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There's Plenty of Money Around. Let's Take It.
What's the difference between you and a corpse? You both contain the same organs, the same fluids--all the same stuff. Inside you, stuff moves around. That's the difference between life and death.
What's the difference between economic boom and bust? Again: movement. The United States of America is just as rich today as it was a year or, for that matter, ten years ago. It still possesses the same rich natural resources, the same enviable geography, and the same productive, innovative and energetic workforce. Our country still has enormous intrinsic value. But money, the lifeblood of any economy, has stopped moving around.
Wealth is still here. But the economy has flat-lined.
We know what caused the problem--the double bursting of the dot-com and housing bubbles, coupled with government regulators who took the last three decades off from work and financial analysts who said the old rules no longer applied. (The old rules always apply.) The underlying meta causes of the Crash of '08 were an unholy trinity of stagnating wages, easy credit and brilliantly executed consumer propaganda that convinced people they were lame unless they bought all the latest stuff. But that's a discussion for another time. This week, let's think about how to escape the deflationary spiral that will reduce the world's richest nation to penury unless something is done soon.
The Fed, having reduced interest rates to zero, is out of ammo. Banks are using the $700 billion bailout to buy each other up, enriching only themselves and a few hundred investment bankers. (In all fairness, Treasury Secretary Henry Paulson told them to do just that.)
President-Elect Obama's plan blends George W. Bush and FDR's greatest hits: a symbolic Bush-style tax cut of $500 per person ($1,000 per couple) and a $850 billion infrastructure construction bonanza reminiscent of the WPA projects of the 1930s. Obama's tax cut won't stimulate the economy; they never do. Due to the "multiplier effect," Obama's economists predict that his public works projects will create 3.2 million new jobs by the first quarter of 2011. "Peter Morici, economist at the University of Maryland, projects that $100 spent on a bridge or school boosts economic activity by about $200," reports the Associated Press. (That doesn't count the benefit of improving Americans' longer-term productivity. For instance, better roads could reduce commuting times or help get goods to customers more efficiently.)"A public works program is a good idea. But Obama's plan won't be enough to put a dent in the skyrocketing unemployment rate. 3.2 million jobs would be barely enough to replace six months worth of job losses at current rates. And most analysts think those rates will rise. With the federal budget continuing to sink $9 billion a month into the fiscal sinkhole of Iraq, there isn't much cash to make the plan bigger.
"With negative or low economic growth projected well into the future, the economy needs a long-term fix," says Stanford economist John Taylor, who worked in Bush's Treasury Department. Definitely. But what?
Unless something big happens (like every pundit, I should predicate every prognostication with the acronym USH for "unless something happens"), the depression will deepen quickly. Our economy is two-thirds dependent on consumer spending, but consumers are stone cold broke. Decades of attacks on labor and free trade agreements caused wages to stagnate as inflation raged, so Americans have no savings to draw upon. Credit is no longer available as a back-up.
The American consumer has left the building.
Demand will keep shrinking, forcing companies to lay more people off, which will accelerate the shrinkage of their customer bases. Prices will drop to chase the few dollars left in the economy, triggering deflation. It's already begun: Prices fell 1.7 percent in November (20 percent on an annualized basis). Debtors will try to pay off inflated credit card bills and mortgages with deflated money. They will fail. Misery will spread.
What happens next, I think, is that people will do what large numbers of people always do when they need money and food but can't find a job. They will start to think about the rich, who still have all the wealth they accumulated while money was still circulating. And they will take it from them. It might be the easy way, through liberal-style income redistribution. Or it might be the hard way. Either way, it goes against the laws of nature to expect starving people to allow a few individuals to sit on vast aggregations of wealth.
When I was young, I assumed that revolutions resulted from ideology, because idealists wanted a fairer world. Now, as we stare down the barrel of economic apocalypse, I realize that they're carried out by desperate people who have nothing to lose, in Marx's words, and everything to gain. They take stuff from the rich and write the ideological tracts after the fact.
With the economic distress we're likely to see in the coming year or two or three, revolution will become increasingly likely unless money starts coursing through the nation's economic veins, and soon. Will it be a soft revolution of government-mandated wealth distribution through radical changes in the tax structure and the construction of a European-style safety net, as master reformer FDR presided over when he saved capitalism from itself? Or will the coming revolution be something harder and bloodier, like the socioeconomic collapse that destroyed Russia after the fall of the Soviet Union? To a great extent, what happens next will depend on how Barack Obama proceeds in his first weeks as president.
27 Comments so far
Show AllDr Frankenstein, I presume?
Nanoo
Ted Rall, you claim that the US has the same resources it had 10 years ago. I disagree. What about those mountains removed for coal? Here in Minnesota, I hardly think that the iron ore has stayed the same on the range. Logging in the north has really taken a dive because trees just don't grow that fast. Overall, I'd say more farm land is depleted than a decade ago. I could go on about environmental pollution, but I think you get my drift.
Secede, the time has come.
If at first we don't secede - try, try again - lest our grand children remain
hewers of wood and drawers of water forever under Israel's yoke.
Humbaba's opinion
Occupied America
The assumption that we need a high quantity, instead of a high quality, of economic activity continues to be promoted by the pundits, and they are completely wrong on this. Imagine a scenario of maximum quantity, minimum quality, economic activity. In this you see a spectacular re-channeling of wealth away from the people (due to the low quality) and toward the elites (due to the high quantity). This is because the elites tax the economic activity, reaping more based on quantity, and less on quality. For example, if the coffee grinders are all junk, the consumer spends far more money to replace junk coffee grinders while the elites (stockholders of coffee grinder corp AND the Pentagon which taxes all labor involved) rake it in.
Now imagine maximum QUALITY and minimum quantity. The people can't help but benefit from the high quality. The people AND the environment benefits from the low quantity of consumption. And the elites find it harder to scoop the cream off a smaller vat of milk. C'mon, people, put on your thinking caps and stop letting the pundits paint your reality for you. The USA is currently the land of high quantity, low quality, economic activity. The pundits should recognize that we need to change this around. Let America take a nice long vacation from churning junk and think about higher quality lifestyles, benefiting the people, and starving the elites.
How about this? Cut all tax support to the Pentagon. Then, everyone who supports the US militarist interventionist foreign policy at the point of a soldier's gun could contribute their own private funds to support the Pentagon. Alternatively, no borrowed funds should ever be used for military purposes. Make it all pay as we go. This would mean an approximate $1100 per year war tax surcharge on all taxpayers' returns, since there are currently around 130 million individual taxpayers in the U.S. and the cost of Iraq and Afghanistan together are said to be around $12 billion a month.
Actually, because of the graduated income tax, those 130 million pay vastly different amounts in yearly taxes. Those who pay more in taxes should pay a larger war surcharge than those who pay less. The chairman of GE for example might pay a couple million a year in war tax surcharges. After all, with GE being a huge military contractor, the CEO benefits much more from war than the lowly production line worker at a GE plant.
How could anyone be against this idea? Do you think its better to go on as we have, borrowing trillions of dollars to be repaid with interest in order to prosecute our foreign adventures? The borrowed money doesn't "hurt" us immediately, its more or less out of sight, out of mind, so we continue on in ignorance. But if we suddenly had to pay a few thousand dollars extra every April 15th some of us may complain to our representatives about those "Authorizations to Use Military Force".
-- ekaton aka d.k.shaw
Axe to grind by chance? I Don't think military spending is the problem. Focus now, the topic is economy.
Its a good thing that military spending has no effect on the economy. The military budget is the largest portion of the yearly national budget. Its a good thing that has no effect on the economy. We do need a military -- confined 100% within the boundaries of the United States. If the U.S. is attacked then the U.S. military should respond with overwhelming force. The last time the United States was attacked was by the Japanese at the start (for the U.S.) of World War II. OH, WAIT! 911! That was not a military attack and should have been handled by multi-national police work.
-- ekaton aka d.k.shaw
That's what we call a non sequitur my dear friend. Your point is the "military budget is the largest portion of the yearly national budget" therefore the economy is flat-lining? Doesn't follow.
No one said the military has no effect on the economy like your characterization. My point was if you think military spending is the reason for the poor economy, you're wrong. You're trying to hard to combine your disdain for the military with the current economic downturn. The connection isn't there.
You probably should lament on the "I hate the military" blog.
One way of looking at it is that the latest abuses were the straw that broke the camel's back, or maybe the extra bricks that broke the camel's back. I believe the point was that the inefficiencies inherent in military spending (minimal multiplier effect as tanks or aircraft carriers cannot improve efficiencies like bridges, new schools, or new communication infrastructure can, and diplomacy can much more cheaply achieve the same objectives) are like giant bricks that were weighing the camel down so much that it was not that difficult to break its back.
Your trying to hard to assign blame for the economy on Bush and Iraq. Bush-derangement has gotten the better of you. Regarding the economy, are you only concerned with government spending with regards to the military? If spending is your concern I would think you'd be concerned when the government over-spends in other areas as well. I've seen some information that the latest bailout bill costs more than every American war combined. Seemingly that would be more of a focus than military spending - if you believe government spending is the issue with the economy. Obama promises trillion dollar budgets for the foreseeable future. I'm betting that doesn't overly concern you though.
You'd make a great subject for a cognitive dissonance study.
"Obama promises trillion dollar budgets for the foreseeable future. I'm betting that doesn't overly concern you though."
Please get your facts straight, especially if you intend to end every comment with an insult to the poster to whom you reply.
The national budget currently approaches, and will soon exceed, three trillion dollars yearly. The deficit, not the budget, big difference, is projected to be over one trillion dollars this fiscal year for the first time ever, with trillion dollar deficits accruing in subsequent years as well.
-- ekaton aka d.k.shaw
It has been demonstrated that military spending provides pitiful returns. I would agree with you that the bailout bill will probably also provide pitiful returns, but now you are the one mixing apples and oranges. The bailout bill is part of the response to the economic problems, not the cause of the current problems. However, I would guess that the bailout bill will compound them more than solve them.
And the other gentleman and I were not talking about spending on wars, but rather on the nearly one trillion dollars per year (read Chalmers Johnson sometime to understand how the enormity of the defense budget is regularly hidden) in the defense budget that is mostly unnecesary.
And you, sir, are projecting with regard to cognitive dissonance.
and who do you think is going to carry out your 'harder' revolution, without the prospect of which a 'softer' revolution is not possible? our working class is gone, pal, gone to china and india and such, leaving us with its dregs, with toothless meth heads and clueless teenagers.
How about cutting taxes across the board? Yes money movement is the Life-blood of our economy. A cut in taxes precisely targets all money moving nodes (people and businesses) with nano-precision. Bailouts to specific individual "nodes" don't do much to promote money movement throughout the economy if at all.
A tax cut for millions of spending nodes in the economy will do exponentially more to move money and churn the economy then targeted bailouts. What do you think would have more of a "real" effect on the economy overall; giving $25 billion to the auto makers or giving 50 million people a $500 tax cut? Characterizing the Bush tax cut as "symbolic" I think grossly under-estimates the effect of what it actually did.
The public sector is choking-out the private sector.
Shrink the corporate sector of the economy until it's small enough to drown in the bathtub.
What we need is a strong European-style social safety net so that people aren't dependent upon the health of the corporate sector for the necessities of life. We would be able to cut unnecessary weapons programs without the people who are employed in the programs having to worry about becoming homeless and starving. There would be less need to "create jobs" making unnecessary and destructive consumer goods to prevent people from going without the necessities of life.
The military budget needs to be cut by closing overseas bases and dedicating the Defense Department to defending the country instead of "creating jobs" for its suppliers.
Shrink the corporate sector?!?! Who would pay taxes and support this behemoth government in your dream world? The public sector is dependent on the private sector. The public sector feeds on the private sector like a parasite. The public sector would not been in its current boon if not for the private sector. What did Exxon pay last year in taxes - around $30 billion. You want to dump that? Well I've wasted to much time banging against this wall.
bligh4
I'm about to get the vapors. For the first time, I agree with much of what Ted Rall says.
Pigs flying alert.
Getting vapors? And you were doing so fine so quit your complaining.
The Easter Isle Mavericks
The mavericks made off quite well
for their temple is on Easter Isle
that belies the stones of gall
propped up to view a barren plain
the new age money changers on Wall street lane
forgot the loot that built their base
came from the masses they deface
while the gaze from that stone head place
is silent despair on that fire rock face
Sioux Rose
I remember learning in college biology class, I believe, that when a population of rats became too much within a small, controlled area, the rats changed behavior in aggressive ways that eventually brought the population down to what could work.
Nature has a variety of ways She makes use of to equalize things, and since America doesn't get it--about being a responsible world citizen conscious of its use of fossil fuels and other transitory resources, seems "the equalizer" has taken action that will if not reduce our numbers, will certainly reduce our consumer-based patterns of usage.
And as HOOTOWL related, seeing individuals turn towards the simple pleasures of life hardly constitutes a loss! I briefly knew a very accomplished Martial Arts teacher who spoke to me about something he termed, "Investment in loss." I think he got the idea from Ouspensky or Nietschze. In any event, he meant there are times in life when one must give up their attachment to things of this world in order to grow the spirit. America, as an entity, could do worse than adapt that holistic remedy!
Uh as you said olive branch accepted. :)
One positive effect of the consumer "leaving the building" may be a decreasing emphasis on empty materialism, and an increasing emphasis on things that matter like family, friends, personal creative projects, a walk in the woods, gardens, throwing out less, etc. Of course I am not saying do nothing, we should be saving families from being thrown out on the street, and people are going to have to find new more meaningful jobs. What I am saying is saving the old "consumer" economy is the wrong idea.
"What I am saying is saving the old "consumer" economy is the wrong idea."
I agree. "Consumer" used to be my "most hated word" until "homeland" came along.
-- ekaton aka d.k.shaw
Oakknot
So is one viable answer to the depression a bloody revolution? Or is anyone interested in picking up that corpse?
Given the almost exponential growth since the " Great Depression " ,this corpse will need one hell of a jumpstart. The usual remedies must be accompanied by stiff prison sentences and pubic floggings. Greed of the Living is resposible for the shape we're in. Starting a savings account at this juncture could be bitter irony.
Coming January 20, 2009,
GET READY FOR MORE FALSE HOPE AND CHUMP CHANGE !
Ok, we'll see what happens but I'm still keeping my fingers crossed.
The Edge website this year published its annual question posed to celebrity intellectuals: “What will change everything?” The more logical question would be: “What can change anything?” Massaging a corpse will not restore it to life.