The Years of Agonizing Reappraisal

I was thinking about going down to DC for the inauguration last month, but decided it was too cold to sell my new "I was there for the fall of capitalism but all I got was this lousy T-shirt."

So I stayed home which was probably a good thing, as I don't think it was the right crowd for my product. Even now, my impression is that people don't really get it: that despite the great gifts of Obama, the first political-economic initiatives of his administration suffer from a "systemic cognitive deficit."

Then too, as a friend of mine says, "Barack didn't put in for this."

Obama's 2008 campaign was like a good pop movie, but it wasn't a populist campaign, nor a campaign that challenged the underlying assumptions of the system: it was a Public Relations campaign with Obama as "the brand" representing Hope & Change.

It was a great campaign for the end of the Reagan era, but God willing, Barack was not only the best of the "branded" candidates, but the last.

Not only is the conservative Reagan era over, but so is the era of finance capitalism, though we are not yet ready to absorb that, nor are we ready for what comes next.
So let's just call these, "The Years of Agonizing Reappraisal."

Specifically, the big problem that Obama and the rest of us face is that the answers to the twin dilemmas of excess debt and falling demand plaguing the world economy are diametrically opposed.

The stimulus aims to 'jump start' the economy by recreating the missing demand that our missing jobs, vanished savings and mounting personal bankruptcies have led to.

But of course the way we created all that Demand in the first place was by over consuming and running up lunatic levels of personal debt -- often perforce -- that mirrored what Wall street and big business were doing on an enormous scale with leveraged debt in the macro financial economy.

In the economy of the 80's, 90's and the oughts, there was an explicit trade-off for your willingness to go deeply into debt. You were now empowered to buy more than you could ever reasonably afford to buy -- say, for example a house whose price had been artificially pumped up, in turn, by the speculative logic of the debt system.

You were rewarded by the system for being an irresponsible super-consumer who would never ever be able to get out of debt again for the rest of your (miserable) life.

The neo-cons even came up with a suitably Orwellian name for this system: they called it "The Ownership Society."

In all, it was an evil system riding for a fall and now like Humpty Dumpty it has.
Now we can't recreate that missing demand, we can't jump-start the economy, no matter how big the financial stimulus; we can't put Humpty Dumpty back together again even if we wanted to.

We are in a cycle of falling demand because no one can give us credit anymore to keep up our over consumption. We are in a cycle of falling demand because the system itself has failed.

Of late though, I've been wondering why the mainstream economists either don't see or don't want to talk about this, and find myself thinking back to a long ago conversation with a friend who later became an oft quoted institutional economist in the 90's.

I ran into him at the crossroads of campus late one afternoon as he was coming out of a Hegel seminar, taught by a well known dissident Communist political philosopher. The seminar was invitation only -- my friend was a nominally Marxist Phd candidate -- and I was curious to know what the hell was going on in there. He told me only that it was pretty heavy going, and when I replied that at least it would help him in his future academic career he just shook his head sadly. "No," he said, "it isn't going to help at all."

"Larry," he explained, speaking carefully as one would speak to a small child, "what people in the economics department call macro-economics is not what people like you or me call macro-economics. In the department they're not interested in philosophy, they don't see the connections and they're not particularly interested in making them. It's mechanical, it's about equations and modeling out how the elements of the real economy work together, and they're pretty good at it. But that's all they're interested in."

In the classic 1972 book Reinventing Anthropology, Dell Hymes points out a similar dynamic in his own discipline. "How much of what goes in departments is for the sake of mankind's self-knowledge (let alone liberation) and how much for the sake of perpetuating, extending and propagating departments? " He adds, "By virtue of its subject matter, the study of man, anthropology, is unavoidably a political and ethical discipline, not merely an empirical specialty. It is founded in a personal commitment that has inescapably a reflective philosophical dimension."

Substitute "anthropology" with the name of any of the other social sciences: sociology, history, political science, even economics and you get the idea.

Right now, Larry Summers and Tim Geitner clearly have the upper hand in Obama Administration councils, by virtue of being economics professionals. The problem with Summers and Geitner however, judging by the solutions so far proposed, particularly their half-assed bank bailout scheme, is they're wearing ideological blinders.

To Summers, Geitner and Fed Chairman Bernanke, there is no alternative to the free market and apparently even short term nationalization of the banks is off the table. Instead, we have the Fed and treasury socializing the losses of companies that are too big to fail like Citigroup, AIG, and soon Bank of America, to avoid "spooking investors."

Of course this bit of economic legerdemain fools no one, let alone investors. Except for the terrified political professionals in the White House, it seems pretty obvious to everyone else that the treasury is not only risking the dollars of taxpayers, but the whirlwind of their coming political wrath.

Looked at empirically, it's possible to see exactly where the world economy is headed: toward what economists call stagnation, in this case, medium or long-term stagnation. Obama clearly has a lot on his platter, and it would be a shame if his initiatives on Health Care Reform, the Environment, Labor and potentially even the Middle East were all overwhelmed by his administration's failure to deal honestly and effectively with this ongoing crisis.

President Obama now has a choice that will define his Presidency: go along with Summers, Geitner and Bernanke, or begin to develop new lines of thinking about the economy; particularly, about the efficacy and sanctity of the so-called free market.

In the meantime I'm going down to the basement to set up the silk screen for this new T-shirt I'm printing up. It'll read, "The truth is a commodity too."

Comments

[ketchupandfries]

Ever since we stopped being a manufacturing powerhouse, we have been consigning ourselves to the eventuality of today's economic mess. (It helped that during WWII, we had bombed the living daylights out of competitior nations, thus obligating everyone to come to the USA for help with rebuilding.) Now not only do we not make very much that the world wants or needs, we seem to be short on the will to turn in a new direction. Opening the floodgates on accessibility to credit cards, switching to a "service economy," undoing usury laws, and removing protections that had been put into place to keep us from repeating the mistakes of the early 20th century are among the contributors to our current plight. Just as important is the absolute belief in the goodness and infallibility of the "free market." Its defenders believe the ever wise and omnipotent market can be the savior of all dire economic situations, even as it figures prominently in the creation and proliferation of same. My elderly mother reminds me that this is not the first time that this country has been in a bad way; it will not be the last. The country will regain its economic health someday, though it may never be as it once was. Until then, we have to live as best we can and get used to our new reality. Maybe we'll even learn something in the bargain.

[Viola]

Yep, yep, yep. There's no "going back" and frankly, there's nothing about "back" that was all that great anyway. Most of us knew the economy wasn't really healthy for a long time. Most of us knew our debt was too high and our lives were fundamentally insecure. Our "leadership" utterly ignored the reality of the lives most Americans actually lived. Obama stepped up to the plate at a time when the changes on the horizon will turn out to be far more drastic than anyone realized. I still feel that all things being equal, I'd rather have him grappling with the tough decisions than John McCain, BUT!, that doesn't mean those decisions won't be too hard for him to make. Unfortunately, people's resistance to change is always stronger than their willingness, until forces that are even stronger overwhelm resistance. I hate to think that the forces will have to be serious hardship and upheaval and hope we don't have to go there. Obama is a terrific political figure and a talented politician, but the times may demand a true visionary - it remains to be seen if he can fulfill that role.

[clarryr]

Yet another blog about the administration's failure without offering any alternative solutions.

[KillTheMessenger]

The problem isn't with the equations. The problem in the US is that people

a) Don't know them.

b) Do not want to listen when they tell an inconvenient truth.

In our case the only equation of interest is the trivial and perfectly well understood compound interest formula. Sadly, nine out of ten homeowners seem to have slept in school when the math teacher was explaining how it applies to borrowed money.

And, no, Marxist-Leninist philosophy will change nothing about that. You can believe in the proletariat as much as you like, if you can't calculate the payments on your ARM, you will still screw yourself out of tens of thousands, if not hundreds of thousands of dollars. And most people did. Bummer.