"I once wished for Robert Reich's return to influence on the economy. I wanted simpler times when I didn't worry much at all about the future, rather I worried about the speed at which I could participate in it.
I now have two children and find myself projecting and planning far farther into the future than I ever have. I ask myself what kind of world I brought these wonderful people into. What moral persuasion do I have over what will be left behind for them?
When Bush said we could fight a war and pay for it with shopping sprees, that was clearly contrary to common sense and I argued that it was immoral.
Hearing the news regarding the melt-down now and then in the past year and a half, I felt superior knowing that I never favored deregulation and knew that greed rules when the rules don't apply.
A few months ago, just before the current calamity began, I began to listen more closely. It was apparent to me rather quickly that what I was hearing on NPR (my primary source of news) and in mainstream media (a couple of magazines from the East Coast, no TV) in general was just happy talk. Instead, I sought advice from a couple of friends and through them found a few bloggers such as James Kunstler, Charles Hugh Smith, and Karl Deninger.
I include your blog in my readings so as not to overdose on negative forecasts. However, the more I read, the more it seems like you're on the side of the paternalistic happy talkers. I'm left wondering what you really believe when you write things like this:
> Deficit numbers themselves have no significance.
Does this not deserve some explanation? I'll tell you where I've heard statements like this, it was while arguing with my conservative lunch buddies about the war in Iraq and our refusal to pay for it. I argued that it was a reflection of either our lack of commitment to the cause, or the ill effects of team sport politics (they branded me a liberal). One of the more opinionated, and in his own mind informed (sources: Fox News and talk radio), made virtually the same statement you made in your post.
I was incredulous. Is a balance on a credit card statement nothing more than ink on paper? That's literally true, yes. But no, it's real money, future earnings. Is it somehow different when it's the U.S. government?
When the ordinary guy buys more than he can afford on credit and pays interest, he is squandering money (future earnings) that he could invest in his family. It has no value to him and is more or less a recurring tax on the assets he has.
And now I hear this from you: someone who is adored by those who want to click their heals together and go back to the "Clinton years." Is interest somehow different when the U.S. government pays it? When we buy that new interstate bridge, aren't we paying a lot more for it when we buy it on credit and, let's be honest, don't really intend to pay for it? Or are you suggesting we'll buy it in cold hard cash? Hell, Bernanke can print it, right? Would that be counterfeiting or even kiting (as Deninger alleges)?
From 1993 to 2007, we have had a 300% increase in debt! Take a look at this chart. That looks like an exponential increase. Are you suggesting it can go trillions higher with nothing to be concerned about? Will a recharged economy really get us on the road to paying down this debt? Or are we wishing for another bubble? Will we discover an infinite supply of energy that costs little to produce sometime soon? Be honest, returns on Green tech will never rival oil. The energy in must be factored, not just energy out... unless you want to lie to yourself (we do it all the time these days). Or will we discover that we're an infinite world that indeed can sustain infinite growth (Thomas Friedman's next book?).
When I was a kid, my family was poor. We went on food stamps for a couple of years in the seventies until my Mother, a single Mother, finally got a job at the Post Office.
We never had much luxury. We certainly didn't run out to buy the latest bigger and better TV as soon as it hit the shelves.
As an adult, I moved to a fairly large city. It seemed to me that everyone was rich: tall shiny cars, big houses, $50 haircuts, eating at restaurants all the time. I thought it was just a matter of perspective coming from a small town. But I am friends with a guy who also grew up in my town and was in one of the wealthier families there. They didn't live carelessly either. They were frugal and prudent. I knew no one who lived carelessly.
But in 1992, everything changed. Every Christmas, when I went home it seemed everyone had more new stuff. A shiny new truck one year, not one but two snowmobiles, a huge entertainment system, expensive vacations, whatever the kids wanted, and more!
What seems obvious to me now is that I happened to show up when the bogus economy was just getting moving. Why bogus? Because it was built on credit and credit alone (on the shoulders of the real economy). Because it whispered "this time things are different" in our ears as we mortgaged not only our future, but that of our grandchildren.
(Thankfully, my upbringing was stronger than the temptations and am debt free outside of my mortgage. Unfortunately my mortgage was fraudulently high due to the distortions of a credit market leveraged with fraud: credit default swaps and the like. And now I'm being asked by Bush and probably you to "help my neighbor out" who has an imprudent loan. Of course, it won't help my neighbor out. It will help the bank to avoid facing their bad bets. It will sink me along with him.)
So we're all waking up with a lampshade on our heads and our pants around our knees. What now?
The answer seems to be, let those who broke it fix it. Henry Paulson made a large fortune on fraudulent leveraging. He is the man to fix all of that. Bernanke prays to the Greenspan God of interest cuts (the war on saving). You must cut even when a bubble could have only been obvious as house prices soared exponentially above salaries, that in fact dropped (more than most are mathematically aware since, under Clinton we decided to lie to ourselves about inflation and other indexes... see shadowstats.com). That was a broken model, but this time we'll make it work.
So now what do we do? It's the "hawks" and supply-siders versus the Keynesians is it? So an imprudent bank should be propped up in order to save the jobs provided by the bank? Do we attach strings that insist they don't take the money while laying people off anyway? Would no other bank take the business left in the vacuum? Wasn't it Keynes who believed that no depressions would ever happen again-- before the great depression? Wasn't it his theories at work when Hoover began intervening after the crash? Did they really fair any better under FDR, simply because he had the right party affiliation?
SO who is to blame? I know it's not the "hawks." Please tell me you don't think the "hawks" are to blame! Supply-siders? I tend to think so. But in hindsight, just what was so different about the Clinton Administration versus Bush and Reagan before it? Did you reverse course?
Keynesian theory? I think so, but maybe it's more about Universities turning into Votechs that spit out narrow minded "professionals." Just look at how the same thing that caused the problem is the solution. What if, just what if another theory is needed?
The Clinton Administration? Sure there was a an effort to stop deficit spending, but it didn't last long. But you can't blame so few for this one.
It's the Republicans who sold our democracy to big business on the cheap. Deregulation was the answer, even when it was not. But, I think you and Democrats in Congress through the eighties are complicit in the this bogus economy. It couldn't have happened without you, even if it wasn't your idea.
Let us not forget who signed GLBA. That was followed by a merger spree that got us more "too big to fail" situations than we ever dreamed possible prior. Do you wish for those strong regional banks right about now? Too late, they're gone.
The deficit isn't real? Isn't it actually a hidden tax that keeps growing every year? How will the public feel when 50% of tax revenues goes to paying down interest (not even principal)? 75%? 99%? Or is this somehow not possible?
Readers, the light just came on. Hurry, take a good look before the cockroaches scurry away. It's not a team sport. It's not a loss of confidence (this is a euphemism for blaming the American public, the victim of a massive crime). It's not going to be fixed with more debt. It can't be patched. Maybe the fiscal conservatives (hawks sounds scarier huh?) aren't so nutty after all. Is the news media on our side? How would we know either way? How do we know what we know?
I think the choices are plain. The writing is on the wall. Face the music now. Jail the fraudsters, starting from the top, not the bottom. Let the imprudent mortgage holders default and enjoy low rents for a while they build their credit back up for another shot at the dream. Let the banks that made bad bets fail and stop trying to hide this reality with our grandkid's future earnings (future prosperity, drill baby drill). It will hurt for a while, yes. But the alternative is more pain for more people and for a longer time.
The latter is where we're going. This is the path putting Clinton economic advisers back in office will lead us down.
Dr. Reich, let Obama make the massive shift that needs to be made. If you think failure won't stick to him since this started under Bush, I think you're just another person who believes this is a team sport. The right choice is the most difficult one. Your post today tells me that you aren't the one to take this on. Clicking our heels together won't help.
I believe Obama's roots and his calling have prepared him for this. He will be hated by powerful people, yes. You'll get your kicks in, more than likely. But he will be loved by our grandchildren who will not be punished by our moral failures.
