Tuesday, January 26, 2010

Everything Old is New Again

Jim and Lisa at RANGER AGAINST WAR have a nice little post up discussing something similar to the preceding post here - regarding what is happening to the U.S. economy and the apparent disconnect between the travails of the ordinary citizen and the circus act going on inside the Beltway.
"Discretionary wars, health care tampering . . . it seems like fiddling while Rome burns. Walmart is the new GM, and when this bellwether of our economic fitness is straining at the seams, doesn't that demand notice?"
Perceptive boyo that he is, the Minstrel Boy adds:
"...the game needed to be changed. the styles and rules altered. That wasn't done. also, the pig of bad debt, credit default swaps and other failed schemes has yet to move through the python of the economy. Without intense and often draconian measures to rearrange the way business is done, all we are doing is postponing the inevitable collapse."
The frustrating thing about all this is that this isn't rocket science. Pretty much anyone who has looked at market economies knows and knew that without some sort of regulatory and fiscal governor that the market goes through these booms and busts regularly. U.S. history is full of them, from the foundation of the republic until the Great Depression.After 1932, though, and the rentier class having shat the bed so thoroughly that even the self-delusional Rockefeller wannabes couldn't pretend something wasn't wrong, the Roosevelt Revolution slammed down on the financial high-rollers, forcing them to swap some of their profits for the assurance that the Feds would prevent the proles from lynching them - and remember, they had Soviet Russia as a scary reminder that this wasn't impossible.

So most of us labored under the artificial stability of the regulated market for most of our lives. We thought that this sort of economic crash, the kind that destroyed people's lives and wrecked entire regions, was a sort of myth we read about in history books.

But Ronnie and his merry band of freebooters (and let me add that although the debased intellectual coin that brought us "Greed is Good" came from the Right, the political lifting that removed the New Deal brakes on the financial gamblers required many enablers of the Left, as well, the hypocritical bastards...) brought back the Big Casino, gutted Glass-Steagall, releveraged the markets and ushered in the financial crapshooters (Bob Reich, I think, said once that the only real financial "innovation" that benefited the average consumer was the ATM - everything else was a way for the financial insiders to spin illusory profits out of the bubbles) and, hey, presto, it's back to the Great Panics of the 19th Century.So, MB, it's more than just a temporary digestive problem. I truly believe that we've fundamentally changed the way the game is played, changed it back to be closer to the way it was played in the days of the Robber Barons and the Gilded Age.Thoughts?


  1. I'm very tired at the moment - it's late and I had too much on my plate today, so I'll leave you with this, which I think is brilliant.

  2. What I find interesting about the little video (which IS clever) is that it gives Hayek the last word. I would argue that given the economic history of the U.S. you'd think that nobody but a hardcore libertarian (i.e. a Republican who has never had to declare bankruptcy) would still give the man Big Props.

    Since - let's call it what it is - his economics is the Economics of Pain for the Common Schlub. The gamblers of the Market reap the big casino until their bubbles burst...and then the rich sell a summer house or two and ordinary spud and spudette lose their homes and their jobs in "that painful, lengthy, but necessary process of shifting resources out of capital-goods production that we call a "depression." as Brad DeLong describes it.

    I do think that having a depression every five or ten years is a bad idea - it shakes up the middle class (whose reserves are not that deep) while sparing the truly wealthy, who adjust to the reduction of their trust funds until the bust re-booms. That seems like a textbook proposition to return not just the economy but the politics of this country to Gilded Age norms.

    But my post wasn't so much to bemoan the return of the Panics as to mark it. I don't think we're going to be able to change things. We just need to welcome our new economic overlords.

  3. Chief,

    I'm not a disciple of Hayek. In fact, I'm suspicious of unified economic theories in General. Dave Schuler, an excellent blogger I read daily, puts it well when he says that economics is a descriptive and not a predictive science.

    I also don't know much about the economic history of 19th century America, so I don't know whether to agree or disagree with your thesis. I will say, however, that rent-seeking has certainly not gone away and is arguably much worse. Rent-seeking explains, IMO, our overly complex tax code and the fact that Congress cannot write a bill with a word count less than war-and-peace. I think serving rent-seekers and distributing mana from the federal titty is now Congress's primary function.

    So where does it end? I'm becoming more convinced it will end when the chickens of fiscal unsustainability come home to roost.

  4. Just stopping by after a couple of weeks "on the road". We are on our annual visit to the States, and once again puzzling over what, exactly, our fellow countrymen are thinking. Or, if a thought process is really involved, how it operates.

    Andy writes: I'm becoming more convinced it will end when the chickens of fiscal unsustainability come home to roost. I trust you are referring to more than just our governmental entities. Fiscally irresponsible government is merely a reflection of a generally irresponsible society. The population has also run up unsustainable personal debt, as evidenced by the high level of foreclosures and other personal credit defaults. Sadly, there are many who truly think there is a "free lunch".

    It's a societal/cultural problem, not a governmental one, and one that I fear will not be corrected without a serious collapse. All too many people are oblivious to the roots of the problems and their contributions to them.

    Will be traveling for two more weeks. Keep up the great discourse. Will join in again when we are back home in Greece.

  5. Chief -

    I think you do a disservice to the 19th century Robber Barons when you compare them to the Boomer Barons of the recent Wall Street meltdown. Although guys like Rockefeller, Morgan, Gates, Carnegie and the others were in fact crooks, at least their crookedness resulted in investment in America and American jobs (however poorly paid).

  6. Andy: I think you point out what I see as the critical problem here: the degree of corporatism in our government ensures that it will be nearly impossible to roll back the volatility of the newly-refurbished Robber Baron market, with all the social and political implications that brings. We're all becoming "part of the problem", but the entrenched interests have no interest in being part of the solution. Since the parties with the access to power gain nothing from applying the brakes to the leveraged bubble economy, I think there is a very real possibility of an economic hard landing.

    I don't know what that will bring, but I would suspect that it is not good.

    mike: I don't deny that the Barons helped build the Industrial Revolution in this country. But the way they did it ensured the maximum suffering and hardship for the people who worked for them and the common people in general.

    WHY did they have to pay their workers a comparative pittance, fight hard against the most sensible safety and health provisions, and ensure that the resulting misery would produce a poisonous divide between labor and capital that would, in turn, result in unions almost equally hardnosed, greedy and shortsighted?

    I give them credit for their entrepreneurship while castigating them for their callous, toxic greed and short-term thinking.

  7. Al,

    Have a safe trip here in the US.

    You're right that too many in our populous are fiscally irresponsible. The difference between people and government, though, is that people can go through bankruptcy, learn their lesson and start with a semi-clean slate. The US government doesn't have a similar ability to reset and start anew.

  8. Chief -

    I am not defending them. Only saying that today's breed is much worse.

  9. mike: But you point out, correctly, that the Barons played a critical role in the Industrial Revolution - there is something there to defend.

    I think you're also right in that today's Robber Barons haven't the same defense. What value is there to anyone outside Goldman Sachs of a "credit default swap"? ISTM that this is pure moonshine, spinning money out of bullshit, a pure Tulip Bubble sort of thing.

  10. Andy: In a way it does - it's called "default". But realistically, no; the moment the U.S. Government defaults on its debt is the moment the Western fiscal system skids to a halt.

  11. Al: Hope you manage to swing through our Northwest on your excursion. I'd be proud to buy you a round and toast the Immortal Memory.

  12. Chief-

    Thanks for the invite. We will not travel further west than Ft Worth. Probably next year will include a trip to our old neighbors on Whidbey Island, WA. Would be honored to include your neighborhood in the plan.

    Meanwhile, we have a wicked holiday in our islands that any and all are invited to consider. www.scootgreece.com

    We are now off to catch a flight to take a cruise. See you all in a while.