We’re skunked, and this is just the beginning. It’s fairly obvious that the United States economy is a mess, and it isn’t going to get better in the near future. This is not like the dot-com bubble of the 1990s, this is like the Great Depression of the 1930s, and this is just the start.
It’s arguable whether the dot com mess was really a bubble in the classic sense anyway. A bubble occurs when a bunch of people think they know more than anybody else, but the dot-com mess was based on the common knowledge that the Internet was going to change the way we live and spend money. Lots of people recognized this and wanted to buy into the future. Those who got it right did very well. Others found themselves left with a Pets.com sock puppet. But, as great as the losses were, they were limited to people with money to invest, and who had reason to believe they could afford the loss.
What we have now is much closer to home; in fact it is home. We’re living out the classic truth: “Don’t bet the farm.” Some people were simply conned by fast talkers with false promises. Others speculated on their most basic asset, their homes, and it was a classic bubble in the sense that even those who thought they understood the terms of teaser-rate mortgages thought they knew something that other people didn’t; that they could refinance when the interest rate reset. Still others bet their savings on bonds and securities that had AAA ratings that were as sound as the backdrop on the set of a B movie. Now, the Federal Reserve Board is riding to the rescue—of Bear Stearns (James E. Caynes, the CEO, made about $28 million a year), one of the big players that created this mess.
The worst part is that the bulk of the defaults are among mortgages issued in 2006 and 2007, which means that there are still lots of mortgages that haven’t gone over to the dark side yet. So, the US economy is, if not in free fall then at least heading downhill at a fast pace. As the dollar gets weaker against foreign currencies, the price of imports goes up, and that means that discretionary income drops. When the price of gasoline and heating oil rises, there’s less money for restaurant meals and movies. Everybody does a bit of belt tightening, and anybody who is in a business that doesn’t rely on absolute necessity is in trouble. Even high-end retailers are seeing the signs. While the rich and superrich are able to maintain their lifestyles, the middle and upper-middle classes who occasionally felt like living the good life have had to cut back.
What we’re left with is an economy created by a bunch of MBAs who thought they could outthink John Maynard Keynes. (John Kenneth Galbraith has written that Keynes applied only to the specific circumstances of his time, and there have been important refinements to the theory, but one principle holds—you can get into a mess that won’t correct itself; the invisible hand of the market occasionally goes on strike.)
Worst of all, as a society, we have to make the same choices that we do as individuals, and every choice hurts. We’re used to having guns and butter, and if we cut down on either, somebody loses a job, somebody loses a dream. Just about everything is somebody’s luxury—skip movies and watch television, skip the steak and eat chicken, skip the chicken and eat eggs, or rice and beans. We can save money as a society by buying fewer bombs and bombers. But somewhere, somebody’s job, hope and future depends on our military procurement budget. It would be nice to have clean air and water, better education and affordable higher education, energy independence and universal healthcare and still be able to blow the planet out of its orbit—but where’s the money going to come from? We want a sound economy and a progressive agenda, but we’ll spend the next decade or more paying for the excesses of the Republican era. It doesn’t much matter who gets elected president—we have to fix the damage before we can move on.
The closest thing to a painless answer may be old-time populism. Not too old-time, not the agrarian yeomanry, but it might be useful to soak the rich, just until there’s an economic recovery. Huey Long wanted to share the wealth and cap personal wealth at one million dollars—chump change these days. But while the Republicans have tried to repeal all inheritance taxes, maybe we could reconsider just a bit. How about putting a cap of $1 billion on inheritances? That may not slow global warming, repair bridges, provide healthcare or improve education, but it will be a windfall for the lawyers, accountants and bankers finding ways to get around the taxes. Then they could use the money to pay for movie tickets and restaurant meals. It’s a start.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.
From The Progressive Populist, May 1, 2008
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