A Piece of My Mind
Economy
Economic analysis
NEEDED INTERVENTION
Sep 19th
It’s good news that the Federal Government has stepped in to stop–or at least slow–the downward flight of the economy. The Bear, Stearns rescue; the taking over of Fannie and Freddie; then the $85 billion loan toAIG; and now an infusion of capital wherever it is needed to rescue large businesses and mutual funds. A new look at the need for regulatory oversight. And, thank goodness, a short moratorium on short-selling.
OK, Secretary of the Treasury Paulson is now getting serious. He’s gone beyond the Band-Aid stage and, with the help of many in business and government, is starting to develop a comprehensive plan to stabilize the economy. The details will go to Congress immediately. Congress is almost certain to pass any legislation that Paulson and his team recommend, though the Democrats will insist that any new law also provide help for individual homeowners who are threatened with mortgages they can’t handle.
Actually, under the circumstances, and given this administration’s opposition to regulation, oversight, and transparency of any kind, Paulson seems to be doing a good job. Just a day or two he seemed to be working without a plan. But clearly he and Ben Bernanke (head of the Fed) and many others realized that extreme measures had to be taken to avoid a total collapse of the economic system here at home and abroad.
So the U.S. Government has now nationalized some very big businesses. It has provided a safety net–let’s call it what it is: another version of corporate welfare–for businesses that have been judged (no doubt correctly) too big to fail. It has, in other words, averted catastrophe through a form of central planning.
But wait! Aren’t these measures the trappings of Socialism? Aren’t we the preeminent believers in Free Enterprise?
Well, friends, we have to face an inconvenient fact: if we want a free-enterprise system that works, we’re going to have to have cooperation between the government and a legal framework, on the one hand, and business–especially large corporations–on the other hand. Capitalism is impossible under anarchic conditions; it requires social stability and confidence that the legal and economic framework will keep it running. We’ve seen lately that confidence–faith in the system–seeped out of the system. Now Paulson and the others are hoping that billions and billions upon billions of dollars will restore confidence in our system, which capitalism without oversight or regulation has nearly destroyed.
In other words, the free-enterprise system had to be rescued from itself. The vast energies of capitalism can bring about miraculous, positive changes. But those energies have a destructive side as well. Greed may drive the system, but unchecked greed will always bring it to a point of collapse. My brother has an observation: “Greed knows no bounds.” He’s right. The truly greedy, the supremely greedy, the captains of the universe who want to gobble everything up, have to observe limits. Otherwise they’ll destroy themselves and all the rest of us as well.
It makes better business sense to have laws that require oversight and regulation. I’m not talking about iron-fisted regulation, restrictive laws that strangle capital flow and innovation, or actual management of the economy by the central government. We know that doesn’t work.
But now that we’ve been brought to our knees by the ideology of the free-for-all, winner-take-all, Social Darwinist theory of unregulated free enterprise, let’s give serious consideration to something a little more rational. If Big Business can doom itself when there’s no agency to monitor it, what have we come to? Well, I’ll tell you: we’ve come to the summer and fall of 2008, when Big Business had to be rescued from itself.
As I say above, business can thrive only in a stable environment. Let’s compare the explosiveness of the capitalist impulses to other explosive forces: dynamite, fire, nuclear fission. OK, maybe I’m reaching here, but you get the idea. These explosive forces can be harnessed to do good work. If we just let them blow up, they consume themselves and everything else around them. What the hell’s wrong with applying a little intelligence to make them work better?
Henry Paulson and the others have made the first, tentative steps toward the creation of a structure of cooperation between business and government. If they haven’t–if this is just another rescue job for the Big Guys–then we can look forward to another meltdown soon. (That’ll be the credit-card bubble.) As it is, we’re not out of the woods yet. There’s going to be a lot of bad economic news in the following weeks, I fear. This whole mess will take years to sort out. Our grandchildren will be paying for our recklessness, our surrender to the predator ideology of laissez-faire.
STILL FALLING
Sep 18th
Well, the economy is still crash-diving. The Dow is down again–this time by more than 300 points–despite the $85 billion loan to AIG by the Fed. We’re about 3,300 points lower than we were when the Dow hit its high point at around 14, 000.
Let’s see: Bear Stearns, Fannie Mae, Freddie Mac, and now AIG. The Fed has helped these entities, but it’s let Lehman and Merrill, Lynch go down the toilet. I guess they weren’t “too big to fail.” Thank goodness for corporate welfare, however, because those businesses that have been rescued can rebuild and look forward to more prosperous times (we hope).
The presidential election should be in the firm control of the Democrats, but it isn’t. Everybody I talk to–nurses, Quik Shop clerks, retired professors, Federal agents (well, one–my son-in-law), the guy at the office-supply store, the owner of the local Dunkin’ Donuts franchise–wants to talk about the economy. My little informal survey (as well as the newspapers that I read) tells me that people are scared stiff, fed up, yet ever hopeful that something, somehow can be done.
But while the Fed has put Band-Aids on the problem, it hasn’t addressed the underlying wound: the lack of useful oversight and regulation of Wall Street. It’s a great irony that big businesses have successfully lobbied an all-too-willing Congress and the past four administrations to lessen oversight and regulation, only to have to beg for government intervention when their free-wheeling ways haveled to lousy business practice.
So it ought to be the Democrats’ election, since they can point to the last eight years of Republican incompetence on economic matters and, truthfully, not have to take much of the blame for the wreckage. But can Obama and Biden come up with some sexy sound-bites to attack the Republicans? Can they become political attack-dogs, like Sarah Palin, and convince the American people that they have a better way for the future?
They certainly ought to be able to, especially in light of McCain’s confusion about the whole economic situation. (“Economics isn’t my strong point,” he has admitted. “I don’t know much about economics.” I believe you, John.)
But this election might not depend on what the candidates say about the economy. It might well boil down, as McCain political adviser said, to the personalities of the candidates.
Duh! Of course! Where have I been? Didn’t Reagan win because of his good looks, his friendly, lopsided smile, his cheerfulness, and his embodiment of the Western Cowboy? And wasn’t he pretty good at snide put-downs of the Democrats. (We won’t talk here of his racist Southern strategy.) How could any Democratic candidate, no matter what kinds of plans and ideas he had, compete with the larger-than-life Myth of the West, by an actor who had played the part in many movies, no less, and looked good riding a horse?
And now: I was reading Joe Klein in Newsweek this morning in the doctor’s office, and he pointed out that Sarah Palin has the same Myth of the West thing going for her. I was barely able to get the gist of his idea before the doctor called me in, but the gist was enough. The Alaskan Frontier! An independent, gun-toting, God-fearing woman who can insult the Democrats with a smile and govern Alaska while caring for five kids.
Obama is not going to look good riding a horse. Joe Biden isn’t going to claim that he knows how to field-dress a moose (though he can slice up a political opponent with a barbed remark). So forget about ideas and plans and policies and issues and diplomacy and all that government stuff. We’re in the realm of myth and archetype and tribal emotions.
The Democrats might still pull this one out of the fire. After all, things are going to get worse on the economic front, which is the number-one issue (“There you go again!”) in the country. But they’d better get some catchy sound-bites and a few sexy slogans. I think that the Sarah bounce is already starting to fade–a little–but she’s going to do a lot of damage in the Western states, in Florida, and in the South. No matter that she’s an air-head. The Republicans for a long time have been smart enough to know that a dumb candidate doesn’t matter. And the Democrats have been dumb enough to think that a smart candidate does matter.
—–I wrote the above paragraphs a few hours ago, before I discovered that the Dow had, by the end of business, actually dropped by nearly 450 points. That drop, along with the bad economic news that will inevitably continue, has just erased the Sarah factor, I think. Neither McCain (who can’t draw a crowd alone) nor Palin (who can draw a crowd but not say anything of substance) can explain away the last eight years of criminal incompetence in this administration.
I’m saddened to see my modest teacher’s pension go into the toilet, troubled profoundly to see the hard work and savings of my children half-destroyed, shocked to realize that my brother’s life of hard work and honest business success have been knocked down, and angered beyond words that my country’s wealth and prestige have been pissed away by a sneering, perpetual adolescent who set out to show the world how tough he is, a paranoid vice president who knew how to manipulate him, and a compliant Congress led by Republicans bought off by Big Business. Pissed away by businessmen who couldn’t even succeed when they rigged all the rules in their favor. Pissed away by politicians who sold their shriveled souls to lobbyists for steak dinners and rides on the corporate jets. Pissed away by every special interest that wrote the laws that the corrupt politicians were willing to pass to continue in office and mouth the ideology of free markets that have rarely been free because of the special interests who make up the rules in their own favor and call them truth. And pissed away by the angry voters who bought into this debased ideology and put the rascals in office.
The economic question is now not Are we in a recession? It’s Are we going to go through another depression? The world markets are panicked. Henry Paulson is proceeding by guesswork, without a rational plan. The Federal Reserve chairman is almost out of options. There is, in fact, almost no leadership in this administration that can meet our economic problems.
Well, the Bush people wanted no oversight, no regulation, no transparency. Leave it all up to the free hand of the market. Now we see what happens when the market goes unchecked.
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