Beltway Media Invent Populist Tight-Rope for Obama
My, here's a fascinating article in the Washington Post. It's revealing both in its uncritical reliance on the received wisdom of the day and its casual burial of what appear to be serious conflicts of interest in a ho-hum throw-away graph.
Let's begin with this lede:
In attempting to harness public anger over the financial crisis on behalf of his budget, President Obama is confronting the politically uncomfortable fact that the success of his long-term agenda and Wall Street's recovery are intertwined.
That depends entirely on what one means by "recovery." We certainly need a functional financial system that performs its core functions -- primarily lending -- adequately. But, as I wrote a few months back, the financial sector has become a large, tumorous growth on the "real" economy:
Here’s a fun fact about the finance industry. Historically, it’s grown and contracted along with the business cycle. When the economy was going gang-busters and businesses were expanding, it was there to provide capital and insurance and connect investors with entrepreneurs and innovators. Then, when the business cycle took its inevitable turn and the economy slowed down, it would contract. But a funny thing happened on the way to the financial meltdown; as the Associated Press noted, "when the Internet bubble burst in 2000, the sector never stopped growing. Instead, it ballooned over the past eight years to around 10 percent of the U.S. economy, puzzling economists."
It’s not such a puzzle. In large part, the continued growth of the sector was based on the explosion in derivatives -- high-value vapor -- rather than anything connected to real growth in the "nuts and bolts" economy.