He gave a speech to Wall Street earlier this week in which he said, “A
lot of pieces are falling into place for recovery.” He's predicting a
“pronounced recovery.” Despite the fact that much of Europe and Canada
have already begun to pull out of a recession while America is still
mired in one, he thinks this recovery will spread from America to the
rest of the world. In other words, Greenspan is about as well connected
to economic reality as ever.
He demonstrated with one of his standard oracular pronouncements.
“Surprises are on the upside.” The correct antiphon, provided by Ian
Anderson, is “Cats are on the upgrade.”
In Greenspan's world, the politically palatable term for working the
employees harder and giving them less in return is “productivity” and,
with wages crashing around the country due to sky-high unemployment,
Greenspan sees a huge burst in productivity coming. He was thrilled with
what he called a “huge cost-cutting program” -- that would be your wages
-- that has bolstered profits.
Well, I'm certainly happy for Wall Street. I'm sure there are hundreds
of millions of people who are thrilled to take yet another drop in their
personal standard of living in order to support the market in the style
to which it has become accustomed.
It will be a year ago Tuesday that Wall Street finally noticed that the
entire world economy was imploding. The housing market collapse in the
US was the triggering mechanism, but the really big element, the one
that could put us back into the good old days of flint knives and sharp
sticks, was the unsecured and highly leveraged securitized notes, the
derivatives. The Credit Default Swaps. If banks, brokerage houses and
mortgage brokers (oh, hell, they're all the same thing these days)
defaulted on those, the whole house of cards would come crashing down.
So the Bush administration, in its dying days, convinced Congress to
pony up $700 billion so the Wall Street monkey spankers could cover
their gambling debts. A lot of people are still pissed about it because
it was seen, quite correctly, as a vast giveaway of taxpayer money to
the undeserving rich. But it did the job. The spankers covered their
notes, the loan sharks didn't close in with demands they file for
bankruptcy, and we avoided an economic Armageddon that would have
dwarfed the crash and subsequent Depression three quarters of a century ago.
And that's what pisses people off. We ponied up that $700 billion, with
the understanding that Wall Street would stop blowing it at cheesy
casinos. We wanted the casinos shut down, and the bankers to act like
guardians of our money rather than like a drunken high school football
team with a fresh crate of condoms.
But, we reasoned (those capable of reasoning, that is; Republicans just
folded their arms, stuck their noses in the air, and looked away,
refusing to address the crisis they had caused), the upshot would be
that we would avoid an economic collapse, and bring about desperately
needed regulation and reform to the financial sector, which had come to
resemble a Mafia movie shot by Mel Brooks.
We haven't gotten the reform. In fact, there isn't even a whisper of
serious reform in Congress, or at the White House. And we've set
ourselves up for an even bigger fall.
I mentioned a lengthy piece Paul Krugman wrote for the New York Times
Magazine last week in which he argued that the fatal flaw in free market
economics is the belief that the markets are rational, and how it is
this belief that led to the strange perversions of logic that infest
libertarian thought. (In a humor piece, I had Satan expressing his
delight with free-market economics).
Stephen Mihm has a piece in The Globe this weekend, talking about how
lightly-regarded economist Hyman Minsky turned out to be the one who was
right all along. Mihm wrote, “[I]f Minsky was as right as he seems to
have been, the news is not exactly encouraging. He believed in
capitalism, but also believed it had almost a genetic weakness. Modern
finance, he argued, was far from the stabilizing force that mainstream
economics portrayed: rather, it was a system that created the illusion
of stability while simultaneously creating the conditions for an
inevitable and dramatic collapse.”
Sounds a bit like something Marx and Hegels might have argued, or
Vladimir Lenin. Capitalism contains the seeds of its own destruction,
and the inevitable decline of capitalism will led to the socialist
state. In the piece I wrote last week, I described the market's
inability to be a stabilizing force and wrote, “The market is nothing
more than an isostatic point between greed and fear, and that point is
forever shifting haphazardly. Thus it's filled with irrational
exuberance and paralyzing paranoia. Think Hitler in the bunker, and you
have a typical day on Wall Street.”
Not a recipe for stabilization, oh, dear me, no.
Nobel Prize- winning economist Joseph Stiglitz took it a step further,
According to a Bloomberg article by Mark Deen and David Tweed, Stiglitz
said the U.S. has failed to fix the underlying problems of its banking
system after the credit crunch and the collapse of Lehman Brothers
Holdings Inc. “In the U.S. and many other countries, the too-big-to-fail
banks have become even bigger,” Stiglitz said in an interview today in
Paris. “The problems are worse than they were in 2007 before the crisis.”
Today's London Guardian noted that the problem wasn't limited to
America, marveling at the fact that the British Stock Exchange, the
FTSE, had had its worst year since the Great Depression, but that
despite this, executive salaries had risen 10%.
The apologists, of course, are saying that the markets will heal
themselves. Some natural force will rein in the excesses. The Invisible
Hand will give Wall Street a pat on the back to burp it. All is well,
all is well, all manner of things will be well, Panglossian economics
now, forever, and sustained economic growth for all eternity.
Of course, that's where Greenspan's explosion in productivity comes in.
The market figures to continue living the high life by cutting wages and
benefits, something they'll find easy to do when the effective
unemployment rate is 17% and there are a lot of frightened, desperate
people out there.
You lucky dog! You might get a part time job at $4 an hour, but just
think of the deep sense of satisfaction you'll feel knowing that the CEO
of a major insurance company can still haul in $25 million a year plus
stock options and golden parachute, and STILL be able to spend hundreds
of millions (tax deductible) fighting against universal health care or a
So even as you lose your house and your kids' lives are at risk if they
get cavities, Greenspan will be able to crow that America is more
productive than ever. And you will have done your part!
In the meantime, Greenspan will continue to overlook a vital point, as
will the rest of the entire financial sector. In order to have a
consumer society, you need a strong, well financed middle-class. And
people who are struggling to keep their homes, don't have a dime in the
bank, and have all their credit cards maxed out are not strong and
well-financed. So Greenspan's dreams of uber-productivity, of a type not
seen since the German Economic Miracle of the late 1930s, will come up
against the inconvenient fact that the consumers are all broke, do not
suffer from irrational exuberance, and aren't going to be buying all the
shit being made in oh-such-a-productive manner.
Don't expect much in the way of reform until the people revolt -- either
at the ballot box, throwing out the bought-out dogs of Congress, both
Republicans and Democrats -- or in more visceral ways. The difference
between a Republican and a Democrat is that financial interests own the
Republicans, and they just lease the Democrats.
I wonder how many people have a Congressman like ours. He gets most of
his campaign funding from sources outside the district, and none of them
have any economic activity locally. They just know a cheap, easy-to-buy
Congressman when they see one, and all he has to do to get reelected is
spend a lot of corporate money and mewl about terrorism, abortion,
environmentalism, and libruls.
Don't expect any major economic reforms in the immediate future.
Yves Smith, who runs Naked Capitalism blog, put it best: “It is pretty
hard to regulate someone who has a knife at your throat.”
However, Hyman Minsky was right. The system is inherently unstable, and
we got a glimpse of the chaotic abyss that underlies those pillars of
the country on Wall Street. The $700 billion really did save us from
economic catastrophe, food-riots-cities-aflame-people-dying type
All we've done is set ourselves up for an even bigger one.
Probably within the next two years.