Thursday, November 19, 2009

Final Warning

If you keep up with Paul Krugman’s blog, you’ve probably seen him quote Brad Delong. Just in case you didn’t click on the link he provided Wednesday, you might want to go back and look again.

From Krugman:

”Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts. “

From DeLong:

”For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it--that we know what to do and how to do it and will do it if things turn south.

I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy--a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more--are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it. “

It keeps getting more interesting from there. This may well be your final warning on the subject. We humans rarely control events. We are usually controlled by them. When you start thinking about what kind of “shock” could hit us -- or the world -- it doesn’t take a lot of imagination to see how precarious our position is.

And it is mostly political. I’ll be honest. I can’t fathom it. I can’t understand how people can be so politically and financially blind to reality. America placed an enormous bet on finance as the economic engine instead of manufacturing. At the same time, we began a political reeducation that Wall Street wasn’t the villain that robbed our grandparents and created the Great Depression -- Wall Street was the way forward to the future. The road was going to be paved with 401k’s made of gold. Free markets = the Promised Land. (The religious imagery is intentional. I don’t believe any of this would have been possible without the support of the Religious Right.)

We are now stuck with a political stalemate. Half the country thinks I (and people like me) am the one that is politically and financially blind. And they are just as convinced of my blindness as I am of theirs. But as they said during the Bush years, “Elections have consequences”.

While I can’t grasp President Obama’s political strategy, I can see the consequences. I see his political opponents falling apart. Everyone thought the tea-bag guys had rocked the world this summer. There was lots of hand wringing. Reality ? The House passed a health care Bill. All were aghast that President Obama “declared war” on Fox News. Reality ? Yawn. And the latest ? Bowing in Japan. Vice-President Joe Biden appeared on The Daily Show this week. When he walked out, he and Jon Stewart bowed to each other. It was hilarious because the Republican right wing (the wing nuts that were running the country a year ago) has become a joke.

I see this and I recognize that the political strategy is working. Still, I sense danger. I feel that time is short. Perhaps my perspective is tainted by my being in the heartland of the hard cases -- here in the South.

Most of the people in America are too busy trying to keep their heads above water to pay attention to all these forces at play. Not to mention, it’s amazing how little of it you see on “normal” TV. They’re too busy covering whether to bow or not to bow in a country where everybody bows to each other. They don’t have time to explain that the financial industry took in 41% of the country’s domestic corporate profits -- much less what it means. (Why invest in a car-making plant when you can make more money by financing loans to buy cars ? Because it keeps you from becoming a banana republic.)

I’m not sure President Obama has time to win over the hearts and minds of the electorate with calm, educational speeches, a desire for bipartisanship and results. He may have to be a little more blunt. He might have to use a line like the one I read in Bad Money (by Kevin Phillips) last night, where Harry Truman called Republicans, “bloodsuckers with offices in Wall Street”. People down here understand blunt. For a lot of people, that is all they understand.

It might be time to turn the light saber on. (If you’re unfamiliar with that line, you’ll have to watch this video.)

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November 19, 2009


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