The Economy and the New Year
Happy New Year everyone! Unfortunately we start 2008 still under the thumb of the Bush regime who’s ineptitude and corruption won’t be banished for a full year. As if to settle any new year’s optimism the New York Times has led off today with this editorial:The Economy and the New Year
How appropriate.
I have begun to think that the economy is in serious danger of falling into recession this year, which augurs ill for us all. The odds against avoiding a recession [which is defined as two successive quarters of declining GDP] are still above fifty percent, but for most of us the difference between that and a simple slow down are minimal. So even if we don’t get an actual downturn [or “negative growth” in the bizarre and Orwellian terminology that permeates Wall Street nowadays], we will all notice the effects.
The fools who manage Wall Street banks, and the equally foolish commentators who monitor them have an irredeemably short term focus. So they are talking as if the housing bust is over [after all it has lasted more than a week hasn’t it?!]. They overlook the length of time it takes for the effects of such a bust to flow fully through the entire economy. My own view is that the entirety of 2008 will be occupied by undoing the immense damage that the fall in house prices is now doing.
Let’s review the story:
Alan Greenspan and his ideologically driven policies kept interest rates abnormally low for years after the slow growth back in 2000/2001. He has arguied that it is not possible for a central bank to interfere with a “bubble”, meaning that banks should not intervene but they should, instead, allow the market to make its own corrections. That’s right wing claptrap. He wouldn’t argue that if it meant allowing one of our largest banks to go belly up: he’d be there with a bailout package in an instant [see the story of Long Term Capital for instance]. And I don’t disagree: the disruption of a major bank collapse would be devastating. But taking a laissez fairs attitude when it the failure is not corporate, but is at the level of individual consumers [which is where the housing crisis is] is a purely ideological stand. It is a play straight from the simpleton playbook of Ayn Rand, Greenspan’s ideological mentor. Let the weak suffer, and let the strong stand. Great. Except when there are enough weak that the accumulated damage they can do is significant enough to pull the rest of us down with them. Greenspan’s failure to realize that the vaunted wealth effect which he and Wall Street lauded as an engine of growth during the last decade, when house prices made consumers feel impervious to the abominably bad wage growth the economy was generating [or not generating!], could be reversed and thus become a poverty effect surely stands as a towering indictment of his ability. His capacity was asymmetrical: he was blinded by his politics into believing that free markets really did exist and that they could cure everything.
Whoops.
So now here we are with a grim cloud hanging over us as we enter 2008. The rolling fall out from the undoing of the politically motivated absence of economic management during the Bush regime’s disastrous tenure will set us all back for the next few quarters.
When the dust clears in early 2009 we will be able to reflect on Bush’s legacy: the worst jobs generation record of all president’s since the Depression; a growing fiscal problem; massive debt overhang; eight more years of government waste; eight more years of poor wage growth; eight more years of inattention to health care and retirement funding [health care is the biggest economic problem we face]; a declining dollar; energy dependency on oil which is now costing an all time high; and the most inequitable distribution of incomes since the 1920’s.
For me, at least, the most urgent issue facing the next president will be to clear up Bush’s economic wasteland. The Iraq war is a major mess too, but it is of such enormity that it will take time. In any case the total disregard of the Bush regime for the welfare of the middle class and thus the economy as a whole has left us with a threadbare treasury and precious little room for maneuver. Getting the economy right will provide the foundation, as it always does, for foreign policy initiatives.
Or as Bill Clinton famously said: It’s the economy stupid!
