Weekend September 28, 2012

This week was dominate by two themes: the continuation of muddle as our economy wallowed along, better but not a whole lot; and the apparent implosion of the Romney presidential campaign.

First the economy:

The big disappointment was the downward revision of GDP for the second quarter. The final numbers – this is the third and ‘final’ figure we will get – has growth at a meagre 1.3%. This means that in the three years since the last quarter with negative GDP we have experienced an average of 2.2% growth per quarter. That is low by historical standards and suggests an economy deeply mired in its lingering problems. There have been breakout attempts: we had growth of 4.1% at the end of last year, but that faster growth has not been sustained. To put this in some perspective: during the year and a half of crisis we had an average of -3.1% change in GDP; and in the two years before the crisis we saw quarterly growth of … 2.2%. And that last number bears discussion.

While we all constantly berate post-crisis growth as being inadequate we forget that the years prior to the crisis were hardly golden. The economy was sputtering under the weight of its debt and asymmetrical distribution of incomes well before it collapsed. Much of the growth during those years was an illusion propped up by the unsustainable accumulation of debt, and the over reliance on the bubble induced activity in real estate and construction. Take away those bubble effects and the economy has been anemic for the best part of a decade. Indeed going back further we can also argue that much of the supposed boom in the 1990’s was also bubble induced – the hi-tech bubble in that case – and before that, in the late 1980’s we saw an economy propped up by an earlier bout of debt accumulation – the Reagan deficit financing of defense spending in particular.

So the recent performance, if set in this longer term perspective, is not so bad. It is still not good, but it sits more clearly within a long term view of slower growth when compared with early periods such as the 1950’s and 1960’s. We are still at the wrong end of the growth spectrum, but we fit well within the Reagan/Bush trajectory.

This suggests, of course, that our problems are more deep rooted and thus more difficult to resolve than ‘merely’ recovering from the crisis. We have many distortions to unwind and rebalance. Income inequality has to be reduced so that more purchasing power resides in the lower and middle strata, where money gets spent and not simply shipped to the Cayman Islands; the long term Federal budget needs to be better balanced which implies higher revenues as well as cost reduction – in defense primarily; and the financial industry needs to be reduced in size and scope so that our resources flow into the real economy and not into ponzi financial schemes. These all require political adjustments before economic policy can be corrected. And that requires a clear victor in our upcoming election.

Which brings us to the second theme of the week.

Has there ever been a weaker presidential candidate than Mitt Romney? He is awful. His plutocratic airs and graces have finally been fully exposed. His prejudices and his arrogance are in full display. He seems lost and genuinely hurt by the negative reaction to his astonishing diatribe about the 47%. That off the cuff and private talk sank him. It is especially damaging because it was private. It cannot thus be ‘spun’. It was clearly what he thinks. That is what has hurt him the most. Whilst we all thought he looked stiff and awkward, like any prep school kid trying to be one of the guys, he was able to get away with it because he projected a competence and an attempted outreach to the regular voter. People, may not have liked what he is – corporate raiders are not inherently nice – but they could bring themselves to vote for him as a rejection of Obama. They could tolerate Romney. But not after that 47% speech. It stripped away any pretense he had. It showed him to be exactly what we feared he was – a spoiled brat, entitled, out of touch, and mean spirited. His dismissal of half the population as being moochers beyond help and respect was the most clear insight we can have into the mindset of the plutocracy that is trying to cement its control over us. They actually think they are hard done by! In their cramped and distorted world they sincerely believe themselves to be under-appreciated, over-taxed, and despised for being successful.

Perhaps they are. Perhaps not. What we do know is that the post-Reagan plutocracy has not produced an economy worth a lick. For all their supposed smarts, clever financial tricks, and hard work their entire generation has managed only to run the economy into the ground in an epic failure only matched by an earlier generation of plutocrats in the 1920’s and 1930’s.

Their success is based on rent-seeking not skill. They specialize in regulatory capture, corruption, and lobbying. They use these skills to distort the economy for their own gain. This creates excess cash which they then flood Washington with. They mingle only with themselves. They live behind gated communities. They go to private schools. They belong to the right clubs. They act out their expensive lives within a small sector of the world that, to them, is the entire world. They presume to have the right to lead because of their self-promoted success.

But. That success is hollow. It depends entirely upon their ability to continue to twist the game in their own favor. And as the effects of their squeezing gradually dries out the economy, they must resort to ever more blatant and destructive activities. They have to double down on their rent-seeking. They have to invent ever more risky financial trickery. They have to extend their reach further and further. Until the dead weight of their excesses brings the entire game to a screeching halt, forcing us to endure a depression.

Romney exists within this vortex. He is swept up by it. He is self-validated by it. He cannot see beyond it. To him it is the real world with all its own justifications, rules, institutions, and culture. That it is profoundly anti-social is beyond his comprehension. So when he sees a veteran living off a government pension he can genuinely see a moocher. Or he can genuinely mean it when he advises poor kids to start a business by borrowing the capital from their parents. And he simply doesn’t see anything wrong with making the uninsured go to the emergency room for health care. The list of indifference and uncaring goes on. It is typical of his ilk.

And, remember, they are the ones who advocate austerity and hardship as the cure to our economic ills. They are the ones who privilege capital over labor. And they are the ones who protect creditors rather than debtors.

Romney’s whole life was lived through this prism. He steadily checked off boxes on his resume. It was inevitable he would run for ever higher office. What else was a rich kid to do?

Then he exposed himself. And by so doing exposed his plutocratic class.

The single most effective political ad running on TV this year uses Romney’s words. It uses only his voice. It announces itself as an ad for Obama and then simply allows Romney to talk. Nothing else. It is an act of self-destruction like no other. And it is working.

Perhaps, just perhaps, the plutocrats have over-reached, and this election marks the beginning of repair and recapture of the economy for the rest of us.

Who knows.

A lot depends on Obama. And he hasn’t said much lately. He hasn’t needed to.