Too Much Debt, Not Enough Income
Bush’s economic policy has had real world consequences. You know it and I know it. It does matter who you elect. I can’t stress that enough…as cynical as I am, as disappointed in my own party as I often am, I still think it matters. Leadership at the top dictates how well your government runs; your economy, your foreign policy, and your regulatory bodies.
Jerome a Paris over at dKos always has the most comprehensive economic diaries. Often, they go way over my head. But this one really helps lay out the “rules” (or lack thereof) that the Bush economy relied on, and why it was so terrible. It outlines that a country which spends more than it makes, whether that’s the enormous trade deficit, or the rampant government borrowing, or the individual debt rate, will eventually have to pay the piper. It seems like common sense. Nothing is free forever.
But I get the feeling that this is part of an attempt (likely to get louder as things get worse) to blame the “foreign” bit rather than the “credit” bit.
I hope I’m wrong, but as we begin to see loud calls for bailouts (unfair, as they reward the bankers that created the problem n the first place, but, you see, the alternative is worse), the availability of a ready-made outsider scapegoat is likely to be irresistible.
And yet, the fact remains that the problem is not who provided the credit, but the fact that it was provided in such large amounts.
Did anyone really think that credit could be extended to float the economy forever? How could anyone who claimed to be an MBA president be so stupid? Now we have a falling dollar, and the banks are asking for their money due before extending more credit, and the assets that we borrowed to buy are getting to be worth less and less as there are fewer people who want them.
Because that sea of debt had one real purpose: hide the fact that income for most are stagnating.
I never tire of posting this graph of the “W economy”, because it summarises in a nutshell what happened: growth happened, but did not trickle down to the middle classes, let alone the poor. Thanks to wage stagnation, made possible by the threats of outsourcing and offshorisation, and by the demonisation, emasculation or dismantlement of regulations and institutions (like unions) protecting workers, the fruits of growth have been captured by a very few - and this has been hidden because consumption was propped up by readily available debt and the apparently growing virtual wealth of homeowners.
The problem is that, while a lot of that growth was illusory (and is now unravelling), the wealth capture that took place thanks to it was very real, and, in particular, the mechanisms ensuring that an ever grower share of the pie got into a few lucky hands are still in place, and will bite even more harshly as the pie shrinks.
And what’s more, this is masked by the “conventional wisdom” of economic political policy: free trade good, protectionism always bad.
The current economic consensus - that of “labor market reform”, of “unsustainable liabilities of Medicare”, of “protectionism is the ultimate danger” - in short, of those that think that economic prosperity is correctly summarised by the value of the Dow Jones Index is the one that has been cheerleading the shrinking of the share of the pie (remember: labor market reform = lower wages. Full stop), and they are part of the problem, not part of the solution.
And you see that all the remedies are focusing on ways to make the pie be (or better, look) bigger than it can - more money injections, more cheap debt, more support for the financial sector.
They are the problem, not the solution.
Jerome a Paris tells us there is a simple, common sense solution to all this. There always has been.
Too much debt and not enough income was the problem.
And the solution is simple: stop debt (this is happening on its own anyway). and boost income.
How do you do that when there isn’t enough money around?
By creating real activity rather than the money-shuffling kind.
He even gets really specific - solve our current climate crisis and create “real” value instead of fake ballooning debt value:
And, as it were, there is a sector that is “real” and has an urgent need for action: infrastructure, and in particular energy-related infrastructure.
A plan that focuses on a few simple things:
- massive public support for energy efficiency refurbishment of existing homes;
- a massive, New Deal rural electrifaction scale plan to build renewable energy assets and the corresponding grid infrastructure;
- a similarly massive plan to develop smart public transportation, both locally and intercity;
Spending the money currently wasted in Iraq on these 3 things alone would provide a real boost to the economy in the sectors that actually need it, would reduce oil&gas consumption and carbon emissions, and be an actual investment in the future, as opposed to the current drain on the future that’s been engineered via debt used on mindless consumption of junk.
Add in plans to boost minimum wage, reinforce union rights and tax imports of carbon-rich goods, and you’d have a pretty damn good economic - and geopolitical programme.
Like any household planning a smart budget, the federal government can be responsible in the choices it makes, the way it encourages money to be produced and moved around, and in how it regulates money (for instance, not allowing the banks to make stupid bad loans now so we can reduce the pain in the future). All of this dictates the government telling us how to do some things, or telling business how to do some things. But the alternative is to have huge ups and downs in the economy, to have stagnant wages for the middle class and the poor, and for the rich to get far richer. Laissez-faire failed this time around, as it always has. As Jerome a Paris says (bold mine),
Because the problem is the most of America’s population is living, by design, above its means. It is kept dependent, fearful and distracted while the happy few gorge. Call it what it is: class war. Time to fight back.
