The Sky Has Fallen... (or was that just the dollar?)

WE all know the American economy is suffering. Just how bad it's going to get is a question on everyone's mind. Turn on the news and see how long it takes for a reminder of our plight. Wait for the latest announcement of huge corporate layoffs. Listen to the terms "stimulus package" and "bail-out". Suffer through the poor attempts at poetry. Check out the Dow Jones Index. If you can make it to the end of the broadcast, kick back for the human interest story. Can they still put a happy face on their product? This is not your father's evening news (unless you are a senior citizen). The fear is palpable, no matter how well-coiffed the news anchor is. This is a bigger security story than "terrorism".

Great. Now you know the truth. We have dug ourselves a very deep hole, and it has widened into a chasm. People are gathered around its periphery, trying to determine if it will be less painful to skirt around the edges or simply dive in headfirst. There is a huge industry devoted to making sure your choice is the latter. Throw a penny into the darkness and find out when it hits bottom. Now try it with a dollar, or a trillion of them. There are hundreds of "experts" and talking heads trying to fathom the depths. Some are nearsighted, and some are the opposite. They will tell you their predictions. They will help you make an informed choice. Maybe they will push you into the darkness.

I know that the picture is far from rosy. It just seems that everyone is trying to outdo each other with their Cassandra calls. Are there going to be people dying in the streets? Will they be expiring from hunger or loss of blood? Will China or India overtake the United States and become the next superpower? Will Bin Laden proclaim his victory over the West? Will your ancestors rise out of their mouldering graves and remind you that they told you so? Will your children stare at you in mute accusation? Do they know that their destiny is one of panhandling and indentured servitude? What compromises will you have to make to feed your family, or pay your mortgage? Will you have to serve fries at McDonald's?

There's just not that much useful information available. Do you have any relatives that are old enough to remember what it was like to live during the Great Depression of the 30's? Don't you wish that you had taken the opportunity to have that little chat? Were you too busy laughing at their strange little habits? Was it the way they ate leftovers? Was it the fact that they never threw anything away? Who would live like that in a time of abundance? Maybe (in high school) you heard about what they had lived through, but it never seemed quite real enough for you, did it? What did it have to do with your life, and your grand prosperous future, and your free markets of infinite growth?

Perhaps it's time to turn off the television, and start thinking about how your life may change. It just may be a time for reassessment. What is it in your life that you cannot lose? I'm already starting to think about ways to ensure my (and my family's) well-being. And I've come to the conclusion that the corporate media isn't helping very much. It's alarmist, which probably reflects the reality of the situation, but they aren't offering much useful information. I've talked to my friends about the things they know well. I've looked at my lifestyle and thought about the things that would be possible to give up. The funny thing is that a lot of what I have cannot be depreciated along with the value of currency. I'm finding it enlightening to gain that perspective.

The Stimulus Package.

It's been weeks since I started thinking about the "stimulus package", and days since I considered writing about it. Yet what's kept me from attempting an exposition of my thoughts is the utter state of confusion that everybody is mired in regarding this prospective legislation. It's simply too big a subject. There may be individuals who claim to understand what it means, but I suspect that this "understanding" results more from ideology (or mere wishful thinking) than any clear perspective about the realities of the situation that necessitates it. My "spidey sense" is telling me that we are fucked beyond conception. Prophets have been foretelling this condition for decades, and so few have heeded their warnings.

I don't think that we can boil down our problems to a demi-glace of credit default and Wall Street shenanigans. The issues plaguing our economy have been sitting rank in the open air for longer than most are suggesting. Sure, our federal and state governments have been compounding the problems with willful ignorance and rampant corruption... but our citizenry must accept its share of responsibility. Ten trillion (+) dollars is an amazing number that lies beyond the reasonable comprehension of the human brain, but that amount is dwarfed by the amounts of personal debt that accumulate when we consider the personal debts of all Americans. And for this there is no easy excuse.

Who do we expect to lead us out of these dark borderlands? If people have built Barack Obama into a sort of messianic figure, it is only because of our desperate need for such a mythical creature. We've already played out that story. How many saviors can we create? Jesus Christ is said to have died for our spiritual sins, and those are certainly beyond quantification. That ambiguity is convenient for those that seek to offer us comfort. But we have created a standard of value for material things, and there will be no symbolic expiation available to clear our books. We are stuck with the prospect of a Day of Reckoning. The "infinite growth" of free market capitalism was a lie. We can't continue to fuel our economy on debt.

Still there is no doubt in my mind that we will try to spend our way out of our predicament, even if we have to pull the money out of thin air to achieve this. Like it or not, hyperinflation is the only answer. The main puzzle to sort out is how to distribute the paper. Shall we continue to put it in the hands of the institutions that have fomented our crisis? Wall Street, the banks, and the global corporate capitalists all ensured us of the viability of our system. They assumed the authority to guide the operation of our society, and they should face the most severe consequences of its failures. Most of us were given no choice to distinguish ourselves from the gamblers. The stakes were pre-determined at our birth.

When I hear the voices of those that have belatedly discovered "fiscal conservatism", my blood pressure rises and the muscles in my forehead spasm involuntarily. When Congressional "leaders" lament the prospect of increased taxes, I feel like puking. Everyone needs to realize that we've already spent our legacy. We've been profligate, and future generations will inevitably suffer from our wasteful ways. If we are going to "inject" more currency into our economy, we have a duty to invest it in such a way that our heirs will see some small benefit. It's time to go beyond considerations of our own comfort. We have earned the impending Depression. There's no avoiding it.

Obama Tips His Hand With Tim Geithner.

President-Elect Barack Obama is moving forward at an extremely accelerated rate to form his cabinet. Obviously, with the number and severity of major challenges the nation faces, this atypical haste makes some sense. First and foremost on virtually everybody's mind is the financial crisis. The situation took decades to erode to its current point, but people are hoping for a quick fix. It's clear to anyone with even a cursory understanding (like me) that solutions will neither come easy nor fast. Our economy is in shambles, and our public and private debt is out of control. If done correctly, it could still take a generation to work out of the mess that we are in. There likely won't be any miracles.

I've seen and heard a lot of folks discussing what they perceive as unreasonable expectations among Obama supporters. This perception has been no doubt fueled by the Republican-formulated meme that people view our next president as a "Messiah". They believe that he has promised everything to everybody, and that the public will hold him to ridiculously high standards. The reality is that Obama is no extremist, despite what we heard during the election out of the McCain camp. If anything he is a centrist. Leaving aside the center-right or center-left characterizations, we can expect the former Senator from Illinois to take a pragmatic approach to governance. "Better than Bush" is as far as I'm willing to go in my speculations.

If you still fear (or hope) that our new federal executive is a "socialist", you should take a good, hard look at the team he's built so far. Last Friday, it was announced that Timothy Geithner (president of the Federal Reserve Bank of New York since 2004) will be the next Treasury Secretary. The markets responded by jumping ahead 500 points. Geithner is a Brooklyn native, and has attended Dartmouth and Johns Hopkins University. He is a world-traveler, having lived in India, China, Thailand, and Indonesia. It's notable that Geithner is not a "professional economist". His first job in government was with the US Treasury Department in 1988. He served as Under Secretary of the Treasury for International Affairs in the Clinton years, and then moved on to the Council on Foreign Relations and the International Monetary Fund.

Geithner is particularly known for dealing with crisis. This past March he engineered the rescue and sale of Bear Stearns, but also helped make the decision to let Lehman Brothers fail. He is also credited with managing serious troubles in Brazil, Mexico, Indonesia, South Korea and Thailand. During the current debacle in the US, he's had a close working relationship with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson. He's an establishment guy, with ties to Clinton advisers like Lawrence Summers and Robert Rubin. His philosophy is no doubt in line with the architects of the $750+ bailout that was recently approved by Congress. He's succinctly encapsulated his working philosophy by saying, “Most consequential choices involve shades of gray, and some fog is often useful in getting things done.” (The Wall Street Journal, Feb. 20, 2007).

On a personal level, it is said that Geithner is avowedly non-partisan, and a registered independent. He's known for his willingness to challenge authority, self-deprecating humor, and vast resources of energy. But he's also reportedly even-keeled and conciliatory. He's likely to maintain his close associations with Bernanke and Summers (who was pegged by Obama to be Chairman of the National Economic Council / Assistant to the President for Economic Policy*). It's evident that Geithner is an advocate of applying a robust activism in order to "save" the markets. Whether that means "business as usual" is yet to be seen, but the scuttlebutt is that Geithner wants even more power to search for solutions in order to avoid another Great Depression.

* Some suspect that Summers was offered this position instead of Treasury Secretary in order to avoid tricky confirmation hearings. Summers is known as an advocate of unfettered "free markets" and deregulation. This article, however, suggests that Geithner has been arguing for more consolidated supervision over the banking and financial industries.

There is also speculation that Lawrence Summers will be groomed to become the next Fed Chairman when Ben Bernanke's term expires in 2010.

The Big Three: Belly-up or Bailout?

Now the big three American automakers have made their great journey to the "Land of Milk and Honey" that we call D.C., and they have their hands extended for a bailout. And really, who can blame them? They have seen the federal government give out $750 billion to the financial world, and they want their piece while the getting's good. Unlike Wall Street, Detroit can actually lay claim to making a product that many citizens are reliant on. While it's true that the populace can look elsewhere for automobiles (and many in fact do), it also must be noted that between those who actually work directly for the "Big Three", and all the ancillary companies that support the industry, there are approximately 2.5 million jobs at stake.

I find it completely understandable that folks are resisting forking over more funds for corporations that have a long tradition of mismanagement. I've read estimates that General Motors is losing $1 billion a month. The outstanding question is, "Will any low-interest government loan amount to throwing good money after bad?" If the policies and strategies of car manufacturers in the United States don't change, then there is no reason to believe that an injection of $25 billion into the industry will do anything other than delay its inevitable failure. Still we are told that GM is on the cusp of finally unveiling the Chevy Volt. Maybe this is the chunk of change that will finally put the product over the top?

It's pretty obvious that the reliance on making high-profit SUVs and other large model cars has put these automakers in dire straits. It was fine when gas was consistently cheap... the marketing campaigns were effective enough to convince many suburb/exurbanites that they needed these things for their family trips back-and-forth to Walmart. Once a substantial number were on the road, ownership of such inefficient machines was seen as a status symbol. Then it was easy to justify buying one because you needed to keep up just to be safe among the other behemoths of the road. It was a self-perpetuating cycle that was only stymied by the steep increases in fuel prices. Of course after that it was difficult to give them away.

Still, those who favor such profligate consumer lifestyle choices will say that the state of the "Big Three" has nothing to do with SUVs, but rather the salaries and benefits of unionized auto employees. It's easy to surf the net and find people bitching about "luxury" dental plans and "undeserved" wage increases. Their position is that if we just adjust worker compensation to fall in line with those in third world nations, then we'll be truly competitive. The answer, according to these "free market" capitalists, is "let them go into bankruptcy" so that they don't have to honor their labor contracts. They insist that the preservation of decent jobs is not the business of our national government.

However, I'm convinced that the "Big Three" is going to get their assistance no matter what. The only question is where the money is going to come from. Henry Paulson doesn't want to break it off from the ridiculously large sum he has been given to play with, without oversight. That's for the investment banks. He suggests that Congress take the sum from the legislative allocation that has been made to encourage the production of fuel-efficient cars. But Democrats are not going for it. Apparently they are sick of seeing these large corporations place all their concerns on short-term profits at the expense of technological investments that could serve them well in the future. I can't say I blame them. It sickens me too.

NOTE: One suggestion I've come across that seems just (but not likely) is to pressure oil companies (that have made record profits over the last several years) to extend low interest loans to the automakers. Of course if that did happen, there would need to be close governmental supervision to avoid any resulting influence that Exxon/Mobil would have on the "Big Three". That's already a bit of an unholy alliance.

Ding-Dong, the Witch is Dead. Now What?

There have been a lot of theories tossed around during the last several months to explain the economic crisis that has finally hit the United States. Perhaps it's because the effects of the long-brewing situation intensified during a presidential election, but it's notable just how political so many of the explanations have been. So many citizens are curious as to how the arcane manipulations of the system are going to hit them. For too long, otherwise intelligent and informed folks have taken it for granted that the markets work themselves out over time. There was no great perceived need for the populace to follow along too closely. I am certainly guilty of giving the workings of the economy little consideration.

It's become imperative that I drop my personal distaste for the details of the economy. Everyone seems to agree that we are in for a long period of tumult, and many are sure that we are entering a period of depression. How is that going to affect me and my family? How can I ensure the value of the money I have saved over a period of years? What is my life going to look like if shit really hits the fan? No doubt there are a lot of people asking themselves the same exact questions nowadays. But where can someone with little background in economics turn for substantial answers to these questions? It stands to reason that anything that has been said in the midst of a presidential election should be viewed with skepticism.

I do have recourse to a couple of friends that have been paying attention to the markets for a long time. These individuals have developed perspectives that go beyond the simple conclusion that we are "screwed". They offer insights into what may happen over the next several years. Still, it's obvious that no one can say for sure. People can't even agree on the reasons why we are in this terrible position in the first place. If you've been paying attention, you have no doubt heard from some "free market" capitalists that it's actually the fault of what little regulation has existed in the housing markets over the last decade. These guys are still pimping 80's-era mythology. The last refuge of the ideologue is denial.

Yet there are still "conservatives" that will blame the entire Wall Street debacle on Bill Clinton, Jimmy Carter, and the Community Reinvestment Act. The blame (under this theory) rests solely at the feet of low income (minority) borrowers that got in over their heads with mortgages that they could never afford. If you research the numbers, you discover quite quickly that this is a smokescreen. The percentage of subprime mortgages that were mandated by the CRA is minimal. There were people from all over the class spectrum taking out loans that exceeded the amounts that conventional wisdom dictated as prudent. Who was responsible for perpetuating the myth that housing values would increase by exorbitant amounts forever?

Naturally there were others (besides Clinton) identified as culprits. Alan Greenspan refused to raise interest rates despite the cautionary warnings that observers were delivering. Greenspan, a disciple of objectivist Ayn Rand and true believer in the "free market", failed to recognize the housing bubble until it was much too late to stave off the crisis of its resounding burst. As late as 2004 he was still encouraging prospective buyers to take out adjustable-rate mortgages. Greenspan's love affair with derivatives extended to mortgage-backed securities as well. He absolutely refused to entertain any regulations concerning these unproved and shaky financial instruments. Such tools have been identified as a further compounding cause of today's perilous economy.

Despite the fact that Greenspan was still trying to defend his outmoded libertarian views as late as this past April, he finally admitted his culpability on October 23, 2008, in testimony to Congress. In his dotage, Greenspan finally had to admit the fallibility of his lifelong commitment to "free market" ideology- "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief." Always admired for his qualities of understatement, when asked whether that meant his views had been wrong Greenspan responded, "Absolutely, precisely”. Little good that does us now. We'll pay the price of for his faith. But now that the "free market" witch is finally dead, what happens now?

What's With the Price of Oil?

Note: I wrote this post several weeks ago, but am only getting around to posting it now.

Last week, while the Dow Jones index was showing a precipitous decline, my thoughts turned toward "opportunities" to protect the current value of my savings. I've always been cautious regarding investments, to the point of (perhaps) hurting myself. Even when things looked rosy, I hesitated to buy into the American economy. For far too long the financial system has felt like a shell game. It doesn't seem like we make anything anymore, although (of course) I realize that isn't really true. Still I get the feeling that, more than anything else, the "success" of the dollar has much more to do with how fast people can keep it moving. So much of the time it seems like nothing is being produced in that process.

I'd be the last person to try and claim any expertise when it comes to understanding market forces. But now I am suspicious of so many who have put themselves forward as experts. There have been so many layers of complexity and obfuscation that no one really can provide a straight answer that will describe the current situation. Most of the time it appears that people are merely making decisions based upon "gut feelings". A consensus builds that the current climate is favorable, or alternatively that it is perilous, and ordinary folks tend to accept whatever conclusions are put forth in the name of "conventional wisdom". Ultimately if the argument can be framed in terms of supply and demand, then the argument is all the more convincing.

So what makes the price per barrel of crude drop so quickly at the same time the market is tanking? Logic suggests that as the US dollar value decreases, the cost of gasoline should rise (and vice-versa). Yet one of the most dramatic downturns of the economy in 100 years has been accompanied by sharply decreasing prices. One could suggest that the oncoming recession (or depression, or whatever) is has been affecting the demand for oil. After all, less activity requires less fuel. However, I'd be surprised if the markets are really responding that fast. One could also point to the frenzied speculation on energy commodities over the past year. That could certainly be playing a role as well.

The interesting thing is that when I talked about investing in oil commodities to a friend who many recognize as a "financial wizard", he advised me against it. His outlook on the potential recovery of the banking and credit systems is intensely pessimistic, and he expects oil prices to continue on a steep decline. And yet that still seems counterintuitive to me, as I would expect a functional resource of undeniable utility to retain (or even increase) its value during a sustained economic downturn. People may look to cut costs, but they still need to get to work. Add to that the variable of home heating costs during the upcoming winter, and everything appears further out-of-whack. It's hard not to suspect that there are shenanigans at work.

I've never gotten around to a formal study of the phenomenon, but it seems to me that gasoline prices always fall before a presidential election. I realize that oil trading is tied to the US currency, and that certainly complicates the picture even more. Ultimately we are at the mercy of these fluctuations, and it's disturbing that external forces could be manipulating the situation to make us act in a particular way. Alternatively, oil could merely be caught up in the huge sell-off of Wall Street, with everyone (including hedge funds) rushing to liquidate all their assets at once. I wonder if this affected the election cycle, with the challenge of energy independence seemingly at the top of everyone's list. I hope this crucial issue doesn't get relegated to the back-burner again.

"Socialism" Vs. Progressive Taxation.

In my earlier post about "Joe the Plumber", I wrote about how his elevation (by the McCain campaign and the Right Wing media) to the status of "middle class everyman" obscured the very real arguments being made about taxation in America. Apparently the majority of Americans are secretly seething about Obama's proposal to suspend the Bush tax cuts to the very wealthy. We are supposed to believe that 95% of America thinks that the richest 5% is overburdened by progressive taxation. Evidently no one realizes that we have reached the point where the interest on our national debt is approaching the amount we spend on our federal budget. How we are supposed to finance the government is increasingly an underexamined question.

We are in the midst of a financial crisis that is about to hit the American middle class with the force of a category 5 hurricane, and the GOP and its cronies have been trying to make the "socialist" brand stick to Barack Obama and his fiscal and domestic policy platform. I think that (once again) it's time to get our definitions straight. "Socialism" is "any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods". Progressive taxation obviously doesn't fall within the parameters of the definition. But this is what the extreme Right is referring to when it talks about its opponent's "socialist" policies.

Republicans would have you believe that the core principal of Socialism is income redistribution- "Take from the haves to give to the have nots." Not only is this crudely simplistic, but it is a Cold War-based lie that's been repeated since Ronald Reagan's presidency. Perhaps that's why the GOP is running on an anti-intellectual and anti-academic platform- because careful analysis exposes their argument for what it is. The US has been traditionally referred to as a "Capitalist" country. It is therefore illuminating that the vast majority of American economists (81%) support progressive taxation (SOURCE) and Obama's policy positions (SOURCE). But why should you bother listening to the experts when you have "your own" strong opinions?

What does a study of history tell us? If you are dead-set in changing the definition of the word "socialism" to include progressive taxation, then you have to accept that the USA has been socialist since 1862, when the first progressive income tax was passed in this nation (SOURCE). It is therefore an AMERICAN VALUE that has carried us through the years and helped us become a superpower. If you are against this tax policy, the case can be made that you are ANTI-AMERICAN. Naturally a "free market" idealogue is going to attempt to fight this conclusion using any means necessary. But the reality is that their alternative is a fantasy- "free markets" have never existed anywhere except in theory. It's a grand "utopian" fairy tale that wealthy people (and sycophants) have used to put the masses to sleep.

You often hear the "free market" dictum that “wealth creates wealth”. It’s not that there’s no merit to this argument. That’s why I don’t necessarily support “socialism”. But on the other hand, entrenched wealth creates obstacles to competition and innovation. The ideas that make men wealthy eventually become outdated with the changes in the environment. Yet wealthy men often have little incentive to adapt to those changes, because they risk losing their competitive advantage. They are more motivated to protect their wealth artificially by working to maintain the status quo. They have the resources to set the conditions to attain that end. Progressive taxation works against that stagnation.

Thomas Jefferson said, “"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." I’m not in favor of class warfare or anarchic revolution. I believe in incremental social change. By shifting the tax burden on to the wealthy, you free up the middle class to provide new ideas to adapt to a changing society (and to put their own money behind these ideas)- something that the entrenched wealth of the upper classes has proved itself incapable of. Entrenched wealth stifles innovation and competition the same way ruling classes have in so-called "socialist" nations. Progressive taxation doesn't "punish" achievement. That's a ridiculous notion. It fosters enhanced economic class mobility, which is crucially necessary in encouraging the adaptation necessary over the long run.

EESA and the Transformation of American Economic Values.

Once again we are being told that the Wall Street bailout (I mean "rescue"... or is it "stabilization"?) was on the verge of accumulating enough votes to pass. The terms of the deal (now titled the "EMERGENCY ECONOMIC STABILIZATION ACT OF 2008") are available in complete and summary form on many sites throughout the Web. The fact that the breakdown of the bill was not presented in bullet form is a bit disconcerting. It's as if Congress wants the reader to work in order to understand it. The obfuscation written into all pieces of legislation inhibits most people from truly engaging proposed bills. If there is a truly "elitist" bent in modern-day American politics, it is most evident in this bipartisan approach to "transparency".

Make no mistake about it... the Democrats will own whatever bill eventually gets passed. Some will point out that the president can veto the bill, but it appears unlikely that any version will be voted on if that possibility exists. So the extent to which the EESA protects the interests of the taxpayer is determined by whatever concessions the Dems can wrangle from George W. Bush and Henry Paulson. Certainly House Republicans will try to take credit for introducing their own version of the legislation, but these claims will be mostly disingenuous. The fact is that the only addition they have contributed is a government-run insurance company for bad private investments (which seems like a function similar to that of AIG).

It's not like the small cabal of House Republicans* that were ushered into the White House by John McCain last Thursday didn't have a lengthy wishlist. But first and foremost, they wanted to test their economic theories of the "free market". At the heart of the matter, they are resolutely against any government intervention. In other words, they'd let the situation play itself out if it were left up to them- stability of the nation be damned. It doesn't really matter that the vast majority of national and international economists (from all points along the political spectrum) have warned that action is necessary to avert a major worldwide crisis. To give you a sense of where House Republicans are coming from, keep in mind that their main objective was to push for corporate and investor tax cuts to be included in the bill.

Despite what the disciples of pure economic theories believe, we are witnessing a major transformation in the way that global markets are managed. It is no longer possible to convince the majority that deregulation is an ultimate good. Those policies have allowed certain banking corporations to get so large that they can effectively hold the health of the country for ransom. This is effectively extortion by the very players that got us into this mess with their advocacy of completely unfettered markets. What I find particularly galling is that John McCain continues to enable those with this philosophy while simultaneously proclaiming himself the contemporary Teddy Roosevelt. This is a mortal insult to that great former president's legacy of trust-busting.

Now I'm not saying that I wholly support the bill that Congress turned down today. I would have preferred that the government simply offered loans at moderate interest rates, instead of offering to buy highly dubious assets at a reduced price. If these turn out to be worthless, the taxpayer would lose big under such a plan. I also appreciate the lip service devoted to regulation and oversight. We've heard that before, and for it to be effective government must attempt to be incorruptible. Still I am thankful that we don't have the Congress that presided over the economy for the first six years of Bush's presidency without confronting the impending collapse of Wall Street. If we've learned anything from the last ten years, it's that laissez faire capitalism is a potentially fatal strategy as it essentially rewards unlimited greed, borderline-criminal short cuts, and a dangerous degree of deception.


*The reponsible parties for inaction include John McCain, Eric Cantor (VA), Paul Ryan (WI), Jeb Hensarling (TX), John Carter (TX)... and ?

Trying to Understand Another Wall Street Crisis.

Like many across the nation and in the blogosphere, I've been investing a fair amount of time trying to learn as much as I can about the crisis on Wall Street. The last time I had an economics course was approximately nineteen years ago, and to say this is all new to me is a bit of an understatement. Still, people who have had an extensive background in the field and in universities seem just as confused. I think it's important to figure out as much as I can about the issues facing our nation, even (or perhaps especially) if so many of the major players seem intent on obscuring the reality. So I'm going to continue to plunge in and try and gather as much information from as many diverse sources as possible.

One of the most problematic aspects of the way the Government has responded so far rests squarely with the Bush administration. Along with Henry Paulson (US Treasury Secretary) and Ben Bernanke (Chairman of the Federal Reserve), the president seems bound and determined to force Congress into acting without much reflection. This, of course, comes as no surprise for anyone following along closely over the last eight years. The strategy seems to entail systematically letting things get so out of hand that it's possible to scare the political opposition into agreeing to "emergency measures" that further the Bush agenda for America. I've always suspected that those in power want to bankrupt the federal government in order to stifle progressive action.

So a $700 billion bail-out proposal has been delivered to Congress, and action is demanded this week. Within this proposal is embedded a very simple message- profits are privatized and losses are socialized. Who is genuinely surprised by the audacity being displayed here? There is NO oversight in this plan. There is NO reward for the taxpaying public that is asked to shoulder the financial burden of a cabal of criminals who knew exactly what was at stake when they risked the public welfare for their own material gain. Paulson continues to threaten the US with a deep recession if his rewards package for inefficient and corrupt financial institutions is not approved without change. But most observers suggest that severe economic pain is going to happen regardless.

Exactly who is looking out for the public good? I'm happy to report that both parties are resisting Paulson's onerous package. Yet I wonder about the motivation. Times Online is reporting that McCain's advisers and some senior Republicans are telling him to exercise the "nuclear option". They believe that a "populist" stance might be a "game-changing" move that would win him the election. So they are saying he must oppose the bailout. But for at least a few days John McCain has taken the position that something must be done for the future of the economy. Fortunately he doesn't feel as desperate about his chances for the White House as those around him. He still maintains* that he is committed to a bipartisan resolution. We'll have to wait and see.

Meanwhile no one in Congress seems anxious to accept the Bush/Paulson/Bernanke plan. Everyone insists that there must be more oversight. I find it remarkable that the GOP is abandoning its long-held, unquestioning position as the official standard-bearer of deregulation and "unfettered free-markets". But despite the "bipartisan" opposition to the Bush Administration's "no-condition bail-out", there is a significant difference between what the Democrats and Republicans are seeking. Barack Obama** and the Democrats are trying to ensure that the American taxpayer gets some kind of chance for reward in exchange for assuming risky investments. That condition is noticeably absent in the current McCain plan.

* I think it might serve the reader to have McCain's words documented now, in case he does end up engaging in another flip-flop:

"Inaction is not an option. The American people are watching, history will be our judge and it will judge us harshly if we do not put our country first," McCain said in his first press availability in six weeks." Link.


** Obama also seems to be looking past the crisis in an effort not to continue repeating the same mistakes. "Obama said he would aim to prevent another crisis by pushing for measures to curb the influence of lobbyists, streamline and strengthen regulatory agencies, crack down on no-bid government contracts and make government more open and transparent." Link.

John McCain, "The Greatest Deregulator".

The US economy seems to be coming apart at the seams. The Federal Reserve recently announced its latest bail-out- the AIG Corporation. The Reserve has offered an $85 billion loan to be paid back over the course of the next two years. Of course this comes on the heels of government rescues of other private corporations like Bear-Stearns and Fannie Mae/Freddie Mac (which readers of this blog certainly do not have to be reminded of). It's interesting to note that previous to this latest action, federal officials importuned the private sector to come up with some funds to save a crucial cog in its machine, but alas, when true saving is required it seems the government is always the fallback plan.

This is especially galling given that the private sector bemoans government intervention whenever they perceive it as a risk to their unfettered pursuit of short-term profits. I can't tell you how many times I've had to listen to armchair economists and "libertarians" extol the virtues of the Private Sector, and its vast superiority at meeting the needs of the American citizenry. These folks push for deregulation at every turn, and turn their heads when their Wall Street idols extend their hands for more taxpayer dollars to save their collective ass. The fact is that their self-interest always overwhelms their principles. When push-comes-to-shove they remind us that we are all "collectivists" when we are in trouble.

So the financial markets continue to make crucial mistakes that we are asked to pay for when times are bad, and then fight tooth-and-nail against giving anything back when things are going "well". When any politician even hints about raising corporate taxes, he/she is branded a "socialist", yet when "free market" adherents get themselves and the nation's economy into a crisis and require corporate welfare from the government, they are quick to remind us that "we are all in this together." I'm no expert in economics (and neither are you), but it doesn't take a genius to realize that we are getting bilked. There are very real individuals exploiting the myth that Capitalists can do no wrong.

These corporate pirates build their "house of cards" and resent anyone who wants to take a close look at its foundation. According to their worldview, government is corrupt and inefficient and has nothing to offer in its regulatory capacity. That's why a guy with a record like John McCain is so alluring for them. By his own admission, he doesn't know much about economics either. But he does have a solid record of being anti-regulation. His most notable bipartisanship effort was his membership in the Keating Five. That esteemed group of senators ignited a major scandal as part of the Savings and Loan crisis of the 80's. It cost the American taxpayer more than an estimated $180 billlion.

So John McCain does know a thing or two about the perils of relinquishing government oversight of crucial US financial markets. So why does he take such great pains to remind us that he is the "Greatest Deregulator"?* Besides the fact that it is the one time he seems to be telling the truth, it could have something to do with his top economic advisors. In the 1990's, Phil Gramm worked overtime as Chairman of the Senate Banking Committee to deregulate the banking and financial services industry. And then there is Carly Fiorina, whose biggest claim to fame so far is having been fired by Hewlett Packard for having engineered a failed merger with Compaq. Of course McCain mostly uses her to level charges of "sexism" against Barack Obama. But at least she admits that neither McCain or Palin have the executive experience to run a major corporation.





Bottom line- the "markets" are not going to sort themselves out. We need to start thinking on a longer-term basis. Neither John McCain nor his advisors can be trusted on the subject of the economy.


* “You are interviewing the greatest free trader you will ever interview, and the greatest deregulator you will ever interview”

-John McCain, As Quoted in The Wall Street Journal, March 29,2007.

Steven Levitt & Stephen Dubner, "Freakonomics" (2005).

If I made a hierarchical list of my reading interests, the subject of economics would be close to the bottom. When I was an undergraduate, course requirements included a semester each of macro- and micro-economics. I remember very little of anything that was presented in those courses. I didn't pay much attention because I found the material tedious. Since then my understanding of the way economies work hasn't gotten much further than the laws of supply and demand, and diminishing returns. I consider my curiosity fairly broad, but for some reason I'm not compelled to learn much else about economics. So if you suggested that I would be likely to find myself reading a book on the topic, I'd probably laugh at you.

Yet somehow I am reading a book that can be nominally defined as a study of "economics". Still I'd characterize Steven Levitt and Stephen Dubner's Freakonomics as a work more aligned with sociology than any ordinary approach to economics. Levitt is a Harvard-educated academic who is considered to be among the very best economists of his generation (he recently turned 40). In 2006 Time Magazine included him on their list of "100 People Who Shape Our World". But it is not strictly his theoretical genius that has earned him worldwide fame. Actually he's best known for his unconventional approach to the application of economics. He uses the tools of the field to examine phenomena in politics, law enforcement, and education.

Freakonomics is the result of repeated requests from publishing houses for Levitt to write a mass market book on economics for laymen. Having judged himself an insufficient writer, he enlisted the help of Dubner, who had interviewed him previously. Together they set out to write a book that the average reader could understand. Levitt expresses a distrust of the typical obfuscations that the mathematics of economics employs. In fact he has been noted as having said "I just don’t know very much about the field of econometrics." His basic belief is that the rules of the field can be applied to virtually anything. And together the authors convey a set of these structures in "common sense" language that doesn't require a background in economics to understand.

But what makes this work eminently readable are the mysteries that Levitt and Dubner study, and the conclusions that they draw. Likely the most controversial finding is their contention that "Roe Vs. Wade" is responsible for the steep decline in American crime rates during the mid-90's. It was this bit of analysis that brought Freakonomics to my awareness in the first place. Upon its initial release, there was a wave of protest about this idea. The authors explain that the huge increase in abortions after legalization eliminated a large portion of the criminal class that would have come to age in the early part of the last decade. The underlying assumption here is that unwanted babies grow up with a greater risk of transforming into law-breaking adults. This was obviously damaging for the growing number of moralists and fundamentalists in the US.

This slim volume is packed with similarly intriguing (if mostly less incendiary) material. Levitt and Dubner talk about the commonalities of Japanese sumo wrestlers and American teachers. Apparently both groups will cheat if given the proper incentive. They describe the asymmetrical information advantages of real estate agents, and how the Internet is actively undermining that imbalance. They even present an insider's look at the accounting logbooks of a chapter of the Black Gangster Disciple Nation. We get to see exactly how lucrative crack-dealing is, and for whom. All in all, this is an entertaining and informative read- if only a bit thin conceptually. Although I don't feel that it offered me an integrated way of thinking about the world, Freakonomics did let me peer through some unlikely windows for unique perspectives.