Monday, September 6, 2010

How to End the Great Recession - No, Seriously, This is How

This recent op-ed piece in The New York Times, How to End the Great Recession by Robert B. Reich, reinforced many of the points I was making in my previous GM/AmeriCredit post.

(By the way, the language used and accepted by the media, particularly "double dip recession", is comical. If the only market to 'recover' was the stock market, and the stock market is by nature speculative, then - because nothing has really changed, if only worsened - the market's speculation of 'recovery' was in absolute error! Thus there was no recovery other than a fictional/errantly speculative one and any notion of a "double dip recession" is misleading. But how we try to pigeon-hole reality into our robust explanatory economic models!)

In any case, I found the below segment of particular relevance:
"But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing

In other words we are economically obese and lack the means to keep up with our own insatiable consumption except by a nonexistent (fictional) or unhealthy trans-fat (predation) avenue.

is far and away the number one fictional AND predatory market in America, both among our citizenry and government.

We are woefully addicted to debt.

In order to become a functioning member of society (i.e.; obtain a strong credit score), you must in fact go into debt! (Not to digress once again, but this is an absurdity. We must include non-debt behaviors that demonstrate a potentially reliable debtor - things like paying bills and rent on time, etc. To penalize a citizen for "insufficient credit history" is to penalize the wisdom of avoiding debt altogether - hard to comprehend.)

The ludicrous interest rates, inability to pay off the principle, etc. is (much like the subprime loan) a classic example of the institutionalized swindle. And yet, our citizenry seems to accept this as an example of their own failings, rather than a corrupt and exploitative manipulation of the most vulnerable among them.

By no means do I make light of personal responsibility; that is not the point. Again the credit card debacle gets back to an inherently predatory business model: profit is derived primarily from consumer failure. Because it is in the best interests of the credit companies to nefariously (sorry, I have beaten all the life out of this wonderful word) sucker their prey into agreeing upon the most obscene terms and conditions, you cannot blame the credit card companies for it (slew of eager and inscrupulous MBAs notwithstanding). It is the structure itself that is to blame.

Surely there are some who might disagree and say "free market - fair game!" To those I simply point to the fundamental issue: the growing discrepancy between rich and poor.

As Mr. Reich points out:

In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It is this figure that should, more than any other, sound the alarm. It is truly more epic than "one if by land, two if by sea" (to borrow the revolutionary symbolic abuse of the historically ignorant "Tea Party" - vitriol for another post!).

Our citizenry remains benightedly clouded in issues of Tyranny/Divine Right of Kings vs. Representative Democracy - which we somehow equate to "freedom" - when in truth degree of social stratification is a far more accurate measure of a relatively equitable society.

Right??? We're (ostensibly) not big on rhetoric - the proof is in the pudding!!!

When the billionaire Meg Whitman spends more money running for Governor of California than any candidate in history, we might want to stop kidding ourselves about the principals of equality inherently embedded in Representative Democracy! We might as well return the country to a monarchy, at least then we might have someone better looking!

Again I digress. Clearly I'm jealous of Sweden... Dearest Princess Madeleine... Decree whatever you like! (It has long been proven Swedes live the most fulfilled/happy lives; here we have some hint as to why!)

Adolescent joking aside, the very grave point is that at the moment we have a massive problem in America, greater than any we have faced in our nascent history:

We are coming to resemble the very societies we once despised.

The true test of our fortitude - literally of the revolutionary principles upon which the country was founded - is to bring this alarming, immoral, and growing social discrepancy into more equitable and humane proportions, particularly before our fictional, unsustainable, and unfathomable wealth catches up to us and exacerbates (to put it mildly) tensions that are at the moment so tepid they might be easily ignored altogether.

If we do not address this issue of growing stratification at once and with all our heart and souls, we are absolutely doomed.

What we have yet to ask ourselves (but will inevitably arise, you watch) is this simple question:

Does the top 1% have the right to 23.5% of the nation's wealth?

The answer, obviously, is no; the means by which this is ultimately resolved, however, is a matter we should all consider most carefully. As I stated before, it is a question of life and death; if history is any guide, the sooner we realize this, the better for all of us! Do not be lulled by sirens into a false sense of security when it comes to issues of a civil nature, particularly when we live in a world accelerated by technology and information, turning changes once attributed to centuries into mere decades, mere decades into years.


  1. I think you are missing a point. Most people have the wrong type of debt. Rich people go into debt in order to buy something that will make money. Normal people go into debt for something they need or want. A house is a good example. They reduce cash flow and take on book value that is not easily converted.
    An investment would produce revenue to offset costs. The extra money is profit.

    Many people get an education in the US. They do so so they can work for someone else. The rich get and education so they can make money for themselves and their stock holders. They want people to work for them to make them rich.

    Everything Mr. Reich said is true, but we have lost our edge because our population is largely uneducated in finance and is happy the way they are. With such an attitude you can develop a victim attitude.

    The creation of wealth is not bad. The overconcentration of wealth is bad. The key issue is: one can not take money out of an business or economy if the money is not there. The restructuring of our economy and not the business cycle is our national problem.

    We need to rethink and reeducate young people so they understand: your debts are a bank's profit. Your savings are banks liabilities.

    The rich have a right make as much as possible, but the are also free to invest it world wide in order to produce a profit. Because they invest rather than spend money is not brought back into circulation.

    This is why the Republican preference for giving the rich more and more is actually adding to the problem. They can take the money out of circulation in order to produce profits.

    We need to optimize our understanding of finance. The republicans are suggesting the same solutions as they were 10 to 15 years ago. Times have changed and they have not.

  2. "Wall street owns the country... Our laws are the output of a system which clothes rascals in robes and honesty in rags." Populist orator Mary Ellen Lease (1890)