Not Them, Us

So much in our America rests on the celebration of success and the harsh judgment of failure. In the best of times, this drives astonishing striving and victory. In turbulent times of national emergency, our elevation of "winners" and castigation of "losers" can be become maniacal and counter-productive. In many ways, this proclivity encourages, extends and deepens bubbles. Winning is correct. Losing is wrong, backward and evil. In asset markets this breeds momentum investing and creates huge distorting bubbles. Only experts with platinum pedigrees are worth listening to. Only industry insiders know what needs to be done. If our false confidence and inflated star worship is misplaced, we veer terribly and arrogantly off course. Sound familiar? It should. We have celebrated and then cast down industries, individuals and ideas. Our boom to bust, love to hate cycles have cultural, economic and political manifestations. It is high time for new, more measured and introspective approaches.

As the TARP "bank bailout" fury is supplanted by the auto rescue loan debate, I have the sense of being trapped in a re-run. Bank assistance requests were very unpopular and produced wave after wave of denunciation. Majority opinion rejected the TARP and now rejects aid to GM and Chrysler. Public anger is, no doubt, well deserved. Just like the banks, our auto firms are variously triumphed as marvels -- admittedly it has been a while -- or pilloried as failed basket cases. Some heap praise upon them while others decry their sloth and inability to do what Americans expect/demand/must. They must win, be winners, or be damned. Help is weakness and is to be punished and denied for the greater Darwinian good. This ideological bend demands fast results and forestalls essential debates. If we follow this path, it will lead to terrible national economic meltdown. We are already years down this garden path.

We are interdependent. That is the cardinal fact of modern and integrated economies. Vast networks of family, town, city, tax and trade ties bind various industries and firms to one another. Economies are not modular. There is no distant them and local us in an age of global production, finance, marketing, sales, and trade. This means there is no casual, let them eat cake response to major issues. If those issues be trade, autos, finance, health insurance, wage stagnation, poverty... Rapid transfer of pain and gain are the order of the day. We need functioning manufacturing and functioning banks. We don't need firm A, or firm B. Our stability and prosperity requires employment, research and development and viability in the world economy.

The public is very angry. There is every good reason to be. For decades wages have been stagnant and pressures have been rising. It has been a long, long time since 40 hours of work would pay for anything like a secure middle class existence. For years we have been told that national health care, vacations, world class public education, first world infrastructure, public transit, environmental sustainability, and worker retraining are silly and best left to our champion firms to solve following the profit motive. There have been some great successes. There have been many, many painful failures. Thus, the public is very angry and in no mood to assist firms in dire straights. These firms did not deliver all that folks wanted, yearned, hope and trusted that they would. Thus, public opinion casts down and rages against yesteryear's stars.

The challenge for any progressive, thinker, activist, policy maker is to redirect the pooling anger into meaningful change that elevates and equalizes. That requires movement beyond angry venting and destructive impulse. This is the difference between a riot and movement. We need banks. We need banks that allocate capital in responsible ways toward those projects and communities that will employ vital capital in ways consistent with economic growth and repayment. We need manufacturing. We need auto firms that employ resources efficiently, innovate consistently and help move people and goods in the safest, most sustainable and cost effective manner.

We face a future poorer than our recent past. We are in the very beginning of a long and deep recession. Millions have already or will soon face losing employment, health insurance, safety and shelter. Every structural change is pregnant with twins. One is opportunity the other is suffering. Beyond venting rage and casting down false prophets, good policy and analysis act as midwife and help deliver broad opportunity, fragile, kicking and screaming.

Comments

[DiogenesOfAlaska]

'Winning is correct. Losing is wrong, backward and evil. In asset markets this breeds momentum investing and creates huge distorting bubbles. ... It is high time for new, more measured and introspective approaches.'

Exactly. I'll just take the liberty to expand on the idea, in my own words.

Short-termism and blind measurements of performance are the culprits. They are the gas guzzlers of our finite resource of energy to put to work, meaning: yes it must by all means be possible to earn a secure middle class existence by 40 hours of work. That it is not is due to unbelievably nonsensical waste of the scarce resources of sense of proportion, prudence and restraint.

If it is harder now than it was decades ago to earn a basic living, then chances are that some of our force is being wasted. And that's indeed the case. The thing most urgently needed is an overhaul of performance measurements. Not just for bankers and their pay. All across the board. It is dehumanizing to measure against false and nonsustainable standards, inflated by false accounts of long-term risks, thereby creating bubbles that then destroy wealth, while they burst. It is dehumanizing and profoundly stupid. No reason to believe in it or allow it to happen.

Smoothen out the cycle. Take a breath. It can be done.

[jsarets]

Mr. Wolff is absolutely right about the frustration and anger misdirected at banks and corporations, but I think it's less about our loss of faith in financial gurus and business leaders than it is our growing realization that, no matter how intelligent and insightful they might be in their finest hours, they don't work for us, and they don't represent our interests.

Only through profound denial can we pretend that bankers have a mandate to allocate capital in a socially responsible manner or that automakers have an obligation to produce efficient vehicles. They don't work for us, they work for investors. It's private capital that's destroying America and quite possibly the rest of the world.

Executives are accountable to their shareholders, who then hide behind the public figureheads of corporate power when the consequences of their demands for higher returns come home to roost. Private investment is why industrial giants started speculating in real estate and laundering drug money. Not because these businesses would add value for their customers, but because they would add value for their investors -- at least for the time being.

You want to get even? Cash out your savings account and join a depositor-owned credit union. Organize some colleagues or friends and start an employee-owned partnership. Property can be theft or it could be freedom. It's our choice.

[Christian]

Nationalize the banking industry, it is too important to society to be controlled by a few royal rich families and clans, an anointed few. All men act in their own best interest and that of their own business be it a banker or a craftsman. Of those, a percentage will act criminal and cross lines they shouldn't, so nationalize the banks. End the reign of America's royals and return control of our currency to the people.

[jsarets]

Don't nationalize the banking industry, collectivize it. The ownership of failing banks should be turned over to their depositors (to whom it rightly belongs) to operate as nonprofit credit unions directed by democratic elections wherein each depositor gets one vote.

[dk07302]

Thank you Max. Too bad corporate/­plutocrati­c interests have swamped the political system, and nearly perfected a demagogic programming of the population to deify the market. This article pitches in as part of the effort to prepare the way for a rebalancing of our system towards social goods as well as private goods. What's rather new is your perception of the exhaustion of the public's faith in corporations' (not just the markets') ability to husband broadbased progress for the country. Indeed, our over-reliance on the market and corporations over the last several decades has stripped out the US's human capital in many ways. Lower, narrower educational preparation and deteriorating physical health come first to mind. The decline of social mobility below European levels only adds to the damage, and complicates the task of mobilizing the population to stand up for itself (not to mention the erosion of civil rights and the rule of law). Maybe downward mobility can light a spark...

[slarabee]

Very well written and explained.
However it seems that rational thought is not going to be the order of the day.
At a time when what we need most is leadership to keep us on the path there are still some Senators that want to show how they know so much more than everyone else. They attempt to mislead people into believing that letting our Auto industry die is the right thing to do just so they can break the unions and support our foreign competitors that support their campaigns and their constituents.
We it seems we are becoming "The Divided States of America".

[TheEconomist]

Thanks for the great article Max. Following this madness it is hard not to get frustrated and angry. You're right. We have to make sure to use this energy in a focused manner to try to bring about a stable economy and way of life. If we don't, others who are not qualified to do so will once again delay our already distant recovery by taking our economy and the world into a deeper darker hole while we froth at the mouth with impotent rage.