July 13, 2009

The Ants in the Sandbox

We're probably beginning to get the picture concerning the economy. It's deflated, economic activity has slowed way down, housing prices are considerably lower, equity has been wiped out, and now the commercial real estate market is about to join this ghoulish party already in progress. Meanwhile, on Wall Street, Goldman Sachs is happy to report that reserves have been set aside to pay average bonuses to each of its employees of $600,000, although, of course, in keeping with the stratification of American society in general, those at the top will receive far more than the secretaries and mail room employees. Goldman Sachs, of course, is the best-connected banking player to the federal government; one can almost say that the federal sector of the government, the Treasury Dept. and the Federal Reserve Bank, are in a sense just a branch office of Goldman Sachs, with interchangeable personnel and with indistinguishable fiscal "policies." The American populace seems dimly aware of this situation; if their consciousness were raised slightly, one can imagine pitch fork brigades descending on Wall Street, but for now "patriotism," that watchword of the Far Right, has succeeded in keeping Goldman Sachs safe, so that in some sense the insanely greedy behavior of all the Wall Street banks is protected under the blanket cover of this inappropriate concept. The skewing of national wealth toward a smaller and smaller group of elites continues apace, so that by some estimates now 80% of the national wealth is owned by 1% of the population. Yet in America, that most uber-capitalist of all societies, it is now "unpatriotic" to think that this is actually kind of sick. The elites simply fulfilled the American Dream.

For a while the booboisie was allowed to play along in the pretenses of wealth, thanks to a rapidly inflating housing market, so that on average an American "consumer" (interchangeable with "citizen" for economic purposes) held debt equal to 130% of gross income. Macroeconomically, the whole country looked about the same. That debt, while the party lasted, allowed hundreds of billions of dollars to flow into the consumer economy. Now it's all gone - the lines of credit, the cash-out re-fis all rolled up. So the federal government, under Obama's leadership, applies the economic equivalent of defib paddles to the chest of the dead economy - a jolt of money in an attempt to get all the baristas, the call center workers, the fast food cooks, the pizza delivery boys back to Wal-Mart and Best Buy so GDP can "grow" again. It will probably appear to do so by year's end; that was a lot of money we borrowed to disburse to ourselves. But, to use another metaphor, it's like pushing a heavy ball across a level floor. It will roll for a while; then what? No one expects there to be any job recovery or increases in average earnings (other than on Wall Street). So what will sustain the recovery?

In truth the economy is hollowed out at present. We bought into the crazy theory that "globalization" in the long run would be good for the American economy - that rising standards of living in Bangalore and Kuala Lumpur would turn these former poverty-stricken areas into enthusiastic importers of American products. Tom Friedman was a major exponent of this idea - he couldn't say enough good things about it. No one bothered to question his judgment, or to note that (a) he's not really very educated about such things or (b) he's not very bright anyway, as his garbled writing style quickly affirms. Globalization was not a strategy for making Americans rich, which it obviously did not (at least the mass of Americans). It was a strategy for allowing large multinational American corporations to compete by lowering their production costs. They did this by hiring cheap labor abroad. This kept Westinghouse, General Electric, Motorola, etc., in the game. If you can make a shirt in Malaysia by paying a 13 year old girl two bucks for a day's work, why would you pay an American garment worker 80 bucks for the same thing? Especially when your government encourages you to ship the American jobs overseas?

My own thinking was that it was never necessary to transition from the American industrial colossus of the post-War era to the tawdry "consumer economy" of the present, but that was in fact the devolution. We always had the wherewithal here to "maintain our vital heat," in Thoreau's phrase as he described the irreducible requirements of living. Enough arable land, enough vital resources. But that's not the way it works with homo sapiens - they naturally establish economic heirarchies, which is why Sigmund Freud, in the very early days of the Soviet Union, was able confidently to predict that there was no chance whatsoever of an egalitarian society actually functioning along the lines of Marxism.

I am not, however, one of those conspiracy theorists who subscribe to this new "neoliberal" thinking (as Naomi Klein uses the term) who see the debt peonage of the average American as part of a "design" by economic and political elites. I think it's just the byproduct of big business doing what it's supposed to do, according to its credo: bring more money to the bottom line and to compete. That's the next clump of sand, the next hillock, the next shallow depression in the sandbox as the economic ants make their way toward their goal on the far side, which is profits per share. Always a kind of binary decisionmaking process: GE can't compete with Japanese manufacturers who are using Malaysian and Taiwanese labor. So, to stay competitive, GE sets up factories in Taiwan, Mexico, Malaysia, China. Problem solved. Costs of production reduced. And since national politics have been completely captured by big business (due to the need for campaign financing which only big money can provide), a "regulatory" framework has been set up to enable all of this. This is how the details of the big picture get filled in: by sequential, discreet decisions made to deal with the next problem, all within a national ethos which exalts greed over other values.

So here we are, in a depression hopefully described as a recession. The huge amounts of borrowing by the general populace (and by the government) allowed us to sustain the privileged American lifestyle beyond the point where the declining earnings (and education and training and general competitiveness) would have allowed. Now we're in a devolutionary process toward a lifestyle consistent with actual earnings, which is why the 40% drop in overall equity, purchasing power and economic activity will not simply go away as a "cyclical matter." We're beginning a long period of adaptation, marked first by denial and a frustrated sense of entitlement. A riot or two, however, maybe down at the southern end of Manhattan, could punctuate this adaptive process and provide cathartic relief.

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