Congress of Memes & Tropes Takes On Mathematics of Economics

Personally, I think it's one of my better titles.  I think, in fact, that Memes & Tropes would make good new names for the two major political parties.  Somehow "Memes" sounds friendlier, so I would assign that to the Democrats.  McCain is the nominee of the Tropes.  Sounds right, don't you think?

Anyway, the inability of the political system to admit the truth or to adopt real solutions to real problems has become a fascinating subspecialty of mine.  I wish some major university would offer it as a course of study.  Maybe one has.  It's clear that the Depression we're heading into will be made significantly worse by the collective denial we experience at the hands of our elected representatives, who can only respond to grave national crises in certain ways that (a) always affirm the very economic system which has led to the current disaster and (b) always propose to solve the problem with solutions that make the problem worse.

The essential dilemma is that, as a consumer society, America is toast.  This can be demonstrated any number of ways, but perhaps none does it so elegantly as Jeremy Grantham (even his name is elegant).  Here's how Jeremy explains how we arrived at this Point of No Return: 

"We were all spending... as if we were much richer than is in fact the case. Particularly here in the U.S., increasing household debt temporarily masked some of the pain from little or no increase in real hourly wages for 20 to 30 years. Household debt since 1982 has added over 1% a year to consumer spending. Unfortunately, this net benefit does not go on forever.

"In the first year in which you borrow 1% of your income, the interest payment barely makes a dent and your spending is close to 101% of your disposable income. But each year you borrow an incremental 1%, your interest load grows. After 15 years or so in a world of an average 7% interest rate, the interest on the accumulating debt fully offsets the new borrowing when one looks at consumers collectively."

It takes a while, of course, to comprehend precisely what Mr. Grantham is saying, or at least it does if your grasp of mathematics is on a par with mine.  But the essential idea is pretty simple. America's prosperity over the last 30 years or so has been financed by increases in household debt which fuel consumer spending.  What we "forgot" was the effect of compounding interest: money borrowed must be paid back with interest, and if you borrow more money to pay the principal and interest, you increase the total interest paid until the interest being paid collectively by the society offsets any "prosperity" from new borrowing.  If you go a little past this point, you crash:  you finally reach that entropic impasse where your collateral is exhausted, your wages are tapped out, and you can't borrow any more money at all to pay even the interest. 

The "leadership," instead of touting the wonders of the "Ownership Society," should have been pointing out this problem for a very long time.  That's not what the Ms & Ts do, however.  What we're now stuck with is an economy which functions, to the tune of 70%, on consumer spending. The Memes blame the oligopoly, of course, the Fat Cats who have gotten rich at the apex of the Ponzi Pyramid, and indeed these miscreants deserve all the opprobrium we can glare their way.  The Tropes blame, I don't know, the cycical vissicitudes of the economy: kind of nobody's fault.  The truth is that it was a dumb system with no future other than the one we're beginning to experience.  However, this is not acknowledged at all in M&T Congress.  The Memes argue for another "stimulus package," which takes the form of sending the taxpayers their own money with precatory pleading that they resume going to Home Repo and Bed Bath & Bankruptcy.  The Tropes favor a top down approach which keeps their CEO friends in their 4th and 5th homes on Jupiter Island and the Bahamas.  Neither side wants to admit the awful truth: this thing just doesn't work anymore.  There's going to be a world of pain and misery while we struggle through to something else.

Whoever is elected in a couple of weeks will inherit this crashing system.  It will bring about major changes in America's foreign policy, for one thing.  We will be glad, for example, that Nouri al-Maliki played as many games as he did about an agreement to keep the U.S. in Iraq - that can be our exit line.  The UN's disenchantment with Afghanistan will give us another way out of a wasteful extravagance.  I suspect that the government will undertake a massive public works program here at home to replace the millions of jobs that are going to be lost in the service economy: rebuilding schools, roads, overpasses, railroads, airports as the "labor force" bails out of all the Starbucks franchises and tanning salons.  But it's going to be very rough for a long time, and the rebound, whenever that happens, will not be the result of a "cyclical" resumption of Casino Capitalism but through fundamental changes.  Something which the Memes & Tropes seem organically ill-suited to oversee.