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Mitch Feierstein Headshot

Capitalism Without Bankruptcy is Like Catholicism Without Hell

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Barack Obama was recently on the stump, defending the latest set of lackluster jobs figures. Obama blamed 'serious headwinds' including higher gas prices and, more recently, the developing crisis in the Eurozone. Having handed much of the blame to foreign oilfields and European crises, he returned to more familiar ground, bashing a Republican-controlled House for blocking some of the proposals in his proposed American Jobs Act of last year. Republicans - how surprising is this? - instantly hit back at the President for his profligate, non-job-creating ways. And, as usual with these spats, plenty of heat was created, not much by way of light.

So let's go back to basics. First, the jobs numbers were indeed terrible: 69,000 jobs created in the month, the smallest increase for a year, and estimates for previous months scaled back.

What makes this number more grim is the 69,000 includes an imaginary 204,000 jobs created by the happy-land economists at the bureau of labor statistics. But as I've long argued, the most striking thing about our jobs data is less the (feeble) rate of job creation and more the shocking way workers seem to have exited the market for jobs. If we had a normal rate of participation in the labor force, we wouldn't have an eight point something per cent unemployed, but a figure closer to twenty per cent. We don't have a meager recovery here. We have a full-blown, multi-stage depression. We'll know we're out of that depression, when adults become keen to participate in the world of work again, when jobs creation is strong and dependable, and when the government's finances are in order. None of those things are currently remotely in place.

Secondly, we need to be deeply skeptical about the numbers themselves. 69,000 jobs might seem a pretty thin achievement for a continental-scale economy ... but the data for jobs growth includes some 204,000 jobs that were guessed rather than counted. Those guesses might be appropriate, or they might not, but if you look only at actual, counted jobs not theoretical, guesstimated jobs, the economy was shrinking not growing. Oh, and if you're the sort of person who tends to believe government figures, you probably want to take a look at this video, which puts the government's "green jobs" data under the microscope. (The good stuff starts about three and a quarter minutes into the clip.) It turns out that if you sweep up in a solar factory, you're a green worker. Same thing if you drive a hybrid bus. Same thing if you drive any kind of bus. Same thing if you're the kid who puts fuel in those buses. Same thing if you're the person who works in a bike repair shop. Same thing (how crazy is this?) if you work in an antiques shop or a rare books dealer. The government data is always wrong, and it's always overoptimistic.

What these observations amount to is that Obama is wrong even in his diagnosis of the problem. A little temporary slowdown in jobs growth is not the issue. A sea-change in economic outlook is. But that's not the worst of it. The things he's chosen to blame - gas prices, Europe, Republicans, Bush - are dumb targets.

Gas prices? Sure, they've been moving up and down. They always do. Plus the United States still has a healthy oil industry and has the world's second largest reserves of gas, conventional and unconventional. When gas prices rise, their impact on the economy isn't all one way.

Europe? Sure, the European crisis is beginning - but only just beginning - to create waves that wash up on American shores. But the fundamental issue in Europe is too much debt (and the manner in which that debt is structured), a poor-quality and over-leveraged banking system, and a widening loss in credibility in the authorities' favored solutions of money-printing and more debt. Recognize this picture? Of course you do: America is in this exact position.

The only real difference is that we have control over our own currency. That would be a good thing, if we managed that currency responsibly. But we don't. Ben Bernanke has been printing money till the presses have been smoking. He wants to print more and will no doubt do so as soon as the scent of crisis is in the air once again. That new, loose money builds up an inflationary problem for the future and defers the point at which banks have to give a truthful accounting of their assets. That's not a good policy response, it's a blind one. This was a solution for a non-comparable situation in the 1930's - this time is very different. The simple fact is that the crisis in Europe is simply telling us what our own future is going to look like. It won't be pretty.

And finally, that bipartisan bickering that follows every new bit of economic data or political news: what does that really tell us? The deficit grew horribly under George W. Bush. It's grown horribly under Barack Obama. Wall Street failed under Bush. It hasn't been reformed under Obama. The money printing presses started rolling under Bush. They've rolled happily on under Obama.

What's worse is the same narrow cadre of policymakers and advisers seems to rotate in and out of office, no matter how plain their past failures have been. Bernanke, Summers, Geithner, Yellen - what have these people done to justify further periods in senior office? This isn't a partisan point. Indeed, what's really striking about Democrat and Republican administrations is the way they fish from the same narrow pool. Robert Rubin was co-Chairman of Goldman Sachs before becoming Treasury Secretary under Bill Clinton. Hank Paulson was Chairman and CEO of the same company before becoming Treasury Secretary under George W. Bush. The firm which, arguably, has done more than any other to corrupt and destroy the fabric of the American financial industry, seems to be the first-choice supplier of Treasury secretaries. Go figure that, if you can.

And it all amounts to something very simple. Capitalism is simple. You let winners win. You let losers lose. You regulate the whole show to the minimum degree realistically necessary to protect workers, consumers and citizens.

Those simple rules have been forgotten. We have a capitalism, which - as far as finance is concerned - has no losers. You've bought some stupid assets? Don't worry: Uncle Sam will bail you out. The economy's looking weak? Don't worry: Ben Bernanke will roll those printing presses. Your bank is badly run and insolvent: hey, don't worry, your friend the Treasury Secretary is bound to have a neat solution.

Capitalism without bankruptcy is like Catholicism without hell. And right now, we need some bankruptcies.

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