EMAIL SIGN UP!
Most Popular This Week
- Corporate Win: Supreme Court Says Monsanto Has 'Control Over Product of Life'
- How the US Turned Three Pacifists into Violent Terrorists
- Cornel West: Obama 'Is a War Criminal'
- In 'March Toward Disaster,' World Hits 400 PPM Milestone
- Revealed: How US State Department 'Twists Arms' on Monsanto's Behalf
Popular content
Today's Top News
Blame It on the Bubble
The financial crisis is just a sideshow – the real reason for the economic downturn is the rise and demise of the housing bubble
Politicians and the media continue to refer to the economic downturn as being the result of a financial crisis. This is wrong. We have 15 million people out of work because the housing bubble that drove the economy since the last recession finally burst. The financial crisis may have been good entertainment for those who like to see huge banks collapse, but it was a sidebar. The real story was the rise and demise of the housing bubble.
Those who claim that the real problem was the financial system and its faulty regulation can be disproved with a single word: Spain.
Spain is noteworthy because it now has an unemployment rate of more than 19%, the highest rate in any of the wealthy countries. Spain did not have a financial crisis. In fact, its well-regulated financial system is often held up as model for the United States.
Spain did have a horrific housing bubble. As a result, the share of construction in the economy rose from less than 8% of GDP at the end of the 90s to 12.3% in 2007. By comparison, it is typically less than 6% of GDP in non-bubble years in the United States. This rapid rate of construction led to enormous overbuilding, which meant that a collapse was inevitable with construction falling to far below normal levels.
The run-up in house prices also had the predictable effect on consumption. Because people believe that the run-up in house prices is based on fundamentals, homeowners assume that their newly created housing wealth is real and they spend accordingly. Spain's saving rate fell from just under 6% in 2000 to 3% in 2007. When the housing wealth created by the bubble disappeared people naturally cut back their consumption.
This is Spain's crisis. According to the IMF, housing starts in Spain fell by 80% from the peak of the boom. While total construction has not fallen as much (repairs and non-residential construction did not decline nearly as much), if construction in Spain fell by 50%, this would imply a loss in annual demand of more than 6% of GDP. That would translate into a drop in demand of more than $800bn in the United States.
Similarly the loss of housing wealth reverses the housing wealth effect. If consumption fell enough to return the savings rate to its pre-bubble level, then this would imply a loss in annual consumption demand of more than three percentage points of disposable income. In the US this would amount to more than $300bn in lost annual consumption.
There is no easy mechanism to replace more than $1tn in lost demand. This is why Spain's economy is in a severe slump right now. Note that just about all analysts agree, Spain's financial system was well regulated and it had none of the loony loans and outright corruption that pervades Wall Street and the US financial system. Yet, it is suffering from this economic downturn even more than the United States.
The moral of this story is that the problem is not first and foremost a financial crisis. It might be fun to watch the Wall Street and government boys sweat as they stay up late trying to keep the big banks from drowning in the cesspools they created. But this is all a sideshow. No one saved us from a "second Great Depression," they just saved the jobs and wealth of the Wall Street crew.
The economy's real problem is simply the loss of demand created by collapse of the bubble. Throwing even more money at the banks is a way to ensure that they don't suffer from the consequence of their own greed and stupidity. It is not a way to restore the economy to health.
Restoring the economy to health is about finding a replacement for the demand lost as a result of the collapse of the bubble. In the short-term, this means increased government spending and tax cuts. Deficits put money in the economy, and using the old-fashioned view that people work for money, we can determine how much money we need to spend for the government to get the economy back towards full employment levels of output.
In the longer term, we need to move towards more balanced trade, with higher exports and fewer imports making up for the demand lost due to collapse of the housing bubble. This will require a lower-valued dollar - everything else in the trade picture is just for show.
We do need financial reform. We have an incredibly wasteful and reckless financial industry. But bad financial regulation by itself did not give us 10% unemployment, nor would good regulation have been sufficient to prevent it. Just ask the workers in Spain.
Comments
Note: Disqus 2012 is best viewed on an up to date browser. Click here for information. Instructions for how to sign up to comment can be viewed here. Our Comment Policy can be viewed here. Please follow the guidelines. Note to Readers: Spam Filter May Capture Legitimate Comments...
46 Comments so far
Show AllOK, the bubble collapsing caused the problems. But, what was the 'fuel' that fed spain's bubble? In the US, it was deregulation and lack of enforcement which separated out risk and built ponzi schemes. This also caused the world-wide 'financial crisis'.
According to this article by Krugman, it's either deregulation and/or the lack of enforcement of regulations that leads to disaster. See Canada and Ireland as examples (good and bad respectively)
http://www.nytimes.com/2010/03/08/opinion/08krugman.html?partner=rssnyt&emc=rss
The author's logic is flawed.
The housing bubble could never have occurred if securitized mortgages were required to be traded in transparent markets, mortgage initiations were regulated, and interest rates reflected true rates of inflation.
Prior to 1978 nearly all of the New Deal financial industry regulations were still in place and bubbles were kept within managable limits.
Since 1978 deregulation has created a financial industry that creates bubbles that, rather than being managed, grow large enough to explode, like a boiler with no pop-off valve.
This is some poor logic at work here.
Spain's economic problems are caused by a housing bubble, ergo, that proves that the US's economics problems are not caused by the financial crisis / banks?
No private ownership of property. No bubble.
Dean Baker is overlooking the other important aspect of high unemployment in Spain: the relative difficulty for Spanish workers to move to other Euro nations because of language and cultural differences. There is a unified currency in Europe, just as in the US. In the US, if unemployment is high in one state, typically workers move to another state. In Europe, this is quite a bit more difficult. With housing overpriced in Spain and high unemployment, wages must be lowered, because there is no Spanish currency to devalue. Of course, workers quite naturally aren't all that keen on lower wages.
Spain, as with Ireland, Greece, Protugal are all tied to the Euro and
therefore part and parcel of the financial bubble that de-regulation
brought throughout the Euro Zone.
That Dean can not see that de-regulation and Euro flows caused the Spanish mess
portends his absolute blindness to the worldwide debt bubble that casino capitalism
has created.
There is currently $600 trillion in derivative positions on a global economy of $60 trillion. I wonder how Dean Baker would explain this one? If it wasn't de-regulation that allowed this fraud to take place, then what did?
You of course, are exactly correct ...
Baker tries to obfuscate the whole truth of the matter about the casino capitalism that the banksters have perpetrated time after time ...
Exactly, I am glad no one here is buying this apologist b.s. the real problem is the banksters have created a multi TRILLION dollar derivatives based economy that does not reflect anything going on in real world production or asset values at all. Speculation and leveraging investments *always* leads to crashes.
Baker can't see the forest for the trees ...
The housing bubble is part and parcel of de-regulation. We saw bubbles throughout the Greenspan- Reaganomics era. The '87 stock market bubble, the first commercial real estate fiasco, the early 90s bond bubble, the Asian Bubble, the tech bubble and now the housing bubble. Each bubble has been larger and more destructive than the last and each time more and more dodgy debt was loaded on to the financial system.
Wall Street has become a bubble machine that enriches the banksters, creates the short term prosperity and the campaign donations that re-elects Congress. Wall Street now so dominates our economy that the financial sector garners over 30% of all "profits" (spoils) while leveraging the nation's debt to unsustainable levels of insolvency.
There is no missing 1 trillion dollars of consumption. We can't afford another trillion in consumption because we don't produce the real products from real wealth that underwrites this kind of excess spending ... Baker is just trying to blow another unsustainable bubble, this time with public funds.
The banks are not "fixed". The whole financial system is indeed based on fraud and the too big too fail institutions are even bigger today than they were before the financial meltdown …
The accounting practices and transparency are much worse than before the crash. The Financial Standards Accounting Board (FASB) was threatened with extinction should they not loosen their standards to allow worthless junk to appear as real assets …
The second wave of the crash is about to hit as the stimulus abates, foreclosures skyrocket, commercial real estate tanks, credit card and student loans default, state and local governments slash payrolls and social programs and the money supply plummets with the cascade of new credit.
The banks are holding America hostage. The only remedy is to nationalize the privately owned and operated Federal Reserve System, make the stock and bond holders take their losses, while returning the profit and prerogative of currency and credit creation to the US Treasury …
Baker just doesn't get it ...
Agree, and would like to see a new WPA to help us out of this situation..
At this time, additional government jobs program (WPA) is just the ticket we need. Put people to work. Get some money in their hands. They'll spend some. Demand will increase. Private sector job growth will occur.
Direct WPA toward infrastructure.
Build up the support system for our roads and bridges, offer free education at the basics level for all.
It would take a lot of skilled unemployed workers to accomplish this task. They would be training unskilled workers to become skilled. Passing on their skills, knowledge and wisdom to others who learn from experienced professionals!
Just because somebody is educated doesn't mean they want YOUR job. Free education to all. Community Colleges should be a gathering of the community. NETWORK!
I'm not talking medical school, I'm talking about the basics that cost nothing to teach!
I think there is massive amounts of civil engineering to do - and btw, in 'socialist' countries, not only is community college free, but so is med school ;)
The easiest, fastest and of course politically impossible course of action
would be to reduce the workweek to 32 hours over 2 years while compensating
business by enacting Medicare for All or single payer. This would produce millions
and millions of jobs while putting a safety net under all Americans for their
health insurance increasing their propensity to spend ...
The work week was reduced to 48 hours during the depression an then to 40 hours to absorb the returning GIs in 1948 ... There is no reason, with the increase in productivity and the two income family, that we couldn't reduce the workweek once more, this time to 32 hours over two years.
but,....but....but...mmckinl.........
reducing the work week - and spreading the work to more for jobs and of course with livable wages .....?.....
that is HUMANE -- that ISN"T capitalism!!!!! and is a travesty .....capitalism REQUIRES labor SURPLUSES to reduce WAGES...allowed to FEWER workers working HARDER and LONGER....
even the already reduced "half-time" workers are just a way to create JOB SCARCITY....to reduce more people to RATS feeding on fewer and fewer remunerations...
and HUMANE economic policy is NOT allowed under capitalism.
I think there are a number of prgrams to be considered. As example, The Liberal and NDP party in Canada wish to see a "National Day Care Program". This where working couples can drop their kids off at a Governmnet run center then head to work.
This a BAD idea. I would much rather see A parent who stays home to raise the Children, be it the Mother or the father receive a stipend for doing so.
There are any manner of things we can do that strengthen the community and the family rather then turning the entire population into wage slaves for the Corporation.
The problem is that it now takes two people working full time to produce the standard of living once produced by one person.This is a catastrophic drop in the standard of living.Being a bit of a geezer, I can remember when a fairly funky job paid the rent, put food on the table, and allowed you to buy some kind of a beater car.And there is no cheap bohemia any more either.I'm afraid I'm whining.
You make a very important point, imo: the reduction in the standard of living. We have massive amounts of technology compared to 30+ years ago. We should see an increase, and we do in some limited areas, but the 2-working parents is an enormous failure, imo, and weighs hugely..
Yep. I would nationalize all banks.
A little aside about Spain. Spain has always had high 'official' unemployment-sometimes close to the 'official' unemployment now.It also has always had a very large 'black' economy, with the paradoxical result that unempoyment may be high, but a lot of people have jobs.They just never show up in the 'official' statistics.Also, since the country has only recently returned to the ranks of the 'rich' countries, there are a lot of people living in the cities who have families in the countryside, whom they can visit when the shit really hits the fan.I'm not denying that the bursting of the housing bubble in Spain has not had dire effects, but I think Baker is exagerating them.
It's pointless to try to disentagle the evil doings of the banksters and other actors who were responsible for the creation of the bubble here.The banksters, the derivatives traders, the rating agencies,the Fed and the real estate 'industry' at every level, have all had a hand in this.Let's not forget the legions of naive people and petty greed heads who bought into it-the little people who were living off the shingles on their roofs in a desperate attempt to plug the hole in their falling living standards, or speculate in a petty way on the value of their homes, refinancing every year.And then there were the 'Flip that house' folks.Remember them? I know-most of us know people who inherited houses free and clear as the bubble got underway, and then borrowed against them to start businesses, or -more likely-to finance consumption.The bubble popped, and now they are homeless, or couch surfing, or renting.The little greed heads have some responsibility for their own demise, and I don't feel sorry for them at all.The net effect of this is that it took a huge chunk of demand out of the economy.I agree with Baker that this has been catastrophic-especially so, since there's no way of replacing that bogus demand with a new bubble.What would a healthy real estate market look like? A return to the inflated prices before the bubble-so that people could once again borrow against their houses? Yeah right.Re: inflation. The value of the dollar is roughly 20% of what it was in the mid-sixties. You should check out the value of today's dollar against a 1913 dollar. Inflation is already with us: the economy runs on inflation and always has.Spain again: when the gold and silver that Spain looted from the New World started eating away at the value of the Spanish currency, it took a hundred years for the currency to lose 50% of its value. By American standards,that looks like rock solid stability.
"Bubbles" only receive that designation after the collapse of prices. Before that they are known as "hot investments." Like quantum space, bubbles are all around us undermining the productivity of private investment. See my webpage:
http://home.roadrunner.com/~markwrede/NonFic/InvestProd.html
Not sure what kind of Economist Dean Baker is. He has a political agenda though, which includes retiring first to sloppy White Tower analysis, while completely refraining from any direct criticism of individuals other authors have been pointing out as key players that made the bubble inflate.
I encourage everyone to consider where CEPR obtains funding, and then read other economists to counter another article that appears to suggest 'keeping things the way they are.' No mention of credit default swaps, naked short selling, outright fraud enabled by US Government regulators, possible profiteering at the Fed itself, and so on. Here's Russell Mokhiber with one of ten ways to crack down on Corporate Crime (These guys are still at work at Treasury!! And even worse, Larry Summers is still on Obummer's economic team):
Number one: Fire Treasury Secretary Timothy Geithner, Office of Thrift Supervision chief John Bowman, Fed chief regulator Patrick Parkinson, and Office of the Comptroller of the Currency Chief John Dugan.
“Tim Geithner was testifying before Congress a couple of years ago,” Black said. “And in response to a question from Ron Paul (R-Texas), Geithner said – ‘I have to stop you right there – I’ve never been a regulator.’ Well, that’s true. But you are not supposed to admit it.”
“Can you imagine. This is the President of the New York Fed, testifying about the greatest failure in banking in the history of the nation. And he is so completely out of it – the mindset of capture is so complete, that he says – I’ve never been a regulator. This is the ultimate capture. You don’t even think of yourself as a regulator.”
“Ben Bernanke in October 2009 appointed Patrick Parkinson as the top supervisor at the Fed,” Black said. “He’s the guy who, under Alan Greenspan, led the Fed charge against Brooksley Born when she wanted to regulate credit default swaps.”
“Patrick Parkinson, on behalf of the Fed, testified that credit default swaps should be left completely deregulated.”
“The reasons? If we regulate them, they will flee to the city of London. We should be so lucky, of course.”
“And two, fraud can’t happen in credit default swaps, because the participants are so sophisticated. This is the most astonishingly naive model of white collar crime by people who know nothing about white collar crime and don’t study it at all.”
“John Dugan’s sole priority and all of his passion as OCC director has been pre-empting state efforts to protect us from predatory lenders,” Black said.
“And John Bowman should be fired,” Black said. “The OTS got in bed with the industry most openly.”
Baker is probably the most prominant economic voice calling for Bernanke's firing, and probably feels similarly about Geitner, Sumners, etc. Most of his writings can be viewed here on CD, if you don't believe me. I am also puzzled by this article, not being an economist, since Baker has been so down on our financial sector and its gambling shenanigans. An earlier poster referenced an article by Krugman that, while illuminating, to some extent increased my confusion.
But I think ultimately what Baker is pointing out is that the Obama administration has committed the entire ship of state toward rescuing WallStreet, and relatively little toward rescuing the housing industry, or at least the unemployment that resulted when that bubble popped. While this is great for WallStreet, it can't really help the economy because its not what caused the downturn in the first place: housing is. The stimulus package is running out, no more help seems forthcoming (other than tough talk, and help for WallStreet). Baker (I think) is saying we haven't done enough, or even enough in the right areas of the economy.
"..this is great for WallStreet, it can't really help the economy because its not what caused the downturn in the first place: housing is.."
The same thing took place in Florida real estate in the 20's. Mr Baker has a point worth noting. He is right that without "serious government intervention", not O'Bummer RepubilCon Lite Nonsense, it will take sometime to work out the bubble.
Primary O'Bummer.
Don't vote RepubliCon in spite.
Did Dean Baker get co-opted by Wall St. and the Banks??!!
The financial system created the buble deliberately, then took advantage of it, through deregulation, to create many shenanigans and frauds, to enrich itself and sucked the blood from the banks, and left them dry, knowing that the government, which is controlled by them, will step in and replenish the lost blood, and still leave them in charge!.
It was a robbery in broad day light with the cops helping in transfering the loot.!!
Everyone, including Mr. Baker, should read Ellen Brown's Web of Debt to get a full understanding of what's really wrong with the economy.
It is literally the process of money creation that is the problem. It hampers employment, puts all the assets into the hands of the banks, and leads to a federal deficit that has no option but to grow.
The teabaggers should probably do a little research on this themselves when they scream about deficits.
Yep ...
Until we take back the profit and prerogative of our money creation the banksters will just buy the system ...
Says author Baker: "Politicians and the media continue to refer to the economic downturn as being the result of a financial crisis. This is wrong. We have 15 million people out of work because the housing bubble that drove the economy since the last recession finally burst."
Did anybody else notice that Baker nowhere attempts to explain why there was a housing bubble?
The consensus of the financial press is that the housing bubble resulted from a combination of "easy money" (courtesy of the Federal Reserve), high leverage ratios in banks and the "shadow banks" (financing by too much borrowing--another route to and fro "easy money"), corrupt lending practices (lending too much, yet another route to "easy money), irrational borrowing practices (borrowing with real estate as collateral under the assumption that real estate prices would continue to rise--hence more "easy money"), "financial innovation," such as "credit default swaps," a type of "derivative," whereby Wall St. thought it had conquered risk (yes, this brings "easy money"), nonfeasance on the part of both private (such as bond rating companies) and public regulators (such as the SEC and Federal Reserve), which allowed all of the above to run amok.
The above list is of course not exhaustive, but it suffices to discern a pattern that resulted in the housing bubble: "easy money." Why, the reader will then ask, did not Dean Baker mention this, since he is certainly up to date on the deliverances of the financial media? --To answer this question one need look no further than the solution to the current economic stagnation advocated by Baker: Deficit spending ("Deficits put money in the economy . . .") plus inflation ("a lower-valued dollar"). The punch line: Deficit spending and inflation are textbook examples of (you guessed it) "easy money."
That's why Dean Baker can't mention the consensus commonality ("easy money") behind the housing bubble. Being a Keynesian, Baker thinks that "easy money" is a necessary condition of curing capitalist stagnation. So he can't let on that his concoction is a kool-aid that has already been tried.
Of course, Baker would retort that his "easy money" would be different, assuming that Keynesians such as himself are in charge of the spigots. (A variation on the liberals' confession of faith, This Time Will Be Different, please note).
But no rationalization can deny the intellectual dishonesty displayed by Baker in promoting his program.
Yes, and the universities teach that Economics is . . . a Science.
So what's your answer then? I agree with the Keynesians: Deficit spending for jobs, not bailouts - the same thing that brought us out of the depression. Of course, after we roll back the tax cuts to eisenhower levels.
"This time it will be different" - No, this time it will be the same as last time: deficit spending directly to provide jobs = long term economic growth. But, of course we won't see that from Obama - he's too conservative...
"We don't need to be different, we're never wrong" - conservatives' confession of faith..
My answer is twofold. First, a question of process: Whatever your "answer," do not argue dishonestly, as my original post demonstrated of Dean Baker's "answer." Moreover, there is a logical implication here that is relevant to your faith in Keynesianism. Advocates of a position don't need to resort to dishonest argumentation unless their position is, in whole or in part, indefensible. If you think Keynesianism is the "answer," then for starters you need to answer the question that Baker ducked because, as I showed, it contradicts his beloved "easy money" (Keynesian) solution. Tell us, why was there a housing bubble?
Second, an economic generalization subject to both theoretical and historical tests. I'll skip the theory--way beyond the scope of a CD comment--and simply state the generalization, which you can weigh against history: Economic crisis, unemployment, war and corruption are endemic to capitalism as a system. Capitalism requires such things, which is why the biggest lie of "liberalism" (reformism) is that state intervention can eliminate the evils of capitalism. The evils resist cure. History proves time and again that it is the market system that regulates the government and not the other way around. Sooner or later, in one way or another, big capital gets its way.
You glibly echo the principal illusion of reformism in your claim that "deficit spending" is "the same thing that brought us out of the depression." Not quite. If you refer to the Great Depression of the 1930's, it is widely if euphemistically maintained by a consensus of economic historians that it was the "military Keynesianism" of WWII that "brought us out of the depression." This obscene euphemism neatly "forgets" the 50 million lives taken by this war; the untold material destruction; and its imperial upshot, the US National Security State, claiming global domination by any means necessary, celebrated at Hiroshima, and so on, now running the world to utter hell. In economic terms,the vast overproduction that characterized the Great Depression required an equally vast destruction, human and material, to bring "us out of the depression." This is how your "deficit spending" cure worked in the real world. And this, please note, was but a retelling of the boom-and-bust story of capitalism on a macabre scale.
Besides, I hope you noticed that your "cure" did not stick. We have just passed through a formidable financial crisis and recession, with unemployment still high. You may rest assured that there is more where that came from.
If you want decent work in a peaceable world, tweaking capitalism--whether by Keynesian or Randian palliatives--won't do the trick. Never has. Never will. Such
"answers" presuppose maintaining the root of the problem. And by "decent work" I refer not only to the quantity but to the quality of employment. Most jobs under capitalism today are a living degradation of mind, body and spirit.
Of course, to overcome capitalism requires learning how to make socialism come to be out of the hell of capitalism, by the mass agency of humans so degraded by capitalist culture that most of them, at least in contemporary America, don't even know their genus (they do not believe that they are natural creatures, i.e., they believe in personal immortality) and cannot carry on an adult conversation on topics of civic interest.
In the upshot, prospects are not good either for the wrong or the right"answers."
soloduff: Very interesting post! Thanks for taking the time to comment.
"And by "decent work" I refer not only to the quantity but to the quality of employment. Most jobs under capitalism today are a living degradation of mind, body and spirit." -- soloduff
A friend of mine and I were having this very conversation a few days ago. She's the first person I've spoken with who seems to have a grasp on this issue.
I and other posters on this article have opined: 'why was there a housing bubble?', imo, mainly deregulation. I don't see why we eventually can't be the same as many other countries: with tightly regulated markets and democratic socialism. By 'consensus of economic historians' you must mean among people who don't like Keynes. I would guess many, maybe most, historians would agree WW2 helped, but was not primary, and I don't think it makes me a war monger to like Keynes. The money could have been used for something other than war, and the result even better.
I don't find the current response by Obama to be Keynesian (bailout); imo, rolling back tax cuts as a first step, would be more Keynesian. The movement away from Keynes 30 yrs ago may have sent us into a ditch; the answer isn't to say there are suddenly no answers.
Very insightful analysis that is thought provoking, but I lived under almost socialistic system and the results were not encouraging at all.
In my humble opinion, for socialism to work, two conditions have to be met:
1) Every individual have to be competent in his work and make the right decision each time.
2) Every individual is completely honest and is putting the interest of the common weal above his own interests.
These two conditions are never met in everyone int the country, and favouritism, greed, nepotism, cronyism and incompetence creep into the system, and decay and demoralisation set in.
commoner3
Care to mention the country?
The author seems to be completely ignorant that the 1999 passing of the Financial Services Modernization Act, provided the deregulation environment that was needed by the Financial Services Industry to help CREATE the bubble to begin with. How does this guy have his own think tank, when so little thinking seems to be happening between his ears? I wonder how much money he is making from these Bank/FS corporations for propagandizing against the need to reinstate Glass Stegall for instance.
Likely the most relevant place.
This is rather "strange" if you would but an example of just how mucked up the system is.
Credit Unions in Nevada have so much money they are paying depositors a BONUS to withdraw their deposits.
The insurance on the Cash they hold costs more then the yeild from US treasuries so they lose money on all their deposits.
They are not lending as they see no opportunities to lend.
I guess the SOCiALIST credit unions -- are now finding out what CHINA is finding out abotu US TREASURIES "guarantees".........they are UNDEPENDABLE.......
Lots of good comments on economics.
It seems odd to me for Baker (and us) to focus on distortions in economic and financial systems...
while he asserts that the solution is restored over-consumption "by any means necessary"...
with no mention, nor apparently any thought given to the underlying ecosystem / biosphere breakdown...
Restored over-consumption is preposterous, bubble or no bubble of whatever sort.
Our way forward has got to be about harmonizing our human systems with the living systems of the Earth.
Transformation of the economy has got to be about sharing in the work and bounty of the living Earth.
Any living system, and any human system, that is dominated by the insatiable greed of one sector is... cancer-ridden.
my teacher, masonobu fukuoka, showed that by human understanding of nature's activity, it is possible to grow rice without transplanting, that he natural strength of non-transplanted rice does not require pesticides, that using a leguminous cover crop (usually clover) eliminates both weeding and soil preparation (hoeing), that by using its own power to grow in unprepared soil increases the resistance of the rice plant to pests and diseases,, and that returning the rice straw to the field, a well as the green manure working of the leguminous cover crop eliminates the need for fertilizer...and that this produces both a surplus in terms of quantity harvested and in free time available for the farmer, ..and that this method works both in the case of other grains and vegetables. free time, of course, equals culture... and ends class division, and division of labor..
WOW , Guernica!
webwalk wonders, "It seems odd to me for Baker (and us) to focus on distortions in economic and financial systems..."
It is "odd" only if you do not understand that politics is the vehicle of economics. And I am surprised that you seem to be unaware that the economy--specifically, the industrial economics of capitalism--is at the root of the "underlying ecosystem/biosphere breakdown" that you mention. --The next time you are in a library, pick up any introductory college economics text. There you will find that their "science" calls environmental damage "externalities," i.e., things that don't count in the profit calculations of the polluters. I kid you not.
Thanks, i have studied economics.
My point is that it is absurd to focus on figuring out how to pump up consumption. The living systems of the Earth are destabilized, and prospects for human societies are not good.
i understand that this is caused by "the industrial economics of capitalism." i don't think you and i have any disagreement. i thought i was making that point.
"Those who claim that the real problem was the financial system and its faulty regulation can be disproved with a single word: Spain.
Spain is noteworthy because it now has an unemployment rate of more than 19%, the highest rate in any of the wealthy countries. Spain did not have a financial crisis. In fact, its well-regulated financial system is often held up as model for the United States.Spain did have a horrific housing bubble. As a result, the share of construction in the economy rose from less than 8% of GDP at the end of the 90s to 12.3% in 2007..."
I am amazed that an economic expert like Dean Baker is apparently ignorant of the economic reality in the EU:
EU Press Release Nov.2000:
"The European Commission has called for a quantum leap towards rapid implementation of the Financial Services Action Plan (FSAP) so as to ensure that the 2005 deadline set by Heads of State and Government at the Lisbon European Council will be reached and that financial markets therefore contribute fully to economic growth and JOB CREATION" (the last part is very rich, isn't it ... and shows how brainwashed these guys have been by the neoliberal theology ...)
http://ec.europa.eu/internal_market/finances/actionplan/index_en.htm#actionplan
It is more accurate to say that Spain used to have "a well-regulated financial system" but that ended in 1999 when the FSA (Financial Services Agreement) came into effect as part of the WTO / EU strategy to deregulate the service-sector (GATS).
The majority of informed Europeans opposed the GATS (especially the privatization of public utilities) but the EU does not really care what its citizens really want (if they vote Yes - fine, if they vote No - call them ignorant, unleash a PR-campaign (or a "crisis") and arrange vor a another referendum to make sure they are going to "agree" ... see the case of Ireland and the EU Treaty ...)
The spirit of the GATS is clearly shown in this statement:
“Governments are free in principle to pursue any national policy objectives provided the relevant measures are compatible with the GATS.”
Translation: You are free to do what WE (the financial & business oligarchy) WANT ...
More information:
http://www.citizen.org/trade/wto/fsa/
http://www.democracynow.org/2009/9/25/report_us_initiated_wto_rules_could
I totally disagree with Mr. Baker: the construction bubble in Spain WAS a result of the deregulation of finance but also the consequence of the (Euro)millions of subsidies Spain received from the EU.
The real scary stuff (democracy-wise) is, that governments may no longer BE ABLE (even if they wanted to) to RE-REGULATE the financial sharks because by signing on to the WTO / EU / GATS they have ceded their economic sovereignity to "investors" and the international banking cartel that operates on their behalf ...
http://www.citizen.org/documents/StiglitzCommissionHighlights.pdf
P.S. I am afraid Michael Hudson is right:
"You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. ..... The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite."
Source: http://www.globalresearch.ca/index.php?context=va&aid=17467
...thanks dean baker, that takes a load off...one more economist i can ignore....