Abandon Hope

August 10, 2011

Abandon Hope

Abandon hope all ye who enter here.

In case you’re like me and you’ve never read Dante’s Divine Comedy, that quote is inscribed on the gates of Hell.

Perhaps I’m being a little melodramatic. Perhaps not. If you’ll remember, my personal working model is that history repeats itself. I’m using the Great Depression as a model to understand the current Great Recession. And, as we all know, the Great Depression ended in World War II. I’m hoping and praying that the Great Recession doesn’t end the same way.

Last night, right before I went to bed, I read Robert Reich’s latest blog and I intended to use it as a starting point for my own ruminations. And, of course, Krugman beat me to it. And he also got to Stiglitz before I did. (How does he do it?) I occasionally check on other economists as a backstop to my love of all-things-Krugman and Stiglitz is usually the first one I check.

I read Stiglitz’s piece in The Moscow Times a couple of days ago but I’m leery of sending my readers to a Russian site. (Enter at your own risk. I’m betting the Russian dating sites are really dodgy.)

Anyway, Krugman has it all wrapped up in a neat package with a ribbon tied around it.

Dismal Thoughts

”The bad news is that policy makers almost everywhere have failed dismally, and seem determined not to take on board the lessons of experience, either historical or what we’ve learned the past few years.”

He goes on to quote Joseph Stiglitz:

”When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing.”

Then he quotes Robert Reich:

”So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit.”

Krugman goes on to make his own points. I’ll go on and make mine.

The riots in Greece and England are connected to all this. Greece has had to impose budget “austerity” because of their budget problems. The United Kingdom actually voted for it. Prime Minister Gordon Brown and President Barack Obama joined hands to fight for a large stimulus package to bring the world out of recession. Obama was thwarted (in part) by the Republican Party. Gordon Brown was voted out of office and replaced by David Cameron. The Labor government was replaced by a Conservative government. And the Conservatives -- naturally -- chose austerity. In this case, “austerity” is a euphemism for “the rich stay rich and the poor get poorer."

In case you aren’t following, the United Kingdom decided to “cut spending” and work on decreasing their debt back in October of 2010. Just like we decided to do the same thing during the debt ceiling debate last week. So the United Kingdom is about a year (10 months) ahead of us with this economic policy. How’s that working out for them?

Do you think the view in Greece is any different?

More importantly, how is all this working out for them economically?

U.K. Data Cast Doubt on Growth Hopes

”LONDON—Disappointing figures on U.K. exports and manufacturing output Tuesday raised further doubts about the government's growth strategy, which relies on these sectors powering an economic recovery in the coming months.”

Please note that I’m quoting from the Wall Street Journal. I’m biased, but I try to be fair. The UK’s economy is just limping along -- just like ours has except they are experiencing a lot more social pain. Does this sound like a road we want to go down?

But to top it all off, you have to understand this previous piece from Krugman. You see, we are not the United Kingdom and we sure as hell aren’t Greece. We are the United States of America and even after all the debt ceiling theatrics brought to us by the Tea Party players...foreign money is pouring into U.S. securities. Literally -- foreigners are paying us to borrow their money.

Free Money!

I’m not going to quote Krugman because sarcasm doesn’t translate well. You might find it confusing. To be honest, I’m scared I’m getting it wrong. We’re the ones that are borrowing the money. We’re supposed to pay them interest. Except, the chart is showing negative interest. Investors are paying the United States to keep their money safe.

Seriously, you have to look at the chart. The interest on a 5 year “loan” is minus 0.84%. The math hurts my head but I can understand the basic idea. In a normal world, we’d borrow $1,000 and have to pay back (say) $1,100 in 5 years. But nothing is normal. Right now, we “borrow” $1,000 and at the end of 5 years we only have to give them $900 back. (The math god says the real number -- $1,000 at -0.84 for 5 years +math caveats I don’t understand is $958 and change.)

It’s unreal. Except it is real. Look at this:

BNY Mellon imposes fee on rapidly growing deposits

”BNY Mellon said the fee would be imposed on big corporate and asset management clients that deposit more money than average, because it has been overwhelmed by deposits.”

Everybody knows that you deposit your money in a savings account and the bank pays you interest. Except now, this one is charging you to deposit your cash. I don’t want to go into more explanations, I just want to make my point. We aren’t in a normal time.

And if the economy of our time isn’t normal, why on earth would we expect normal solutions to work?

But President Obama embraced austerity with the debt-ceiling deal. And that is as “normal” as you can get. Politics as usual. And politics has once again triumphed over science and facts. If you think we can’t have riots in our streets over bad economic choices, you are wrong.