Two compelling stories from Simon Johnson in two days.
(1) He says the Republicans eagerly await the next round of election money from Wall Street players ready to take revenge on politicians who have tried to reform them.
(2) Then he says the crisis in Europe will be too much for U.S. banks – credit will tighten, forget recovery.
Here’s a simple story told well, about a tiny piece of the new economy. Laid-off steelworkers find good jobs making windwills for renewable energy.
I sometimes wonder what’s so hard to grasp about the trillions of dollars in revenues waiting for the smart entrepreneurs in our new, sustainable economy.
It’s really pretty simple: there is great bounty given to us in our original world. We only need to learn how to spend creatively, contributing back to the bounty, and we can live here forever.
Ray Anderson reflects on the 15 years passed in his effort to transform a billion-dollar carpet manufacturing operation, from a petro-intensive resource “plunderer” into a zero-footprint, eternally sustainable company.
It’s looking good – he’s 60 percent of the way up that mountain he talks about, and he and his people can now see the top. They know they’re going to get there.
With “only” 11,000 workers fired last month, the job-loss slide may be easing, or it may be a seasonal stall in shedding employees. The new year will tell.
Much may depend on fiscal policy. Economists agree that most of the 2.8% growth in the third quarter is a result of the stimulus. As I’ve said before, more stimulus would work wonders right now.
Meanwhile, where is reasonable security of tenure, and strategic job-holding for willing workers? Only in sustainability – that third economy I mentioned the other day.
Others agree that green job creation is a miracle profit center waiting to explode.
Nouriel Roubini paints a stark picture of our economic prospects and tells a tale of two economies, one rich, one poor. Personally, I’m heading for the third economy, the one being newly created right now all around us as a sustainable economy.
We’re losing jobs, credit is unavailable, small businesses and householders are being forced to bankruptcy, and this will continue for some time yet.
On the basis that the old economy was wrongly constructed to begin with, what’s actually to preserve here? The old jobs are never coming back. Time for new jobs.
Calculated Risk notes that the Obama administration is considering the elements of the next stimulus package. Unemployment is right around 10 percent and the 2010 elections are close.
The economy needs more stimulus to help us out of the recession, says Nieman Watchdog in its latest project, Reporting on The Collapse. The stimulus effort helped us stave off worse disaster, and is helping us recover, and could do even better with even more. A time that calls for aggressive fiscal policy is not the time to worry about deficits, says Nieman.
I agree. I think anyone who’s watched impartially has seen the stimulus work – in fact we’re currently seeing states lay off workers now as the stimulus funds are used up.
We don’t need to suffer job losses during recesssions – it’s only through ignorance and uncaring that we do. During contractions we should retool our economy and most importantly retrain our workforce, and gladly use budget deficits if necessary for these ends.
We’re seeing a lot of stories about big bonuses to the recipients of taxpayer bailouts. What’s odd is that the outrage we read doesn’t seem to penetrate into the financial industry. The moral voice doesn’t seem to carry through the insulations of layers of money.
As to why we coddle these giants of finance, apart from their having bought the political system with our money: our culture contains much forebearance for financiers, perhaps from the assumption – now proved obsolete – that what they do is both difficult, and incomprehensible to most of us.
Here on the eve of Obama’s speech on health care before Congress, I just caught up with a Frontline special from 2008 on how five industrialized nations around the world handle their own health care.
It’s compelling viewing. I felt somewhat ashamed of how poorly America has done when it comes to this most basic of needs for sustaining a society. The countries examined are Britain, Japan, Germany, Taiwan and Switzerland. We could take lessons from any of them.
Paul Krugman published a great article in the New York Times last week, summarizing the history of economics since the Great Depression, and showing how economists forgot the lessons of Keynes, and started to believe again that markets are perfect. The article is called, How Did Economists Get It So Wrong?
I recommend the article as a cornerstone reference for you if you’d like to know how we could be so blind to the housing bubble, how the finance industry took over the economy, why the Federal Reserve System allowed it all to happen – and where we go from here.
I have to say I found it sad to see again that the discipline of economics doesn’t really understand how the economy works.
Here in its entirety is the Frontline episode from Tuesday, June 16th, called Breaking the Bank. It’s a very clear exposition of the fundamental change that occurred in the collapse of Wall Street in late 2008. Essentially, the government is in charge.
The episode contains the usual wonderful stuff from Simon Johnson, to the effect that we really kind of went ahead and nationalized the banks back around the time of the Lehman bust, and the government-brokered acquisition of Merril by Bank of America.
Entertaining and enlightening. Below the fold is more from Simon Johnson, in the full transcript of his background interview the Frontline people did with him preparing the show. Johnson’s perspective really is valuable, and resonates quite soundly with me. I think he’s worth reading. Here’s the show:
The New Yorker has an article on health care in America, and why it costs so much for so little extra benefit. This will be the best thing you read all year about our medical system. Written by a doctor who is also a very good writer – I envy his skill. It’s called:
The Cost Conundrum
What a Texas town can teach us about health care.
by Atul Gawande
When you look across the spectrum from Grand Junction to McAllen – and the almost threefold difference in the costs of care – you come to realize that we are witnessing a battle for the soul of American medicine.
Here’s a comment left on a blog that I want to remember:
The subprime mortgages aren’t the real evil. They are like the kid who acts as a mule for a big-time drug dealer; involved but fungible. If it wasn’t subprime mortgages it could have been something else, such as tech stocks or tulips. Total subprime mortgages were worth less than 1 trillion, of those, a few hundred billion worth of defaults. That is a lot of money, but an amount that could have been absorbed by the economy without causing particular harm.
The real evil is unregulated derivatives. Credit default swaps alone are estimated at over $60 trillion. Those are all just side bets on the original 1 trillion of subprimes. It’s like a craps table. The guy holding the dice drops a $100 chip on the table. If he loses, he goes home $100 poorer. But the derivatives markets then bet the farm on that same roll of the dice. And I mean the whole farm. The entire world’s domestic gross product is estimated at about $60 trillion. Derivatives makers and dealers bet the equivalent of the world’s economy on whether some poor schlub would default on his mortgage.
Deal with everything else but not unregulated derivatives, and this will all happen again. Deal with the derivatives market, and everything else is just mopping up.
Does our economic system require banks in order to function? Should banks exist?
The modern system of adjusting the money supply through interest-dependent banks is an inheritance from the centuries during which the only thing that could move money around was interest. Banks were the vaults that handled the stores of excess liquidity, paying less interest than they earned, and making their profits in the difference.
But given all the damage the current system has caused, don’t we have better ways of moving this money and credit around now?
During these times of economic crisis we are afforded a rare opportunity to observe the interplay between the various forces that influence the actions of our country and our money. The major banks of the nation have brought the economy to its knees – to put it in plain terms – and yet they, rather than the government, largely seem to be in charge of how the nation will bail them out, and restore the working of the productive economy.
The politics that we take for granted in the “banana republic” dramas on the world stage seem to be the exact politics we are witnessing in America today. Here we have a new President of great apparent integrity, and unquestioned political skill, forced to deal with an inherited economic crisis, and revealing by his actions the limits of presidential power, and the compromises that must be made, in creating desired outcomes. Obama, as a consummately skilled politician, seems to recognize these ground rules, and is offering us a textbook case study of where the power lies, and how to deal with it.
The Speech For Which We Have Been Waiting « The Baseline Scenario tags: economics The problem with fixing the economy is a lot like the problem with fixing global warming. Things have reached the point of no return. It’s too late to turn the Titanic around, the iceberg is in our path and we are about to [...] […]
Way Too Big To Save « The Baseline Scenario tags: economics The biggest banks in some European countries today are already too big to save. Unless we take immediate and real action to reduce the power – and size – of our largest banks, we are heading in exactly the same direction. The great failure of the Obama [...] […]
Robert Reich (The Enthusiasm Gap) tags: policy Anyone with an ounce of sanity understands government is the only effective countervailing force against the forces that got us into this mess If there was ever a time to connect the dots and make the case for government as the singular means of protecting the public from these forces it [...] […]
Going to hell #5 – James Fallows tags: policy “The subversive influence of money on the political process is the underlying cause of most of that which ails our country. It has led to social, political, economic and international disaster for our country. It has led to unnecessary wars, the near collapse of our economy, staggering public debt, little hope […]
Greenwald – The Democratic Party’s deceitful game tags: policy The primary tactic in this game is Villain Rotation. They always have a handful of Democratic Senators announce that they will be the ones to deviate this time from the ostensible party position and impede success, but the designated Villain constantly shifts, so the Party itself can claim it […]
Banking Industry: Sicker, More Concentrated « The Baseline Scenario tags: economics Get rid of the Fed. Open 50 State Banks. North Dakota, the only state with a state bank (opened in 1919) does not have a failed bank on the FDIC list that started in Oct. 2000. It also has a budget surplus of around $1 billion. ND [...] […]
Op-Ed Columnist – The Bankruptcy Boys – NYTimes.com tags: economics In fact, conservatives have backed away from spending cuts they themselves proposed in the past. In the 1990s, for example, Republicans in Congress tried to force through sharp cuts in Medicare. But now they have made opposition to any effort to spend Medicare funds more wisely the [...] […]
Economist’s View: Tax Cuts and Government Investment tags: economics Invisible Hand, first note that Adam Smith, despite the myth, even in 1776 understood that the invisible hand did not work well in many cases without a government role. As Cornell economist Robert H. Frank notes in his New York Times Economic Scene article of May 25, 2008: ADAM [...] […]
Ezra Klein – Commented: The center cannot hold tags: policy And there’s another wrench: we’re interactive. Wonkish internetting improves the civil discourse, and looks at serious policy analysis, and faster than any politician can muster. Speedy facts plus interactive discussion. Overall, what is happening is a change in the relationship of observant […]
Elizabeth Warren Calls Out Wall Street « The Baseline Scenario tags: economics But last month, Republican political consultant Frank Luntz wrote a memo laying out how Republicans could kill financial regulatory reform. “Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinary popular,” he wrote. “But these are not ord […]