the industry.
Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
Bonuses make up much of financial executives' take-home pay, so the new rules could significantly diminish their compensation. For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 -- a Wall Street record -- but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules.
The bonus restrictions would apply to a varying number of employees at each firm, depending on how much money the firm has taken in government assistance. At banks receiving less than $25 million, the limits would apply to only the highest-paid employee. For those receiving $25 million to $250 million, the restriction would apply to the five highest-paid employees. The top five executives and ten highest-paid employees would be affected at firms receiving $250 million to $500 million.
Other measures in the bill include a ban on golden parachutes to departing executives. This would apply to the top 10 most highly-paid employees at all financial institutions currently receiving government aid. The measure allows companies to continue to pay out deferred compensation and benefits such as pensions. There are billions of dollars in such awards on the books of financial institutions.
However, I'll really believe it when I see the screams and howls coming from the executive suites. Call me a cynic about these things.
The stimulus package Congress passed last night imposes new limits on executive compensation that could significantly curb multimillion dollar pay packages on Wall Street and goes much further than restrictions proposed by the Obama administration last week.
The bill, which President Obama is expected to sign into law next week, limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. With the measure, lawmakers seek to address public outrage over extravagant Wall Street paydays even as taxpayers bail out the industry.
Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
Bonuses make up much of financial executives' take-home pay, so the new rules could significantly diminish their compensation. For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 -- a Wall Street record -- but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules.
The bonus restrictions would apply to a varying number of employees at each firm, depending on how much money the firm has taken in government assistance. At banks receiving less than $25 million, the limits would apply to only the highest-paid employee. For those receiving $25 million to $250 million, the restriction would apply to the five highest-paid employees. The top five executives and ten highest-paid employees would be affected at firms receiving $250 million to $500 million.
Other measures in the bill include a ban on golden parachutes to departing executives. This would apply to the top 10 most highly-paid employees at all financial institutions currently receiving government aid. The measure allows companies to continue to pay out deferred compensation and benefits such as pensions. There are billions of dollars in such awards on the books of financial institutions.
However, I'll really believe it when I see the screams and howls coming from the executive suites. Call me a cynic about these things.
Friday, February 13, 2009
Brilliant and Arrogant
William Greider, like so many others including myself, is asking questions about Obama's top two economic advisors:
The question about Geithner that intrigues me is why. Why do brainy technocrats like him often seem so clueless (or, if you like, indifferent) to the social reality once they have risen to the top of the governing heap? I think it may have something to do with the experience of being the smartest kid around and being told so from an early age. This could encourage a narrow kind of arrogance, but maybe also insecurity. Over many years, I have seen a certain type both in politics and private life who climbs the slippery pole by applying intellectual firepower and performing for the teacher. Superiors are impressed and always like this dutiful type. Promotions take them higher and higher. Then they get to the top and it becomes obvious something is missing--a capacity to think creatively in strange new circumstances or the human empathy required to lead others.
My curbstone analysis could be dead wrong about Geithner but might aptly describe the career path of Larry Summers, Obama's economic advisor. Summers rose to the top--president of Harvard--on his well-known brilliance and he was done in there by his personal arrogance. He ingratiated himself with superiors on the way up and adjusted his economic thinking to seasonal changes in ideological fashion. He also learned the bureaucratic skills needed for policy infighting--how to cut other economists with opposing views out of the debate. He somehow did so in the Obama White House.
This is relevant now because Barack Obama has chosen to rely on Geithner and Summers for managing the economy and reforming it. If they are too narrow in perspective, too defensive in behalf of the failed status quo, the Obama presidency will be crippled by their lack of imagination. That leads to another question: why did Obama feel the need to select such a confining list of familiar technocrats--competent and brainy like himself--to run the government? The president is neither arrogant nor insecure--he exudes the opposite--yet he must feel more comfortable dealing with folks vetted by the same ladder of success. Perhaps he believes the "best and the brightest" will protect him from failure. Or maybe he thinks his presidency will have more power to change things if he sticks with people drawn from among the influential elites, safely aligned with the existing power structure.
The fact is, we do not yet know the answer. Events are rapidly revealing the nature of this new president, and we have a lot to learn. We know how smart he is, how easily he empathizes with people across the usual dividing lines. We do not yet know if he is wise enough--tough enough--to lead the country to new ground.
The question about Geithner that intrigues me is why. Why do brainy technocrats like him often seem so clueless (or, if you like, indifferent) to the social reality once they have risen to the top of the governing heap? I think it may have something to do with the experience of being the smartest kid around and being told so from an early age. This could encourage a narrow kind of arrogance, but maybe also insecurity. Over many years, I have seen a certain type both in politics and private life who climbs the slippery pole by applying intellectual firepower and performing for the teacher. Superiors are impressed and always like this dutiful type. Promotions take them higher and higher. Then they get to the top and it becomes obvious something is missing--a capacity to think creatively in strange new circumstances or the human empathy required to lead others.
My curbstone analysis could be dead wrong about Geithner but might aptly describe the career path of Larry Summers, Obama's economic advisor. Summers rose to the top--president of Harvard--on his well-known brilliance and he was done in there by his personal arrogance. He ingratiated himself with superiors on the way up and adjusted his economic thinking to seasonal changes in ideological fashion. He also learned the bureaucratic skills needed for policy infighting--how to cut other economists with opposing views out of the debate. He somehow did so in the Obama White House.
This is relevant now because Barack Obama has chosen to rely on Geithner and Summers for managing the economy and reforming it. If they are too narrow in perspective, too defensive in behalf of the failed status quo, the Obama presidency will be crippled by their lack of imagination. That leads to another question: why did Obama feel the need to select such a confining list of familiar technocrats--competent and brainy like himself--to run the government? The president is neither arrogant nor insecure--he exudes the opposite--yet he must feel more comfortable dealing with folks vetted by the same ladder of success. Perhaps he believes the "best and the brightest" will protect him from failure. Or maybe he thinks his presidency will have more power to change things if he sticks with people drawn from among the influential elites, safely aligned with the existing power structure.
The fact is, we do not yet know the answer. Events are rapidly revealing the nature of this new president, and we have a lot to learn. We know how smart he is, how easily he empathizes with people across the usual dividing lines. We do not yet know if he is wise enough--tough enough--to lead the country to new ground.
Why Is Obama Doing This?
Speaking of the overwhelmingly negative response to Geithner's 'plan', the editors of the Nation magazine wrote:
In some ways, Obama did this to himself. Ignoring the pleas of skeptics and reformers (The Nation included), the president surrounded himself with familiar players from the old order and rigorously excluded anyone identified as an unorthodox thinker. It is not too late to correct this deformity, but he can't wait long. The White House needs a healthier mix of ideas and advisers--people who are not committed to saving old Wall Street names but are capable of visualizing a brighter future emerging from the ruins. Look around, Mr. President. You can find them.
In some ways, Obama did this to himself. Ignoring the pleas of skeptics and reformers (The Nation included), the president surrounded himself with familiar players from the old order and rigorously excluded anyone identified as an unorthodox thinker. It is not too late to correct this deformity, but he can't wait long. The White House needs a healthier mix of ideas and advisers--people who are not committed to saving old Wall Street names but are capable of visualizing a brighter future emerging from the ruins. Look around, Mr. President. You can find them.
Another View of Summers
These days I find myself defending Obama's economic team from the Chronicler's charges that they are too far to the right. Its a strange feeling, given that I have often been the resident liberal in the family. But the point is: I think in the end they will do the right thing, what is quickly becoming the consensus of experts, as Roubini lays out in todays Washington Post:
The NY Times chimes in with this (as a news item, not an editorial):
Given that the conventional wisdom is quickly swinging towards nationalization, is Obama's team that far to the right? I don't think Summers is the "fundamentalist" that he's often made out to be. From the NY Times last November:
I think that Obama's public relations strategy has been to open up the subject of nationalization for public dialogue, allow experts to weigh in and prepare the country for the eventual step of nationalization. My gut feeling is that nationalization may create more short-term economic pain. This is always a tough thing for a politician to allow to happen, as Obama could be blamed for it.
I am also willing to wait a month or two while they get their ducks in a row. Something like this takes enormous planning. And once they formally announce nationalization, they will want to have the dominoes fall swiftly and surely. As Roubini says, the worst case would be to have banks sitting out there not knowing what will happen to them. The stress testing must be done thoroughly, and then the results released all at once. We will probably have people whining about transparency in the mean time.
Bottom line, this will take some time to play out. If they screw it up, I will be the first to yell at them. But I see the signs that they are going in the right direction.
Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume. Of course, the economy would still stink, but the death spiral we are in would stop.
Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:
First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.
The NY Times chimes in with this (as a news item, not an editorial):
The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.
Given that the conventional wisdom is quickly swinging towards nationalization, is Obama's team that far to the right? I don't think Summers is the "fundamentalist" that he's often made out to be. From the NY Times last November:
He is also the centrist who has made it safe for other centrist Democrats to move to the left. Both times I’ve interviewed Mr. Obama this year, he has brought up Mr. Summers, unbidden, and pointed out that Mr. Summers was now writing a lot more about the plight of the middle class than about budget deficits. At Monday’s news conference, Mr. Obama called him “a thought leader.” Back in December 2007, when officials at the Federal Reserve and in the Bush administration were saying a recession was unlikely, Mr. Summers gave a speech with a different forecast. He said that it was “distinctly possible we’re headed into a period of the worst economic performance since the stagflation of the late 1970s and recessions of the early 1980s.” More recently, he predicted that the financial markets wouldn’t return to normal for a long time.
I think that Obama's public relations strategy has been to open up the subject of nationalization for public dialogue, allow experts to weigh in and prepare the country for the eventual step of nationalization. My gut feeling is that nationalization may create more short-term economic pain. This is always a tough thing for a politician to allow to happen, as Obama could be blamed for it.
I am also willing to wait a month or two while they get their ducks in a row. Something like this takes enormous planning. And once they formally announce nationalization, they will want to have the dominoes fall swiftly and surely. As Roubini says, the worst case would be to have banks sitting out there not knowing what will happen to them. The stress testing must be done thoroughly, and then the results released all at once. We will probably have people whining about transparency in the mean time.
Bottom line, this will take some time to play out. If they screw it up, I will be the first to yell at them. But I see the signs that they are going in the right direction.
Politicians are Equally Guilty
Bill Bonner explains in the latest Daily Reckoning why it is that the public is going to get economically screwed coming and going:
So you see, dear reader, how deliciously the plot turns? In the bubble years, the bankers ripped off the public...pretending to make them rich, of course...while the regulators looked the other way. Now, the politicians create a distraction, pretending to punish the bankers, while together they pick the public’s pocket for $3 or $4 trillion more. The bankers are judged guilty; but the audience hangs.
So you see, dear reader, how deliciously the plot turns? In the bubble years, the bankers ripped off the public...pretending to make them rich, of course...while the regulators looked the other way. Now, the politicians create a distraction, pretending to punish the bankers, while together they pick the public’s pocket for $3 or $4 trillion more. The bankers are judged guilty; but the audience hangs.
The Tragedy is Complete
Beverly Eckert was a 9/11 widow who was bravely suing in court to get more information on that tragic event. See her statement here.
She was killed yesterday in a plane crash near Buffalo. How ironic. Now the tragedy is complete.
Or maybe she is once again with her husband and has won the final victory.
She was killed yesterday in a plane crash near Buffalo. How ironic. Now the tragedy is complete.
Or maybe she is once again with her husband and has won the final victory.
Burying the Zombies
Over at the Daily Reckoning, Bill Bonner writes, in his always entertaining way:
Back in the ’90s, when Americans still believed in capitalism, they sent a steady stream of advisors and kibitzers to Japan. The world’s second largest economy was in a stall and seemed in no hurry to get out of it. Its largest banks were “zombies,” said the Americans; they were propped up by the Japanese government in order to avoid losses and embarrassment. If the Japanese wanted to get things moving again they should let those banks fail...let the free market do its work...let the chips fall where they may. Then, capitalists, entrepreneurs and scrappy businessmen could pick them up and build with them.
The Japanese didn’t take the advice. To this day, 19 years after the beginning of Japan’s long, soft, on-again, off-again depression, the economy is still in a slump...and expecting negative growth again this year. All together, Japanese investors are said to have lost a sum equal to 300% of the nation’s annual GDP...the equivalent to a loss of about $45 trillion in the United States.
Years ago, we predicted – in these daily reckonings – that when the crisis came in the United States, Americans wouldn’t take their own advice. Alas, we were right. Instead, they are keeping the zombies alive, just like the Japanese did. And the zombies are sucking the blood out of the economy.
And poor Barack. Our guess is that Paul Volker has spelled the nuts and bolts of the situation out for him. But Obama, surrounded by a fluff of advisors with their dog-eared copies of Keynes’ General Theory of Employment, Interest and Money , doesn’t know who to believe...or who to trust. So, he goes with the flow. It would take a strong man, with strong convictions about economics to resist a gaggle of Ph.D. economists and experts telling him that he risks ‘catastrophe’ if he doesn’t act quickly. Poor Barack may be a decent fellow...but he is a decent fellow in a bad trade. He doesn’t know it, but the flow leads nowhere.
Back in the ’90s, when Americans still believed in capitalism, they sent a steady stream of advisors and kibitzers to Japan. The world’s second largest economy was in a stall and seemed in no hurry to get out of it. Its largest banks were “zombies,” said the Americans; they were propped up by the Japanese government in order to avoid losses and embarrassment. If the Japanese wanted to get things moving again they should let those banks fail...let the free market do its work...let the chips fall where they may. Then, capitalists, entrepreneurs and scrappy businessmen could pick them up and build with them.
The Japanese didn’t take the advice. To this day, 19 years after the beginning of Japan’s long, soft, on-again, off-again depression, the economy is still in a slump...and expecting negative growth again this year. All together, Japanese investors are said to have lost a sum equal to 300% of the nation’s annual GDP...the equivalent to a loss of about $45 trillion in the United States.
Years ago, we predicted – in these daily reckonings – that when the crisis came in the United States, Americans wouldn’t take their own advice. Alas, we were right. Instead, they are keeping the zombies alive, just like the Japanese did. And the zombies are sucking the blood out of the economy.
And poor Barack. Our guess is that Paul Volker has spelled the nuts and bolts of the situation out for him. But Obama, surrounded by a fluff of advisors with their dog-eared copies of Keynes’ General Theory of Employment, Interest and Money , doesn’t know who to believe...or who to trust. So, he goes with the flow. It would take a strong man, with strong convictions about economics to resist a gaggle of Ph.D. economists and experts telling him that he risks ‘catastrophe’ if he doesn’t act quickly. Poor Barack may be a decent fellow...but he is a decent fellow in a bad trade. He doesn’t know it, but the flow leads nowhere.
Thursday, February 12, 2009
The Need for Honesty
David Lindorff writes something here that is very similar to what I wrote here:
Over the last 20 years, America has degenerated into a nation of consumers, with 72 percent of Gross Domestic Product (sic) now being accounted for by consumer spending—most of it going for things that are produced overseas and shipped here.
That is not an economic model that is sustainable, and it is a model that has just suffered what is certainly a mortal blow.
What we are now seeing is the beginning of an inevitable downward adjustment in American living standards to conform with our actual place in the world. As a nation of consumers, and not producers, with little to offer to the rest of the world except raw materials, food crops, military hardware and bad films (none of which industries employ many people), we are headed to a recovery that will not feel like a recovery at all. Eventually, productive capacity will be restored, as lowered US wages make it again profitable for some things to be made here at home again, but like people in the 1930s looking back at the Roaring 20s of yore, we are going to look back at the last two decades as some kind of dream.
It would be better if the new administration would be honest about this, because with honesty, we could have a recovery program that would actually address the real critical issues facing the country—the decline of our educational system, the irrationality of official promotion of home ownership that has led to the proliferation not just of suburbs but of exurbs, the over-reliance on the automobile for transportation, the unprecedented waste of resources, the pillaging of the environment, not to mention the decimation of the retirement system and the creation of a vast medical-industrial complex that is sucking the life-blood out of families and businesses alike.
With honesty, we could also confront the other big obstacle to national recovery—the nation’s obsession with militarism and foreign wars. The honest truth is that the US is technically bankrupt and in a state of chronic decline, and yet the nation persists in spending a trillion dollars a year on war and preparations for war, as though America were in mortal danger from foreign enemies.
The administration could start by telling us all this straight up, but the problem is, most of us probably don’t want to hear it, which explains why we’re not hearing it. It also explains why we’re about to blow another trillion or so dollars on propping up failing banks, funding pointless highway and bridge construction, and blowing up illiterate peasants in remote places like Afghanistan and Pakistan.
Over the last 20 years, America has degenerated into a nation of consumers, with 72 percent of Gross Domestic Product (sic) now being accounted for by consumer spending—most of it going for things that are produced overseas and shipped here.
That is not an economic model that is sustainable, and it is a model that has just suffered what is certainly a mortal blow.
What we are now seeing is the beginning of an inevitable downward adjustment in American living standards to conform with our actual place in the world. As a nation of consumers, and not producers, with little to offer to the rest of the world except raw materials, food crops, military hardware and bad films (none of which industries employ many people), we are headed to a recovery that will not feel like a recovery at all. Eventually, productive capacity will be restored, as lowered US wages make it again profitable for some things to be made here at home again, but like people in the 1930s looking back at the Roaring 20s of yore, we are going to look back at the last two decades as some kind of dream.
It would be better if the new administration would be honest about this, because with honesty, we could have a recovery program that would actually address the real critical issues facing the country—the decline of our educational system, the irrationality of official promotion of home ownership that has led to the proliferation not just of suburbs but of exurbs, the over-reliance on the automobile for transportation, the unprecedented waste of resources, the pillaging of the environment, not to mention the decimation of the retirement system and the creation of a vast medical-industrial complex that is sucking the life-blood out of families and businesses alike.
With honesty, we could also confront the other big obstacle to national recovery—the nation’s obsession with militarism and foreign wars. The honest truth is that the US is technically bankrupt and in a state of chronic decline, and yet the nation persists in spending a trillion dollars a year on war and preparations for war, as though America were in mortal danger from foreign enemies.
The administration could start by telling us all this straight up, but the problem is, most of us probably don’t want to hear it, which explains why we’re not hearing it. It also explains why we’re about to blow another trillion or so dollars on propping up failing banks, funding pointless highway and bridge construction, and blowing up illiterate peasants in remote places like Afghanistan and Pakistan.
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