New Year's Revolutions

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.