I have long said that our choices will determine how this downcycle ends. We can confront and resolve our problems — or take the seemingly easy way of banana republics. Print money, socialize the losses of elites and the middle class, continue to run America as before — deny our errors and refuse to learn. Experienced observers note that we are taking the latter path.
As many have noted, this is a typical emerging nation crisis — but taking place in the developed nations. Europe and Japan confront similar problems. We all have a combination (in different measures) of excess debt, bankrupt social retirement systems, lethal demographics, and failing legitimacy.
What gives this crisis a special degree of humor is our geopolitical experts, still nattering on as if we were Rome in the 21st Century. To see this contrast, fantasy vs reality, compare the views given here with those of Thomas Barnett’s presentation to the House Armed Services Committee (Barnett’s statement is here; Zenpundit’s analysis is here).
Please read these two articles in full. Links for more information are at the end.
- “The Quiet Coup“, Simon Johnson, The Atlantic, May 2009
- “Welcome to America, the World’s Scariest Emerging Market“, Desmond Lachman, op-ed in the Washington Post, 29 March 2009.
Excerpts
(1) “The Quiet Coup“, Simon Johnson, The Atlantic, May 2009 — Summary:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government-a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
About the author: A professor at MIT’s Sloan School of Management, he was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at baselinescenario.com, along with James Kwak, who also contributed to this essay.
(2) “Welcome to America, the World’s Scariest Emerging Market“, Desmond Lachman, op-ed in the Washington Post, 29 March 2009 — Excerpt:
About the author: Desmond Lachman, a fellow at the American Enterprise Institute, was previously chief emerging market strategist at Salomon Smith Barney and deputy director of the International Monetary Fund’s Policy and Review Department.
Back in the spring of 1998, when Boris Yeltsin was still at Russia’s helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to “emerging markets” throughout Asia, Eastern Europe and Latin America, and I thought I’d seen it all. Yet I still recall the shock I felt at a meeting in Russia’s dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia’s economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia’s economic czar at the time.
At the time, I could not imagine that anything remotely similar could happen in the United States. Indeed, I shared the American conceit that most emerging-market nations had poorly developed institutions and would do well to emulate Washington and Wall Street. These days, though, I’m hardly so confident. Many economists and analysts are worrying that the United States might go the way of Japan, which suffered a “lost decade” after its own real estate market fell apart in the early 1990s. But I’m more concerned that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we’re trying to fix it.
Over the past year, I’ve been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking — with other people’s money — for their personal gain.
The parallels between U.S. policymaking and what we see in emerging markets are clearest in how we’ve mishandled the banking crisis. We delude ourselves that our banks face liquidity problems, rather than deeper solvency problems, and we try to fix it all on the cheap just like any run-of-the-mill emerging market economy would try to do. And after years of lecturing Asian and Latin American leaders about the importance of consistency and transparency in sorting out financial crises, we fail on both counts: In March 2008, one investment bank, Bear Stearns, is bailed out because it is thought to be too interconnected with the rest of the banking system to fail. However, six months later, another investment bank, Lehman Brothers — for all intents and purposes indistinguishable from Bear Stearns in its financial market inter-connectedness — is allowed to fail, with catastrophic effects on global financial markets.
In visits to Asian capitals during the region’s financial crisis in the late 1990s, I often heard Asian reformers such as Singapore’s Lee Kuan Yew or Japan’s Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change. How fortunate, I thought then, that the United States was not similarly plagued by crony capitalism! However, watching Goldman Sachs’s seeming lock on high-level U.S. Treasury jobs as well as the way that Republicans and Democrats alike tiptoed around reforming Freddie Mac and Fannie Mae — among the largest campaign contributors to Congress — made me wonder if the differences between the United States and the Asian economies were only a matter of degree.
On Wall Street there is an old joke that the longest river in the emerging-market economies is “de Nile.” Yet how often do U.S. leaders respond to growing signs of economic dysfunctionality by spouting nationalistic rhetoric that echoes the speeches of Latin American demagogues like Peru’s Alan Garcia in the 1980s and Argentina’s Carlos Menem in the 1990s? (Even Garcia, currently in his second go-around as Peru’s president, seems to have grown up somewhat.) But instead of facing our problems we extol the resilience of the U.S. economy, praise the most productive workers in the world, and go on and on about America’s inherent ability to extricate itself from any crisis. And we ignore our proclivity as a nation to spend, year in year out, more than we produce, to put off dealing with long-term problems, and to engage in grandiose long-term programs that as a nation we can ill afford.
A singular characteristic of an emerging market heading for deep trouble is a seemingly suicidal tendency to become overly indebted to foreign creditors. That tendency underlay the spectacular collapse of the Thai, Indonesian and Korean currencies in 1997. It also led Russia to default on its debt in 1998 and plunged Argentina into its economic depression in 2001. Yet we too seem to have little difficulty becoming increasingly indebted to the tune of a few hundred billion dollars a year. To make matters worse, we do so to countries like China, Russia and an assortment of Middle Eastern oil producers — none of which is particularly well disposed to us.
Like Argentina in its worst moments, we never seem to question whether it is reasonable to expect foreigners to keep financing our extravagance, and we forget the bad things that happen to the Argentinas or Hungarys of the world when foreigners stop financing their excesses. So instead of laying out a realistic plan for increasing our national savings, we choose not to face up to the Social Security and Medicare crises that lie ahead, embarking instead on massive spending programs that — whatever their long-run merits might be — we simply cannot afford.
After experiencing a few emerging-market crises, I get the sense of watching the same movie over and over. All too often, a tragic part of that movie is the failure of the countries’ policymakers to hear the loud cries of canaries in the coal mine. Before running up further outsized budget deficits, should we not heed the markets that now see a 10 percent probability that the U.S. government will default on its sovereign debt in the next five years? And should we not be paying close attention to the Chinese central bank governor’s musings that he does not feel comfortable with the $1 trillion of U.S. government debt that the Chinese central bank already owns, let alone adding to those holdings?
In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to “get their house in order” — without the slightest thought that the United States might fare no better when facing a major economic crisis. Now, I fear time is running out for our own policymakers to mend their ways and offer real leadership to extricate the United States from its worst economic calamity since the 1930s. If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long.
Afterword
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For information about this site see the About page, at the top of the right-side menu bar.
For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest are:
- About Financial crisis – what’s happening? how will this end?
- About America – how can we reform it?
- Good news about America, a collection of articles!
Forecasts and warnings on the FM site:
- We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions.
- Geopolitical implications of the current economic downturn, 24 January 2008 – How will this recession end? With re-balancing of the global economy — and a decline of the US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.
- Another warning from our leaders, which we will ignore, 4 June 2008 — An extraordinarily clear warning from a senior officer of the Federal Reserve.
- The most important news of the month. Perhaps the year., 29 September 2008 — Warnings from our foreign creditors.
- Forecasting the results of this financial crisis – part I, about politics, 13 October 2008
- Forecasting the results of this financial crisis – part II, a new economy for America, 14 October 2008
- A look at the next phase of the crisis, as it hits the real economy, 31 October 2008
- A look at out future, 2009 – 2010 … and beyond, 9 November 2008
- A look at 2009 economy – some guesses, 28 December 2008
American is not yet impotent; nor is it much of a “republic.”
Accordingly, it is more of a “banana power.”
Dmitry Orlov is a Russian-American author and blogger who is predicting that the U.S. is headed down a similar path to that trodden by post-communist Russia under Yeltsin. One of his talks is “Social Collapse Best Practices“, 14 February 2009:
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Fabius Maximus replies: How can the Soviet Union have collapsed from “severe and chronic shortfall in the production of crude oil”? Today, a decade after the USSR ended, Russia (excluding other oil producing parts of the USSR) is still the #1 producer of oil (Russia and the Saudi’s have been close for decades).
I was alarmed when it turned out Barack Obama was giving Larry Summers a job. This article was published around that time, The Summers Conundrum, Mark Ames, The Nation, Nov 10, 2008:
I’m starting to feel like some of the government officials in one of my favorite films, Mars Attacks, who cling to the idea that the Martians aren’t the merciless monsters that they appear and if humanity would only be patient and give peace a chance they’ll prove themselves to be civilized. At some point it starts to dawn on one, “Maybe they really are bad guys.”
Anyway, here’s another good article I found today on Summers, A Summers tale, Alex Beam, Boston Globe, March 27th, 2009.
I know Geithner is getting all the attention now, but in my opinion picking an entire bad financial team says volumes about the man who picked them.
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Fabius Maximus replies: Agreed. Appointing the folks who helped craft the disaster is moronic, at best. Interesting how Obama continues the two most important policy sets of the Bush Jr Administration, the Middle East wars and the bank bailouts. Change you cannot believe in.
Let me see if I get this right since I am no economist (I am no longer sure if that is a bad thing): The United States has since around 1970 stopped being an industrial power and instead more and more evolved into becoming a consumer power (shop ’till you drop and all that). The Americans have stopped saving money and instead borrows more and more money from abroad which they spend at Wall mart or McDonald. As far as I can see president Bush and now president Obama have consistently tried to save this wonderful economic system by spending an awful lot of even more borrowed money on reviving the failed companies like AIG or GM. Until recently without luck. If president Obama is successful he will revive a system that caused the crisis in the first place. If he is unsuccessful he will have a failed economy and a debt nobody can even begin to imagine. Only hyperinflation can then save the United States from a crushing debt.
Am I right or what?
I have recently begun to compare the United States with the late Soviet Union and president Obama with Mikhail Gorbachev (loved abroad, in the end hated in his own country). Actually this might be far too gently: In 1989 everybody – even hardline communists – understood that the Soviet Union was in deep trouble and that the communist economy had failed. Gorbachev decided to abandon the the communist empire, withdraw from Afghanistan, let the Berlin Wall fall and try at least to save to Soviet Union. He failed. But at least he understood that he couldn’t pretend that this was an ordinary crisis and everything would continue like it always did if he just could save the latest five-year plan. I see very few signs of a similar reckoning in the United States today.
The Soviet collapse was very sudden, despite Gorbachev’s attempts to prevent it. How will the American collapse evolve?
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Fabius Maximus replies: Ask Thomas Barnett, if you can wake him from his dreams of global domination.
In case you’re wondering why there are so few comments to such a dramatic and convincing post as this, the bulk of us are still busy peeing our pants.
These articles are clearly on point. A broader concern needs to be addressed, though — namely, that the American people persist in enthusiastically supporting lots of social and government policies/activities which are clearly and obviously unsustainable.
1) The U.S. military budget, broadly defined to include NSA and NRO and DHS and veterans’ pensions and the VA plus Pentagon “black projects” as well as the budgets of defense-focused agencies like DOE, currently runs around 1.4 trillion dollars per years and takes up somewhere in the ballpark of 14% of GDP…and continues to expand rapidly. (As just one example, the DHS budget skyrocketed from 39 billion to 44 billion in just the last two years — that’s a doubling time of just 10 years! We don’t need the DHS, the FBI has it under control. It was entirely due to the incompetence of the previous administration that the FBI ignored its own intelligence about the 9/11 hijackers.) That’s unsustainable in view of our future entitlement obligations, which run somewhere in the neighborhood of 67 trillion dollars long-term. (Even without including our current TARP bailouts.)
2) The U.S. has 4% of the world’s population but consumes 25% of the world’s resources. As China and other formerly third-world countries come online with massive industrial growth and greatly increased resource consumption, that’s unsustainable. (America doesn’t need to throttle back to a Somalia-like standard of living, but all first-world countries do need to get a lot smarter and much more efficient about how they consume resources.)
3) The failed and futile “war on drugs” is not only destroying our constitution, it’s blowing Mexico apart into a failed state. Iraq and Afghanistan are bad enough, but they’re on the other side of the world — Mexico is on our border. A failed state in Mexico is unacceptable and unsustainable. Note — I use no drugs including alochol and cigarettes, so I don’t have a dog in this hunt in political terms. It’s simply and plainly unsustainable to continue the war on drugs, as a purely practical matter.
4) America continues to use easily-hacked electronic voting machines which provide no audit trail despite chaos and massive perceived lack of political legitimacy in two presidential elections in a row. (I dont’ know if there was fraud in the 2000 and 2004 presidential elections, and that’s not the point. The point is that the appearance of possible fraud was so bad that it badly tarnished the political legitimacy of both those presidential elections.) Especially when the simple obvious well-worn and working solution of mail-in ballots used by states like Oregon is available, this practice of contiuing to erode the perceived legitimacy of presidential elections by using e-voting machines is unsustainable.
5) America continues to outsource almost every high-paying job except those which are licensed by medieval-style guilds — viz., lawyers, plumbers, doctors, et al. In the 80s and early 90s, we outsourced most of our high-paying blue-collar jobs (machinists, steelworkers, etc.); in the early 90s to the late 2000s we outsourced most of our high-paying white collar jobs (programmers, materials scientists, mathematicians, roboticists, accountants, art designers, publicists, etc.). At this rate, we’ll end up a nation of dog groomers and grocery baggers. Such a society cannot support anywhere near the conumption to which we have become accustomed. This is clearly unsustainable.
6) Americans continue to burn through oil imports at a staggering rate, doing essentially nothing to reduce our dependence on foreign oil. This is unsustainable.
7) The cost of the American health care sector continues to explode exponentially, to the point where by 2050 it will essentially crowd out all other expenses. By 2050 or thereabouts we’ll have to zero out the U.S. military budget and shut down the U.S. postal service and close all government offices just in order to pay for U.S. health care if the spending trends for health care of the last 35 years continue. That is clearly unsustainable.
8) America continues to indulge a globocop foreign policy of fighting an ever-increasing number of losing nation-building wars in increasingly obscure third world hellholes, and borrowing ever more foreign money to do it with. This is clearly unsustainable.
Some hopeful signs: senators have started to agitate for reform of our broken prison industrial system.
Obama has made noises about reforming the Pentagon. We’ve heard a few tentative proposals for reforming America’s broken health care system.
However, we’ve heard all this before, back in the 70s and 80s, and nothing changed.
The problem? The American people as a whole still have not woken up to the radical unsustainability of these policies. Americans by and large strongly support our insanely wasteful and counterproductive and unsustainable U.S. military budget and health care expenditures and outsourcing policies and war on drugs and wasteful consumption of resources. If the American people decided tomorrow that these unsustainable policies really have to stop, millions of people would swarm the streets and shut our whole society down until things changed. We could do that non-violently. America did it for voting rights for women, for voting rights for blacks, we forced an end to the Vietnam war. Violence is not necessary if enough Americans get up off their asses and get personally involved in political change.
The only reasonable conclusion right now? The American people seem to love all these radically unsustainable policies.
At some point, all these bubbles will burst unless we wind them all down gracefully. If we persist with current policies, America’s military-industrial bubble and resource consumption bubble and oil-import bubble and job outsourcing bubble and drug war bubbles will hit a point where they just can’t continue, and each of those bubbles will collapse. Where that leaves American society and the U.S. economy when it happens…I don’t know. But I can tell you one thing — if all these bubbles burst (as they eventually must unless we get smart and wind ’em down), it’ll make the subprime meltdown look like small beans.
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Fabius Maximus replies: This is too broad for my taste. IMO the word “bubble” has become the stop buttom for people’s reasoning ability. It’s become divorced from its original limited meaning. We see that here, with this series of grossly exaggerated assertions strung together. I’ll mention just one.
“(2) The U.S. has 4% of the world’s population but consumes 25% of the world’s resources. ”
This canard is IMO truely moronic. As if the world’s resources are a scarce and finite quantity, like a bowl of rice at a table, where one gets more only if others get less. For example, the US developed much of the world’s modern technology. Did that starve the minds of the rest of the world, sucking up neurons so that the half the world adopted communism (generations of stagnation, with bouts of mass murder) and much of the rest (e.g. Africa) civil war and tyranny?
“American is not yet impotent; nor is it much of a “republic.”
Accordingly, it is more of a “banana power.”
” Yeah Duncan, great point.
Dear electrophoresis
Well done. A good comment. I might add that Andrew Bacevich has written an excellent book on the subject called “The End of American Exceptionalism”. Karl Marx once said that religion is the opium of the people (die religion ist das opium des Volkes). Today you can say the same thing about celebrity gossip on television, Hollywood movies and Britney Spears. People won’t wake up as long as they can continue like that. But if they suddenly discover their credit cards are rejected at the ATM, the electricity is gone and they are evicted from their home they might actually start to ask some pretty hard questions to their leaders.
Recall what the late George Kennan once said regarding democracies:
bc: “In case you’re wondering why there are so few comments to such a dramatic and convincing post as this, the bulk of us are still busy peeing our pants.”
I think this about sums it up.
FM: “Print money, socialize the losses of elites and the middle class, continue to run America as before — deny our errors and refuse to learn. Experienced observers note that we are taking the latter path.”
With the stimulus bill and the bank bailouts and the new budget we have no choice other than print the money. There’s no level of tax that is ever going to pay for this stuff. All of our income tax is only 1.5T or so, and they passed an $800B spending bill? Entitlements aside, the AIG bailout alone accounts for maybe 10% of all income tax money received in a year by the government. That’s why the Fed went to quantitative easing now, so they have a safety valve later if bond sales start to fail. If we want fiscal stimulus and bank bailouts, we should accept the consequences of this with open eyes.
Desmond Lachman:
Ding, ding, ding. Sigh, Obama and lost opportunity. There was an anticipation that Obama would be decisive on this and announce a plan to clean the cobwebs out of the banking system. If he had it would have electrified the economy. The Japanese analog of this would be the Postal privatization — that is going at established oligarchs. Putin also moved against oligarchs to the benefit of his long term popularity. Obama, it seems, is more of a ‘public-private partnership’ kinda’ guy.
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Fabius Maximus replies: You misunderstand my point. While monetization is necessary, the money need not be used to “socialize the losses of elites and the middle class” so that we “continue to run America as before — deny our errors and refuse to learn.” The money can be used to drive the transformation necessary to put American back on its feet and mitiage the inevitable suffering of that evolution.
Obama wishes to re-inflate all of the bubbles that previously popped. That is unfortunately the extent of Obama wisdom.
The problem has always been at the top. Obama is only a cosmetic change, and a laughable one at that. Those who believe that government action is going to solve the crisis are deluding themselves. It’s the government that must be radically revised before any meaningful reforms can be done to banking, medicine, international trade, and so on.
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Fabius Maximus replies: I believe this goes too far. While I agree that Obama is a largely cosmetic change (as noted in many posts on this site), that does not mean that the government must be radically revised before meaningful reforms can be made. Events force change. We saw this during the Hoover-FDR administrations — perhaps best seen as a continum, since the FDR continued an evolution begun during the last years of Hoover’s term. The Great Depression forced the government to abandon its laissez-faire liquidationist policies; this downturn might force Obama to take equally large steps.
The U.S. has 4% of the world’s population but consumes 25% of the world’s resources.
Approximately the same ratio applies to the US population vs. the US prison population. Correlation does not prove causation, but the proposition that the rest of us are having a jolly good time buggering the poor slobs who get thrown into prison does suggest itself.
Simon Johnson’s quote is the most compelling of this piece. I note he is is a former IMFer, and that the second author is an AEI guy. This prompts me to realize that this issue that can’t be easily sliced and diced along partisan political lines, which may provide a ray of hope.
A critical mass of Rep and Dem politicians has fallen under the thrall of a financial oligarchy. A similar bi-partisan mass seems to be willing to truthfully face up to our impending reckoning and realize business as usual can’t continue.
Great article!
I could go and take part in the G20 protests one day next week. But what shall I paint on my banner? There is no point in protesting if I have nothing to advocate. I would, of course, like to see everyone in the world happy, healthy and going dancing on saturday nights.
” Trust these experts ” ?
” Neo-Luddite ” ?
” Go Green SuperScience ” ?
Enough disussion of pathology – where can I read some treatment plan options ?
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Fabius Maximus replies: that goes the heart of my question about the “tea parties.” What are they protesting?
The protests in the past at G-20-IMF-WTO meetings have been absurdly incoherent, a jumble of discontent that adds up to “I’m unhappy with the world.” As if that’s anything new, or that most of humanity in the past (almost all peasants and sustenance hunter/gatherers) wouldn’t give almost anything to trade with them.
Two articles, one an interview with Barnett, another a review of his latest book. It seems his view is broader and more nuanced than the Navy paper above.
Interview: “Redefining America’s global role”
Review: “Twelve steps to a new grand strategy”
Also, he goes far beyond the insightful Statist-versus-Globalist elite quarrel proposed by the rather wild-sounding Professor Igor Panarin: “When America fell to pieces the shouting was outrageous“, 26 November 2008 — “If the US government is forced to print money to cover the high costs of its wars and bailouts, things could fall apart very quickly. Launching Lifeboats Before the Ship Sinks.”
FM note: Panarin is Dean of the Faculty of International Relations of the Diplomatic Academy of the Ministry of Foreign Affairs in Moscow and Professor in its Department of Mass Communications and Public Relations. See Wikipedia for more.
Absolutely true in concept, tho people can quibble the details. Here’s one I haven’t seen anywhere, but I throw it out there for your consideration: Barack Obama = Juan Peron. Any takers?
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Fabius Maximus replies: What similarities are there between these two people, other than they both have 5 letters in their last name?
Johnson’s analysis is one of the best I’ve seen. Of course I like it for its recognition that there can be no real solutions until the “oligarchy” is stripped of its overweaning power. His prediction for the future is admirable for its stark realism: either muddle along in the present path of ad hoc “solutions”, as Japan did for ten years, while the economy and life get worse and worse; or be swept away in the very likely imminent global collapse. This might then “concentrate the mind” on what needs to be done.
The Washington Post writer should be made to sit in a corner with a dunce cap on. He takes a sound analysis of the current situation and uses it as an excuse to raise the hackneyed right-wing attack on medicare and social security.
Barry Obama resembles Juan Peron in that both are charismatic and appeal to slices of society that are (arguably) similar. Obama’s confiscatory pseudo-socialist corporate-crony statism IMHO resembles Peron’s confiscatory corporate-crony statism.
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Fabius Maximus replies: (1) I suspect that Obama’s charisma is grossly overstated, more like tin foil than silver. (2) There is no evidence that Obama plans confiscatory taxes. The rantings of the right-wing that Obama is some extreme left-winger have so far been proved totally false, both in his appointments and intitial policies. Indeed what I suspect are his most significant policies, regarding the bank bailouts and our wars, are almost identical to those of Bush Jr.
Fabius Maximus replies: “This canard is IMO truely moronic. As if the world’s resources are a scarce and finite quantity, like a bowl of rice at a table, where one gets more only if others get less. For example, the US developed much of the world’s modern technology. Did that starve the minds of the rest of the world, sucking up neurons so that the half the world adopted communism (generations of stagnation, with bouts of mass murder) and much of the rest (e.g. Africa) civil war and tyranny?”
Moronic or otherwise, Glenn Greenwald makes the following points, quoting Senator Jim Webb (Dem, VA):
Greenwald himself continues:
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Fabius Maximus replies: This was my error, as I posted my reply on the wrong comment! It should have been on comment #6 (from which you took the quote about resources). I have moved it.
What similarities are there between these two people, other than they both have 5 letters in their last name?
Hitler and Stalin -1 also have 5 letters in their last name. I think you might be on to something. Plus ahmadinejad -1 divided by two is also five letters. Coincidence? I think not.
You are right about the tea parties. There is a general sense of discontent. I think it is because Obama is ‘socializing the losses to the upper/middle classes’ rather than making serious investments in new infrastructure. Once people freaked out about the dollar amount it became difficult to make this latter argument.
Something has got the attention of the government however: We The People Stimulus Package by Bob Basso. You may agree with all, some or none of what he is saying, but it is focused. It has a ton of hits on youtube and the president has seen it, and apparently he wants to meet face to face with Dr. Basso.
Captain Ramen:”You are right about the tea parties. There is a general sense of discontent. I think it is because Obama is ’socializing the losses to the upper/middle classes’ rather than making serious investments in new infrastructure. Once people freaked out about the dollar amount it became difficult to make this latter argument.”
“A general sense of discontent” is hugely understating it — maybe more a sense of gloom and unexpressed anger. It’s still undirected but the potential is there for fireworks like has happened in France and Greece already. The anger hasn’t really hit Obama directly yet, but to the extent his administration is seen as cuddling up to the Wall Street/AIG axis, well, you’ll see…
The stimulus and infrastructure development was hugely oversold. The thing passed, but nobody has seen anything of it. It’s a big country, and a few billion here or there just gets lost. I would say there’s skepticism; we’ve seen the Katrina and Iraq so-called reconstruction. Will this be different? Is this just Bush or is there a deeper problem these days?
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Fabius Maximus replies: While I agree with much of this comment, the following is the sort of thing that makes Americans seem child-like to the rest of the world, babies crying to get their milk right now.
“The thing passed, but nobody has seen anything of it. ”
The bill was only signed on February 17. All the reports about it said that the first to hit would be the tax cuts, expected in April. The spending in this fiscal year (ending in September) is minimal. The bulk of it hits over the next 2 years.
Public poicy changes act on the economy only with long lags, from 6 – 18 months. Magic pills exist only in fiction. Nothing Obama said promised quick results.
Gamma quadrant info on Obama, this from the ‘patriot right’ wing, supposedly via (still-KGB-run) Russia. “The First Time I Heard Of Barack“, Tom Fife, posted at American Town Meeting, 24 October 2008 — {snip}
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Fabius Maximus replies: Fife writies that he heard in 1992 that Obama was going to win. This would have been interesting if posted in 1993, and more so if posted in 2006. Publishing it after the election makes it fiction until we see additional evidence. I don’t know which is sadder:
* that he expects anyone to take this seriously, or
* that anyone does take it seriously?
Note I posted the link to a earlier source of this article than the March 2009 link you gave. Also, much more of this and I will change the definition of “topical” to include “at least slightly rational.” Accounts of black ‘copters with UN troops flying over the US and whispers from KGB agents do not qualify. Anything more about this will be deleted, unless properly sourced. I regret the five minutes of my life wasted on this.
FM: “The following is the sort of thing that makes Americans seem child-like to the rest of the world, babies crying to get their milk right now.”
That’s just politics. It’s driven by the short term news cycle. Let me see. Lets get this back on topic. What does Mr. Lachman say?
Desmond Lachman:”So instead of laying out a realistic plan for increasing our national savings, we choose not to face up to the Social Security and Medicare crises that lie ahead, embarking instead on massive spending programs that — whatever their long-run merits might be — we simply cannot afford.”
So you disagree with this, then, right?
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Fabius Maximus replies: IMO such foolishness cannot be excused as “just politics.” That is one cause of our problems, and will lead to a very painful future for this nation.
Reading the introduction to this post gives the answer to your question, not to mention the hundred or so posts on this site about these problems.
” I regret the five minutes of my life wasted on this.”
Understand. But stories like this will continue to fly around and in the context of potential ‘banana republic-hood’ their veracity is less important than their real or imagined influence. All such narratives work on several levels of which the first surface one is sufficient factual plausibility to provide permission to access deeper emotional levels that then serve to solidify perspective into ‘belief’ through which all subsequent information is processed. Right now the ‘patriot’ view is marginal. If it changes, stories like this will gain traction.
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Fabius Maximus replies: This is valuable sociologial data, but not for a site like this. Stories like this have circulated for eons, on all sides of all social issues. Post them on the appropriate sites (e.g., ones discussing urban legends), not here. Next you’ll be posting jokes (which probably serve a similar psychological function). No more, please.
I must be missing something. As a look to future naval capabilities, Barnett’s testimony was very interesting and very smart.
I think you wasted a good opportunity to dig into Johnson’s great article by making it an attack on Barnett, the irony being that Barnett’s Congressional testimony was not only very solid, but aligns itself with the future whether one agrees with Barnett or Johnson on the present or future.
Far too few times does Congress call anyone outside the industry/government bubble to testify regarding defense issues. One does not have to like Barnett to appreciate that Congress would do well taking this path a lot more often.
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Fabius Maximus replies: However, I suspect you do not see my point. The question is not about naval warfare, but the larger context of US grand strategy. With the developed nations entering into what appears to be a long period of decline, the major line among geopolitical strategists will IMO be pro- and anti Imperialists. Barnett is a lending figure in one thread of the pro-Imperial team.
I strongly agree with your last point!
Since the Constitutional Convention in Philadelphia in 1787, there has been only one amendment to the constitution regarding the financing of the federal government. In 1913, the 16th amendment established the income tax. Supporters feared insolvency of the government without it. At the time, the national debt was $2.6 billion. Today it’s 5,000 times higher. Even allowing for inflation and population growth, the per capita share of the national debt is now 77 times higher than it was in 1913. Imagine what those leaders would think if they could see the state of our nation today.
We desperately need amendments to the constitution to require a balanced budget, a balance of trade and perhaps even a national population policy. Otherwise, we’ll never face up to the tough choices that need to be made. Politicians will continue to tell us we can have it all while cutting taxes further with each election cycle. Ultimately, we’ll end up like a democratically-run family with four kids; we’ll have a bankrupt household full of toys, run by truant, morbidly obese children lying in a stupor in front of the TV amid the clutter of empty pop cans, potato chip bags and candy wrappers.
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Fabius Maximus replies: Can Consitutional ammendments balance the budget, balance the trade balance, and change demographic flows? Wow! How about one to forbid tooth decay? Allow rain only at night? Forbid girls to schedule multiple dates on the same night?
Perhaps our problem results from over-confidence that the government can do such things. Perhaps we should limit what government attempts to do, as a means to control spending.
Pete Murphy: “We desperately need amendments to the constitution to require a balanced budget, a balance of trade and perhaps even a national population policy.”
In principle, a good idea, but the trouble is that most of our leaders in Sodom-on-the-Potomac
either have not read the Constitution recently (if at all), or seem quite happy to ignore what is written there. As Fabius has pointed out, the Constitution is only a piece of paper if the people entrusted with its stewardship do not adhere voluntarily to the its precepts.
De Jure, we may still be a Constitutional Republic – we possess one, swear fealty to its values,
join the armed forces and take political oaths upon it – but we are IMO a de facto post-Constitutional society because so many of us, politician and non-politician alike, are willing to ignore it in the name of expediency, economic or political gain, etc.
What good is having a constitution if we ignore it? If our judges, politicians, business and social leaders act as if it is obsolete or merely a set of suggestions and not the most sacred document in our nation’s history? You tell me. It can’t be good.
While I am all in favor of new amendments that actually work, perhaps a “modest” first step would be to purge the federal government of all the current unconstitutional laws, agencies and other ephemera that currently clog our culture. Can anyone show me where the ennumerated powers of that document, for example, permit a federal Department of Education, or a Dept. of Homeland Security? Remember, those powers not expressly granted the federal government are reserved for the states, or for private individuals. We’ve gone so far past that point, and people have become so unaccustomed to examining issues in the light of the Constitution, that we may be past a point of no return.
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Fabius Maximus replies: All good points. The illness of our Constitutional regime is (inevitably, perhaps) focused on our relationship with that document, and the burden it places on us. Results from the California experiment, where ammendments can be added by referendum, also suggest that adding ammendments is problematic (at best).
Here are some posts on the subject:
(1) Forecast: Death of the American Constitution, 4 July 2006
(2) The Constitution: wonderful, if we can keep it, 15 February 2008
(3) Congress shows us how our new government works, 14 April 2008
(4) See the last glimmers of the Constitution’s life…, 27 June 2008
(5) Remembering what we have lost… thoughts while looking at the embers of the Constitution, 29 June 2008
(6) A report card for the Republic: are we still capable of self-government?, 3 July 2008
(7) Another step away from our Constitutional system, with applause, 19 September 2008
(8) What comes after the Consitution? Can we see the outlines of the “Mark 3″ version?, 10 November 2008
(9) Are Americans still willing to bear the burden of self-government?, 27 March 2009
Sorry, I misunderstood the mission of this blog. I thought it was devoted to serious solutions. I withdraw my suggestion and will not be back.
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Fabius Maximus: Another dissatisified customer, unhappy to have someone poke holes in his “quick fix” balloon. As if adding a wide range of ammendments to the Consitution would improve our situation, with our obviously deep structural problems. Results from the California experiment, where ammendments can be added by referendum, also suggest that is the wrong path.
One way to lessen that burden would be a constitutional amendment fixing the number of legal residents per house representative at something reasonable, perhaps 100,000 to 1. I think that would do much to lessen the apathy of voters since they would have 7x the power over their legislators than they have now. I think we should also have senators elected by the state legislatures again.
The key here is the state governments. We pressure them to assert their rights under the 10th amendment.
socialize the losses of elites and the middle class,
Actually, the problem and issue is the socialization of the losses of the elites, but NOT that of the middle class — the (previously) overpriced house prices.
While I support Tax Cuts & printing money, I oppose the bailouts and the Porkulus. Tax Cuts give decision making power to the taxpayers, those who created the wealth being taxed. The bailouts and the Porkulus give power to the elites.
A reason most verbal intellectuals hate capitalism seems to be a contempt for the ‘little people’, who have to follow the rules and are not so special. Much of the financial elite have bet much of their fortune on the prior, now-insolvent, financial system (profits for nothing, and the chicks for free). The bailout is NOT to save the US economy, but to save the otherwise lost fortunes of the non-responsible rich elite.
Pre-packaged chapter 11 bankruptcy, with NO BONUSES, for all the big banks (& AIG). Tax Cuts / tax holiday, until the recession/depression ends.
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Fabius Maximus replies: This illustrates one of the many parallels of today’s situation with the Great Depression — both bring out a wide range of quack remedies, ignoring 50 years of exhaustive research on these things.
* The Paulson/Geithner team ignore both experience and theory, prefering organized looting of the public treasury.
* Conservatives re-cycle Hoover’s disasterous liquidationist policies or extole their newer tax cut fetish (whatever the problem, cutting taxes is the answer).
* Liberals dress up their old plans as new “stimulus” measures. Could we do worse by asking the witch of Endor to conjure the ghost of Keynes for advice?
I plead guilty to always supporting tax cuts: extole their newer tax cut fetish (whatever the problem, cutting taxes is the answer).
I have yet to see any study showing harmful macro economic effects on any economy of ‘tax cuts’, altho tax cuts plus pork spending has often had harmful effects. Where is your link for where tax cuts were bad? Note that the Bush tax cuts had a positive effect on the economy. Even the 2008 tax rebate (some $180 bln?) slowed the decrease in the economy (wasn’t enough). It’s too late to see if $360 bln in tax rebates in 2008 would have been enough to avoid the current deepening recession.
The anti-tax cut literature I’ve read (linked here previously) says tax cuts are inferior for stimulus because: some is saved, some is used to pay down debt. But those are exactly the two other things, besides spending now, that the mid term economy needs: savings and reduced debt.
The $60-90 TRILLION financial bubble needs to be liquidated in some way, and the bailout method is to save the select, rich elites (with popular lobbyists).
Printing money ONLY for a short time — until non-energy inflation begins again. I also support (revenue neutral?) gas taxes, to reduce the US demand for gas. Revenue neutral would mean lower other taxes; but with the Porkulus, and the aftermath, I’m sure any tax increase will not really be rev. neutral. Gas taxes are less bad than income taxes.
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Fabius Maximus replies: You “always support tax cuts.” That means you “always support government borrowing.” That’s insane.
On a larger scale, considering your frequent comments about economics. Do you also do your own neurosurgery? Do you write letters to Boeing, telling them how to design jetliners? After all, why should more knowledge be necessary for anything than can be found in the Weekly Standard?
I find it horrifying the way people adopt economic theories like football teams, but with far less knowledge of the field. Unlike football, the prosperity (perhaps even survival) of America depends on making these decisions correctly.
Here are two articles by economist Paul McCulley; they give a broad view of our situation in terms of basic economic theory. They hint at the depth of theory behind modern economics. (Note: he alludes to the Taylor Rule, according to the which the Federal Funds rate should be roughly -8% — yes, minus 8%):
* “Comments Before The Money Marketeers Club: A Brave New World“, 26 April 2004
* “Comments Before the Money Marketeers Club – Playing Solitaire with a Deck of 51, with Number 52 on Offer“, 19 March 2009
Foreclosure of a Dream, by Megadeth
Rise so high, yet so far to fall
A plan of dignity and balance for all
Political breakthrough, euphoria’s high
More borrowed money, more borrowed time
Backed in a corner, caught up in the race
Means to an end, ended in disgrace
Perspective is lost in the spirit of the chase
Foreclosure of a dream
Those visions never seen
Until all is lost, personal Holocaust
Foreclosure of a dream
Barren land that once filled a need
Are worthless now, dead without a deed
Slipping away from an iron grip
Nature’s scales are forced to tip
The heartland dies, loss of all pride
To leave ain’t believing, so try and be tried
Insufficient funds, insanity and suicide
Foreclosure of a dream
Those visions never seen
Until all is lost, personal Holocaust
Foreclosure of a dream
“The congress will push me to raise taxes and I’ll say
‘No, read my lips, read my lips, read my lips’ ”
Now with new hope, some will be proud
This is no hoax, no one pushed out
Receive a reprieve and be a pioneer
Break new ground of a new frontier
New ideas will surely get by
No deed, or dividend. Some may ask “Why?”
You’ll find the solution, the answers in the sky
Rise so high, yet so far to fall
A plan of dignity and balance for all
Political breakthrough, euphoria’s high
More borrowed money, more borrowed time
Foreclosure of a dream
Those visions never seen
Until all is lost, personal Holocaust
Foreclosure of a dream