In lieu of meaningless political convention coverage, my title is absolutely still true. Decades and decades of history refutes any excuses about the so called political expediency of wasting any crisis economic or otherwise. That is one of the only things I agree with Rahm Emanuel on when he said it at the beginning of this administration. Sadly, the White House only listened to his hippy punching BS. The prospect that this economic disaster wouldn't go to waste or enrich bankers was where the hope used to reside when there was any at all to confide in as far as any real economic recovery is concerned.
But when we mention these real world problems still abound from these failures we hear the same old tired excuses trotted out to excuse this administration from loyal partisans who are proud of what they never learn. This involves excusing the the bailout, housing, and foreclosure crisis. Ironically, this is why there is any chance at all for insane Republicans to make hay in this election at all so it might be smart to pay attention to it at some point even if the media won't cover it. The bottom line is that coddling too big to fail banks with trillions in bailouts and more bailout guarantees on top of that (29 trillion globally when counted all up) to make Capital whole at the expense of laborers didn't help and many of us knew it wouldn't from the get go.
During an election it is treated like a crime to say so. You know, other countries have actually learned this lesson as we have forgotten from the past. Alas Iceland handled their crisis well, like Sweden, and like we did during the S&L crisis but not in 2008 where our fate is now a lost decade or two. With too many loyal "Democrats" looking the other way, this administration and their point man in the Treasury let Wall St have the most say even though public anger at Wall St was and is still at an all time high. This explains why the public was against the bailout, and how it failed in the House at first.
There was plenty of advice given to the contrary from Paul Krugman, James Galbraith, and others in those days but they were ignored. Many of us who worked to elect the president were floored because we thought at least the rhetoric about regulating Wall St might have had some semblance of truth. Who knew it was uncouth to reject Rubinites like Larry Summers and Tim Geithner both hired (even though we were told we couldn’t have the same people from the Clinton era from this president) leaving all of us mired in recession and depression now and in the future.
The private debt crisis is carrying on unabated leading to another bubble and crash shorted for those with connections to inside info like always? And this time, as Nouriel Roubini noted in my last diary, possibly in 2013 the political room to maneuver will not be there making the next crash worse because the last crash compounded with all the poor underlying economic factors factored in was absolutely and idiotically wasted. It's sad that no Democratic politicians were speaking like this in 2008 when there was a chance to turn this around.
In order to enact lasting life changing policies, Democratic politicians only get 1 in a 20 to 30 year chance to use a crisis at its absolute breaking point(financial panics happen now every 5 years or so but not when all underlying factors tie in with the chance to do something serious about it), but it does take having honest leaders who mean what they say and do during such periods of crisis where the seemingly impossible is actually possible. BTW this is not opinion. This is a matter of economic and historical fact if one has the intellectual curiosity to look it up. The only opinions involved involves whether one chooses to acknowledge this or live in a partisan fantasy world.
These crisis decisions are more important than any election though elections are a minor part of the tail end of things if they are used with the said crisis to gain power and expand life changing policy. It may be hard to swallow when all anyone wants to talk about are elections and political conventions, because realizing this does actually involve looking at and reading major periods of history that forever defined both parties today. This knowledge of should lead the way. For instance, the last time there was this much private debt overhang on consumers from the bust of a huge asset bubble was during the Great Depression recognized by economist Irving Fischer in his papers on debt deflation.
The factors leading up to the Great Depression(1912-1929) involved the changes in Agriculture which once employed a significant part of the work force until farm mechanization and thus overproduction led to overall price deflation for crops. Because of this deflation of farmer income, some of whom had mortgages to pay on their land, were drastically not able to measure up to any standard of living given the cost of living at the time. So therefore a familiar dynamic we know of today arose when it came to a lack of sustainable income to service a standard of living. Farmers turned to creditors and credit out of understandable desperation like unemployed factory workers, Latinos, and African Americans leading up to the Great crash of 2008.
Economists Joseph Stgilitz and Bruce Greenwald lay this out well in this must read piece reexamining the causes of the Great Depression.
The Book of Jobs: Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.
At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.
What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.
And because they did, they were ripe for abuse and fraud by Wall St Commercial and Investment Bank monster hybrids in the days before Glass Steagall. This is what pumps asset bubbles up and led to the Great Crash of 1929. Afterward not only did people still have insufficient income, they were then in massive debt. That means no spending which meant no income for anyone or sustenance to sustain their livelihood.
This led to massive unrest among the populous, and a massive demand for something new; a New Deal and a new candidate named Franklin Delano Roosevelt with a New Deal coalition behind him. I don’t need to tell what happened after that, though FDR being elected was certainly not the end of the public’s woes. However, despite an assassination plot, in FDR’s first 100 days he still enacted the 1933 banking reforms, including Glass Steagall and FDIC (which he was pressured to enact by Huey Long’s filibuster in the Senate among other things) which brought on 50 plus years of stability stopping panics as we knew them until the Reagan years and the so called Great Moderation(where banks like Lincoln Continental started failing and were bailed out).
The WPA and CCC direct work models were obviously successful though they could have been more successful if expanded more(1937) given that the gold standard was rightfully abandoned to give room. The Home Owners' Loan Corporation and the Federal Housing Administration were helpful for the housing crisis of that day. HOLC set uniform national appraisal methods and simplified the mortgage process. The Reconstruction Finance Corporation seized failing banks, cleaned up their balance sheets, and later transferred these institutions back to private ownership rather then just handing them trillions of dollars. In addition to that, the culmination of collectivist ideas over the years from Eugene Debs to Dr. Francis Townsend’s national pension plan took route in the New Deal from massive political pressure although in a lesser form that would be built upon over the years.
All this was possible because FDR was a leader who recognized that with a great crisis comes a great opportunity to enact life changing legislation that we can still feel today. It defined the Democratic Party as we know it and is still proudly embodied in the platform. After all, this set the trajectory of the Keynesian Golden Age (1945-1973) which saw wages rising with inflation until the Great Divergence.
Speaking of the Great Divergence, that is where the sordid tale of how to use a crisis for monetarist evil comes in. In 1971 Nixon basically ended the reserve peg of US dollars to gold which made up the Bretton Woods system and the whole system ended. The turbulence of the international adjustment to floating exchange rates was a big factor along with the oil shock of 1973 that led to the stagflation epidemic.
Regardless of what you hear, there was nothing the Fed nor any neoclassical/Monetarist economic theory could have done to prevent it, but given that the original Keynesian Phillips Curve technically didn’t coincide with the results of this supply shock, a massive successful propaganda campaign to discredit Keynesian intervention was successfully waged globally, but especially in the US and the UK.
Brilliant Modern Monetary Theory economist Bill Mitchell explains:
The rise in acceptance of Monetarism and its New Classical counterpart was not based on an empirical rejection of the Keynesian orthodoxy, but in Alan Blinder’s words:
was instead a triumph of a priori theorising over empiricism, of intellectual aesthetics over observation and, in some measure, of conservative ideology over liberalism. It was not, in a word, a Kuhnian scientific revolution.
The stagflation (coincidence of inflation and unemployment) in the 1970s (the so-called shift in the Phillips curve) associated with the OPEC ructions led to a view that the OECD economies were failing and provided a strong empirical endorsement for the Natural Rate Hypothesis, despite the fact that the instability came from the supply side.
Any Keynesian remedies proposed to reduce unemployment were met with derision from the bulk of the profession who had embraced the new theory and its policy implications. The natural rate hypothesis now became the basis for defining full employment, which then evolved to the concept of the NAIRU.
It didn’t have to be that way, but third way Democrats left an opening for this non empirical economic garbage to be pushed onto the US and the world. Jimmy Carter was able to capitalize on the moral crisis the country was in after Nixon, Vietnam, and Watergate to stake to an election victory, but sadly Carter showed the first third way to abandon full employment policies. This move rendered the Humphrey Hawkins Full Employment Act toothless at the chagrin of Keynesian Neo Chartalist economist James K. Galbraith who helped write the law. True blue Keynesian Democrat Hubert Humphrey also tried to convince Carter to fight for its full implementation to no avail.
Sadly, much like our current president, Jimmy Carter bought into the Monetarist economic garbage of austerity and balanced budgets even though the Bretton Woods system ended ending the need for such a thing (because no more gold had to be dug up to put in bank reserves or sent off because of trade imbalances of our current account). So then this epidemic continued and Carter eventually brought on Paul Volcker with his brutal anti-inflation campaign at the Fed impoverishing what was left of US industry and unions basically winning the 1980 election for Reagan before it begun.
I don’t think I need to tell you what happened next, but from 1979 on wages went flat and all income gains went to the 1%, .1%, and .01% shown by the Great Divergence above. Bill Clinton and the Congress he worked with would exacerbate this trend finishing much of what Reagan started destroying the New Deal regulations of 1933. This fueled while two more credit bubbles while masking the lack of real income for the 99% further creating the conditions that would lead up to the great housing bust of 2008.
You see, the Friedman-ites at the Chicago School knew how to use any crisis. They used a supply shock/floating exchange rate adjustment no one could have stopped to erroneously discredit Keynes with their propaganda as they have been planning for years since going toe to toe with their nemesis Keynesian economist John Kenneth Galbraith and losing out in the 60s. To push for more austerity, Republicans and Democratic Austerians point to this stagflation period in the 70s as a failure of Keynesianism when it really was not.
The Chicago school used this economic agit prop to push for their economic shock therapy in Chile among other Latin American countries where they were involved in the coupe to overthrow and assassinate Salvador Allende as chronicled by Naomi Klein in The Shock Doctrine. That book is well sourced and a must read proving the thesis of this diary.
Milton Friedman's disciples in the Bush administration used Katrina, 9/11, and every other crisis to push trickle down austerity economics, deregulation, and a national security state that Democrats obviously now sadly love and refuse to get rid of. This administration is expanding the global war on terror state while their unquestioning supporters cheer them on. You have to ask questions. You can't just go along with whatever your party decides to do because it's campaign season. You have to stand for something if you ever want real progress and not just soaring rhetoric.
You have to welcome TBTF banks’ hatred and at the right time when a crisis such as 2008 hits, you have to make the leaders who claim to be Democrats live up to their rhetoric or you won’t get the chance for another 20-30 years for the time to be right during a crisis when a Republican is in power and the public rightfully blames them for everything as with GWB. That moment can be used for life changing policies like the New Deal was or it can be wasted like this President wasted the crisis starting in 2008 to now.
Some people use the excuse, a poor one, that there was not enough public unrest during the disastrous Bush years for President Obama to take advantage of that crisis when he came into office as he was pleaded to do by every credible economic and political authority out there. If that was true, President Obama would have never been elected in the first place, and it is ironically insulting to hear from people ironically who say they support him no matter what. It either was a historic moment everyone took part in, including me working the phones to elect him, or it wasn't though that it really is pretty hard to deny the historical significance of it despite whether some of us are happy with him or not.
So basically that’s why we can’t get over it. That’s why we will keep talking about how TARP and the 7.7 trillion in loans and loan guarantees in the US failed Main Street along with HAMP, HARP, and its failure on the housing and foreclosure crisis. That’s why we will still be talking about how the stimulus didn’t measure up. That’s why we will still keep calling the Bush/Obama tax cut sellout and the debt ceiling sellout detrimental. That’s why we will keep calling deficit terrorism what it is.
The right knows how to use a crisis. Their supporters know how to pressure them to use a crisis for evil at the right time, so why can’t you admit that you need to pressure our Democratic leaders to use one for good when it matters? It's not purity.
It's not a pony. It's not that I'm ignoring some wonky pseudo version of "how things really work in politics" even though they don't work that way ever. This was a moment in time some of us won’t ever see again in our lifetimes and it was a moment wasted like a lot of our time and money was wasted in 2008. So don't tell us to get over it. We may not live to get over it, because as Keynes said, "In the long run we're all dead."