Commentary By Ron Beasley
Bob Herbert a couple of days ago:
We can keep wishing and hoping for a powerful economic recovery to pull
the U.S. out of its doldrums, but I wouldn�t count on it. Ordinary
American families no longer have the purchasing power to build a strong
recovery and keep it going.
The seeds of our current economic malaise started about 32 years ago with the election of Ronald Reagan and his war on the middle class. It was the successful war on the middle class that made economic recovery all but impossible. It was the absurdity of trickle down economics that did nothing but take money from the middle class and give it to the wealthy oligarchs that guaranteed the failure of the US economy. It's customers who have money that create demand and that demand creates jobs. The wealthy are lousy customers - if there is no demand they don't create jobs they save. That's what we are seeing today. No jobs are being created because the majority of potential customers have little or no money so there is no demand. The United States became an economic powerhouse in the 50s and 60s when the unions were powerful and the middle class was growing - a lot of customers - a lot of demand.
Herbert:
The middle class is finally on its knees. Jobs are scarce and good jobs
even scarcer. Government and corporate policies have been whacking
working Americans every which way for the past three or four decades.
While globalization and technological wizardry were wreaking employment
havoc, the movers and shakers in government and in the board rooms of
the great corporations were embracing privatization and deregulation
with the fervor of fanatics. The safety net was shredded, unions were
brutally attacked and demonized, employment training and jobs programs
were eliminated, higher education costs skyrocketed, and the nation�s
infrastructure, a key to long-term industrial and economic health,
deteriorated.
It�s a wonder matters aren�t worse.
But things will only get worse. The argument over the Bush tax cuts would be comical if the situation were not so dire. The original tax cuts created no jobs, at least in the United States. There was a smoke and mirrors recovery but that was not the result of the tax cuts. It should be called the Greenspan bubble. He pumped the economy up with cheap easy to get credit. People used there houses as ATMs and bought houses they couldn't afford. It was of course an unsustainable bubble and it burst but Greenspan's objective was realized - Bush managed to get reelected in 2004.
There little the government can do now - Greenspan used the last magic bullet. The only thing that will prevent a slow steady decline is a shock that will result in a sudden collapse.
Herbert:
With so much of the middle class and the rest of working America tapped
out, there is not enough consumer demand for the goods and services that
the U.S. economy is capable of producing. Without that demand, there
are precious few prospects for a robust recovery.
If matters stay the same, with working people perpetually struggling in
an environment of ever-increasing economic insecurity and inequality,
the very stability of the society will be undermined.
The U.S. economy needs to be rebalanced so that the benefits are shared
more widely, more equitably. There are many ways to do this, but what is
most important right now is to recognize this central fact, to focus on
it and to begin seriously considering the most constructive options.
Sorry Bob Herbert, I fear it's too late. Those who like things just the way they are control the political process. The Wall Street Banksters are upset with Obama because they only got most of what they wanted, not everything. Even if Obama wanted to fix the problem he couldn't.
Cross posted at The Moderate Voice
Another good analysis, Ron. I agree we are in for a very long stretch before anything looking like "recovery" resumes. Even then -- if we make it without civil unrest, a big IF -- the shape of whatever the new economy looks like will be unrecognizable by today's metrics. Oversize houses, and casino-style investing will have to be passe. It's hard to imagine where it will end because the jury is still out on too many critical policy issues.
ReplyDeleteToo much easy credit for too many people has been at the heart of the crash. Credit is the mother's milk of economic activity, but by definition credit (debt) is the use of money that does not yet exist. When we use borrowed dollars they become "real" the moment they are spent, so debt in effect creates more money. Another term for "too much money" is inflation but as long as the velocity of that supply is slow the impact is not noticeable. When and if the economy heats up we can expect to see inflation like we have never seen before... unless fiscal and monitory policies are perfectly calibrated. (And nothing I have seen in my lifetime makes me imagine that development is any more realistic than single-payer health insurance or peace in the Middle East.)
Consumer credit has been driven in part by the deductibility of interest. I recall until the early eighties ALL credit card interest was tax deductible, which meant that interest rates were in effect reduced by tax policy to encourage consumer spending. Being old-fashioned, my wife and I rarely took advantage of that deduction because we normally paid off credit card bills as they came in. But many credit card holders did not.
About the time the IRS stopped credit card interest deductions HELOC (home equity line of credit) was born. That new financial toy was a great way for consumers to continue getting tax deductions for borrowed money, and it enabled them to get their hands on a lot more at one time. Enough to really piss away future (yet to be earned) dollars. You get the picture.
What has burst this time is not a tulips, gold or housing bubble but a CREDIT bubble of historic proportions. This time the implications are bigger than losses among a handful of unfortunate (read "greedy") so-called investors. This time the bubble is taking down whole national economies as well as transnational business empires. I don't yet see a light at the end of the tunnel and have started to think it may not happen in my lifetime. And at some level, I am grateful for that.
"With so much of the middle class and the rest of working America tapped out, there is not enough consumer demand for the goods and services that the U.S. economy is capable of producing. Without that demand, there are precious few prospects for a robust recovery."
ReplyDeleteI would suggest that even with that demand there is not much hope. If one million people go out and buy flat screen televisions manufactured in China, how much actual growth is their in OUR economy? The focus is on getting people to spend, spend, spend, but I see nothing to shift the balance of the economy away from spending and toward production.
As you say:
ReplyDeleteThe seeds of our current economic malaise started about 32 years ago with the election of Ronald Reagan and his war on the middle class.
Not just "yes;" not just "hell yes;" but "fuckin A yeah!" It's the same as I've always said: every noxious weed that grew uncontrolled during the Bush Maladministration sprouted from a poison seed planted by Ray-gun.
Long story short. Just before the 29 crash, the top 1% paid roughly the same amount of tax they do now. They also controlled about the same percentage of wealth. When the bubble burst the country went into a deflationary spiral, where people either didn't have money or were afraid to spend what they had, also just like now.
ReplyDeleteWhat saved the country was the FDR social welfare programs and especially the massive tax hikes on the top1% which went into the +90% range, and stayed in that range until Reagan. Since Reagan, its been a long process of undoing the FDR programs and so now we find ourselves back 1930 depression conditions.
There's really no way out except to re-regulate and re-tax the aristocracy.
And until that happens we will remain in a depression.