With the exception of LBJ, Democratic presidents since 1960 have fared badly in their legislative agendas, even when Congress was controlled by their party. President Obama, for all his gifts, may be on track to fare little better. Health care. Cap-and-trade. Financial reform. Big-time tax evasion. Even for this cool-handed moderate, it's a tough sell.
Meanwhile, the media and the salesmen on Wall Street are in a constant search for "green shoots" — signs this historic recession is over. Nobody is thinking through what these shoots will turn into, exactly what the road ahead looks like. But for many, including policymakers, we find a desperate assumption that the economy will pick right up where it left off in 2006.
Two schools of thought are at work here. One says the fundamentals are sound, as President Hoover put it, and the future will look much like the recent past. The other, found more among the outliers, argues we have hit a historic pivot point — but will we realize it and save ourselves?
The establishment, as they used to say in the '60s, very much wants things to stay pretty much the same. The financialization of the economy, and the vast, largely unregulated power of the financial system, was not just a creature of former Sen. Phil Gramm, R-Whiners. It was also created by Robert Rubin and his acolytes Larry Summers, the chief Obama economic adviser, and Timothy Geithner, the Treasury secretary. The stress tests show a desire to put the best face on trillions of taxpayer dollars and lending facilities given to the big banks. It is unpersuasive. More persuasive is news that Geithner's successor at the New York Fed has resigned over his ties to Goldman Sachs.
This is the "in" crowd that is yoking the nation's future to the financial elite, and would like nothing better than to find another bubble to inflate. This time it would be different. I swear, honey. The private equity boys are trying to buy distressed banks, worming their way around Fed rules intended to prevent these institutions from being used as platforms for speculation. The shadow banking system is the shadow government and will stop at nothing to privatize profits while socializing losses. The common good is not in their vocabulary. And who is strong enough to stand against them? In the days of TR and FDR, it was only the federal government.
Unfortunately, the economy may not have tanked enough — and the people may not be informed enough — to force fundamental change. So Obama may improve passenger rail service a bit. He may reverse the worst Bush policies on the economy and environment. But we will muddle forward, and the "doomers" who hoped this calamity would bring real change will be disappointed. There will be no gas tax to change behavior and give alternative energy a fighting chance. No reform of land use. No major effort to stop climate change. No breaking up of the modern-day trusts or encouragement of a scalable, sustainable economy that actually produces more than financial swindles.
There are risks to this forecast, as they say. For one thing, if the economy really does revive, it will put us back on the path of rising energy prices. That alone could rip out the green shoots by the roots. The tens of millions who are unemployed, wiped out, foreclosed and under water face a very uncertain future. We are a much poorer country now, and we are deeply in debt. Signs that the economy has hit bottom to not mean a recovery is imminent — we could bounce along on the bottom for some time.
Many of the jobs cut in the elevator-to-hell ride of recent months will not return — whether they are in a construction sector that may never regain its mid-2000s gusto or in software. Recent recessions have seen ever-longer jobless recoveries, and the stagnation of wages is unlikely to be reversed. Meanwhile, a world of trouble outside our narrow media vision could explode at any moment.
All of which means President Obama could face a serious challenge to a second term if America had a serious opposition party. As it is, he will face enough trouble if his advisers, and a hamstrung Congress, leave him trying to sustain the unsustainable.
The question for me at the advent of this crisis was whether the collapse would be instantly catastrophic or just gradually so. I’m starting to lean to the latter scenario.
I guess that’s good news. Maybe we’ll adjust in certain ways, and prepare ourselves for straitened circumstances. If we can soften the landing, maybe enough will survive to carry on this enterprise of a global economy and civilization.
But that’s not necessarily a good thing. As Ambrose Bierce one put it, “nothing concentrates the mind like the prospect of hanging from a tree the next morning”. So, instead of using the crisis to undertake fundamental reforms and reboot for a 21st century economy, we’re doing….small stuff.
Obama was uniquely suited to be a galvanizing president so it’s surprising to learn he’s fundamentally conservative. He’s instinctively careful around institutional power and concentrated wealth. He’s not upsetting apple carts or consensus reality. He’ll hold our collective hand while the storm rages but don’t expect much of a plan for the aftermath.
Maybe it isn’t his fault or his choice. FDR had the advantage of a prostrate nation when he assumed office. Obama came to power too quickly after the earthquake so people were still conditioned to think “normal” could be restored if a few button were pushed. Obama’s mandate was too conditional to be effective.
A good crisis is a terrible thing to waste but that’s what we’re doing. Not just the Obama administration, either. All of us.
It is great that people are thinking about the environment and working to make the world a safer place. Not only the materials that you are using on your home are safe for the environment but dump trucks have come a long way since the earlier models. We are learning and expanding and coming up with a wide range of safer more effective vehicles for the work force. I think it is great that many auto manufacturers are turning to hybrid vehicles to protect the environment and now they are even using hybrid dump trucks.
The boom and bust cycle is intrinsic to capitalism. The most basic reason is that capitalism requires systemic profits over time, which requires economic expansion; and economic expansion requires credit; credit, in turn, requires collateral (not necessarily at all points in the credit chain, but always at some point); but the value of collateral (whether real estate, stocks and bonds, or commodities) is determined by speculative market forces (i.e., investors) whose demand (or lack thereof) for such assets bids the prices up or down: so that ANYTHING which results in a large scale decrease in the value of collateral assets interrupts economic expansion (i.e., causes a bust).
In a bubble, the value of collateral assets are bid up by leveraged purchases (i.e., by the credit extended for their purchase), and the consequent increase of collateral asset prices makes such loans more lucrative (resulting in additional loans), thus causing a self-reinforcing boom which collapses when the addition of new investment cannot be sustained.
If this sounds like a Ponzi scheme, that’s because it essentially is, whether tulips or houses or stocks are involved. The collapse occurs because there aren’t an infinite number of buyers, and the only way to keep the game going is to overextend credit so that more buyers can purchase the collateral assets which are the speculative basis for the value of the loans; and when those buyers fail, for any reason, the market for the asset decreases, the value of the asset decreases, and other investors sell, thus driving the value of the asset down further; that in turn encourages more selling (or attempts at selling) which drives the collateral asset prices down still further, thus devaluing the loans further.
To the extent that these loans are themselves collateral assets (of leveraged banks and other financial institutions), the capital position of these banks becomes increasingly tight, thus causing them to decrease loans, thus decreasing credit, thus slowing economic expansion, even to the point of contraction (recession, depression).
This is of increasing relevance to modern capitalism because, ideally, the purpose of the financial sector is to support economic expansion by offering credit sufficient to support increased PRODUCTION, but not more; increased production, in turn, services the new loans by means of new economic activity; in other words, borrowing from the future, but a realistic future where new economic growth matches the level of the loans extended to create it.
Instead, the financial sector has come to be seen as an independent and even dominant sector of the economy, where the trend for “wealth creation” is based increasingly on speculative financial activity. From 1980 to just before the recession, the value of global paper (financial) assets jumped from $12 trillion to $140 trillion, or as a percentage of global GDP, from roughly 100 percent to 316 percent, or three times the size of world production, with only 10 percent of global capital flows going to emerging markets.
https://www.evotechmc.com/emcfuel/theworldcapitalmarkets.pdf
When financial institutions are allowed to use this paper wealth as an operating basis, it should come as no surprise that, when the paper value is given a reality check by the markets, the operation of the financial system itself is imperiled.
The build up of financial assets to increasingly large multiples of the productive economy implies the potential for increasingly deep troughs as the flip side of these financial bubbles, especially without adequate regulation: and regulation must be done on a global basis since financial institutions are increasingly integrated transnationally. Taxpayers should be clamoring for this, loudly and persistently, because when the basis of capitalism itself — the financial markets — is threatened, governments are tempted or driven to seek public financing.
P.S. The Hatzius quote in the item I hyperlinked to above, dates to mid-November, 2007. Things have changed a bit since then. It’s also worthwhile taking a look at the rest of the quote, particularly the last sentence of the second paragraph below (it’s one hell of a caveat):
“Deutsche Bank AG, Germany’s biggest bank, also said in a report this week that credit losses may be $400 billion. That’s equivalent to ”one bad day in the stock market,” or 2.5 percent of the value of U.S. equities, Hatzius wrote.
” ”No serious analyst would argue that a 2.5 percent equity market decline will make an important difference to the economic outlook,” Hatzius wrote. ”So what’s different about the mortgage credit losses? In a word, leverage.” ”
Soleri wrote:
“As Ambrose Bierce one put it, “nothing concentrates the mind like the prospect of hanging from a tree the next morning”.”
Yeah, but he also wrote An Occurrence At Owl Creek Bridge:
https://en.wikipedia.org/wiki/An_Occurrence_at_Owl_Creek_Bridge
Then, there was The Swimmer:
https://en.wikipedia.org/wiki/The_Swimmer