Krugman: This is a Depression
Over the past year, I’ve seen these words posted by many of the FP’ers here, and they are thus: “It’s sad to see what passes for happy news about our economy these days.” IMHO, folks are grabbing at straws. Frankly, I get the sense from some that it’s bordering on (wilted) “green shoots” déjà vu. Those talking points didn’t work for our Party in 2010, and they sure as hell won’t do the job for us in 2012.
Perhaps, as Paul Krugman notes in Monday’s NY Times (and if you read the collective commentary of some of the better-known economic pundits in the MSM over the past 48 hours), we really are teetering on the abyss.
Many important opinion pieces on these inconvenient economic realities have been published over the past couple of days. Phenomenal in their succinct and elegantly simple observations of fact, I’m providing links to them, down below. They speak for themselves. Taken together, they provide us with the over-arching narrative on much of what is wrong within our global society, today; and, here in the U.S., where many of our international economic woes began.
Two pieces stand out as bookends to these truths, however. First, as Kossack La Feminista noted in her post here less than 24 hours ago, covering a column in the (UK) Independent by Robert Fisk: “Bankers are the dictators of the West.”
The other bookend to this weekend’s enlightening narrative/commentary appears in Monday’s NY Times, by none other than Paul Krugman, in: “Depression and Democracy.” The opening sentence pretty much says it all…
It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.
On that last point, I am not being alarmist. On the political as on the economic front it’s important not to fall into the “not as bad as” trap. High unemployment isn’t O.K. just because it hasn’t hit 1933 levels; ominous political trends shouldn’t be dismissed just because there’s no Hitler in sight.
Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.
Bold type is diarist’s emphasis.
Krugman discusses the rise of authoritarian rule in Hungary, and he closes with a warning — one which certainly resonates here in the U.S. today, too — economic unrest breeds political unrest..
He states: “…it’s a sample of what may happen much more widely if this depression continues.”
Krugman notes that Europe’s leaders must try to halt the authoritarian slide in Hungary “…or [they] risk losing everything they stand for. “
The Nobel laureate closes with the following warning…
…they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.
For many years, much to the chagrin of some in this community, I’ve been saying that the biggest tactical mistake the Obama administration made (and, to some extent, continues to make, even when they make occasional pronouncements to the contrary) was when they decided to not use the “D”-word (with regard to the shambles that were left behind for the current administration to address) from the very first day they took office. Tonight, as noted in a highly-rec’d diary in the community, the Party line—and as Morgenson also notes in Sunday’s NY Times, the media’s beginning to get the semblance of a clue, as well--is changing. But, don’t look too closely, because you’ll see that many/most of the same people that were managing the economy when Bush was in office are (still) at the helm, today.
Morgenson and NY Times Editor Eduardo Porter also authored two outstanding columns (in-between Fisk’s and Krugman’s “bookends”), this weekend, about the basic realities that, given record-breaking U.S. income inequality and the reality that our nation’s too-big-to-fail banks are bigger now than they’ve ever been, our economy—and our very way of life--is more at risk now than ever.
Read together (and while this certainly is NOT news to many reading this), these four pieces by Fisk, Porter, Morgenson, and Krugman, all appearing within the MSM in the past 48 hours, serve as a wake-up call: The very fabric of our society—both nationally and globally, as we’ve known it--is at risk.
First, here’s Fisk:
…The banks and the rating agencies have become the dictators of the West. Like the Mubaraks and Ben Alis, the banks believed – and still believe – they are owners of their countries. The elections which give them power have – through the gutlessness and collusion of governments – become as false as the polls to which the Arabs were forced to troop decade after decade to anoint their own national property owners. Goldman Sachs and the Royal Bank of Scotland became the Mubaraks and Ben Alis of the US and the UK, each gobbling up the people's wealth in bogus rewards and bonuses for their vicious bosses on a scale infinitely more rapacious than their greedy Arab dictator-brothers could imagine.
I didn't need Charles Ferguson's Inside Job on BBC2 this week – though it helped – to teach me that the ratings agencies and the US banks are interchangeable, that their personnel move seamlessly between agency, bank and US government. The ratings lads (almost always lads, of course) who AAA-rated sub-prime loans and derivatives in America are now – via their poisonous influence on the markets – clawing down the people of Europe by threatening to lower or withdraw the very same ratings from European nations which they lavished upon criminals before the financial crash in the US. I believe that understatement tends to win arguments. But, forgive me, who are these creatures whose ratings agencies now put more fear into the French than Rommel did in 1940?
Why don't my journalist mates in Wall Street tell me?
…The Arabs have at least begun to shrug off this nonsense. But when the Wall Street protesters do the same, they become "anarchists", the social "terrorists" of American streets who dare to demand that the Bernankes and Geithners should face the same kind of trial as Hosni Mubarak. We in the West – our governments – have created our dictators. But, unlike the Arabs, we can't touch them.
And, here’s Pulitzer Prize-winner Gretchen Morgenson, from Sunday’s NY Times: “The Fattest or the Fittest?”
ELIMINATING the benefits reaped by institutions that are too politically powerful and interconnected to fail has been an elusive goal in the aftermath of the credit crisis. Institutions most likely to receive assistance from the federal government if they become troubled — behemoths like Citigroup, Bank of America or Wells Fargo — have grown only larger in recent years. Efforts to pare down these banks have met well-financed resistance among policy makers.
She notes that “…reducing the perils of gargantuan institutions — and the threat to taxpayers — is an idea that seems to be taking hold in Washington. To be sure, the army arguing for change is far outgunned by the battalions of bankers and lobbyists working to maintain the status quo. But some combatants seeking reform believe they are making headway.”
Exemplifying this new development, Morgenson points to Richard W. Fisher, the president of the Dallas branch of the Federal Reserve.
…In a speech last month he described, quite colorfully, the problems of these unwieldy institutions and the regulatory ethic “that coddles survival of the fattest rather than promoting survival of the fittest.” Bank regulators should follow the lead of the health authorities battling obesity rates among our population, he said, adding that he favored “an international accord that would break up these institutions into more manageable size.”
This is a banker talking, not a member of the Occupy Wall Street drum circle…
(More from Morgenson in a moment.)
In his NY Times’ “Sunday Observer” editorial, Eduardo Porter talks of “The 1 Percent Club’s Misguided Protectors.”
The Republican right is pushing back hard against the 99 percent movement and its focus on the widening chasm between the fortunes of the few at the summit of the income scale and everybody else…
Porter then continues to echo a theme (which he documents quite nicely with graphics—checkout his commentary, linked just a few sentences above) which, at this point, is very familiar to those in this community…
…This indifference is grounded in a proposition that has for decades dominated American debate over redistributive policies like steeper taxes for the rich: that inequality is an expected outcome of economic growth, and that efforts to tamp down inequality would slow growth down. As President Obama said in his speech in Kansas last week, this strain of thought goes back to at least the turn of the last century when “there were people who thought massive inequality and exploitation of people was just the price you pay for progress.”
(As most reading this post already know, the U.S. is currently experiencing the greatest level of income inequality between our nation’s haves and have-nots since reliable metrics [back in the nineteen-teens] were first introduced to adequately measure those statistics.)
Porter discusses International Monetary Fund (IMF) research by economists Andrew Berg and Jonathan Ostry that “…reveals the link between inequality and the sustainability of economic growth. Igniting growth is easier than maintaining it. They found that in high-inequality nations spurts of growth ended more quickly, and often in painful contractions.”
More from Porter…
…The economists found that income distribution contributes more to the sustainability of economic growth than does the quality of a country’s political institutions, its foreign debt and openness to trade, the level of foreign investment in the economy and whether its exchange rate is competitive.
It’s not too hard to see why. Extreme inequality blocks opportunity for the poor. It can breed resentment and political instability — discouraging investment — and lead to political polarization and gridlock, splitting the political system into haves and have-nots. And it can make it harder for governments to address economic imbalances and brewing crises.
Porter concludes with more statistical annotation supporting the reality that “…inequality in America has soared over the last 30 years, approaching and even surpassing that in many poor countries. Today, America is an outlier among industrial nations. Its distribution of income looks closer to that of Argentina than, say, Germany.”
In his closing sentences he compares what has happened in the U.S. economy with the…
… characteristics of boom-and-busts in less developed nations. It was triggered, in part, by 1 percenters on Wall Street persuading regulators to remove restrictions on their casino. It led workers to pile on debt to supplement falling incomes. It ended with a vast deployment of tax dollars to bail out fallen plutocrats. And our political system seems unable to deal with the aftermath.
Gretchen Morgenson spends the second half of her column discussing one Democrat who’s attempting to deal with “the aftermath,” Ohio Democratic Senator Sherrod Brown. He’s doing everything he can, in his role as the Chair of the Senate Banking subcommittee on financial institutions and consumer protection, to put a saddle on “megabank risk.”
…In April 2010, he was a co-sponsor of the Safe Banking Act of 2010 with Ted Kaufman, the former Democratic senator from Delaware. The bill, which would break up some of the largest banks by requiring caps on institution size and leverage, ran into a buzz saw of opposition from the usual suspects.
But Mr. Brown soldiers on; he said in an interview on Thursday that he, too, believes the debate is changing. “We’re seeing sentiment grow on the Brown-Kaufman idea,” he said. “We are seeing some people who are pretty conservative here understanding the implicit subsidies these megabanks receive. Our goal is that senators understand this to the point of wanting to take action.”
As Morgenson notes in her closing comments from Sunday, Wall Street fatcats “…are being paid for taking risks that generate lush bonuses when things go well but that require taxpayer bailouts when the tide turns. Main Street understands that this is wrong and that allowing it to continue is dangerous. It’s past time that Washington did something about it.”
As Krugman reminds us, today, our near-term and future well-being relies upon responsible government action, both here and abroad, coming to pass—not just in words but in actions--NOW.
I cannot help but get a sense that we are witnessing a massive historical failure of government, not just nationally, but globally. At then end of the day, compared to the suffering it will bring, it won’t matter who’s to blame.
We are all in this together. It may be the greatest bipartisan sentiment of all. Dare I say it…even a lot of Republicans, and perhaps a few bankers, will understand that.