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March 09, 2009

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I'm having a hard time seeing a good outcome for either the world economy or the Obama administration. Too many threads have unraveled to somehow restitch them into a whole cloth.

Being unlettered in economics, I have no idea what Geithner is doing. As SNL showed, he's clearly positioning himself for the role of national scapegoat. But there's the possibility he can't really fix the system, that's it's far too complex for repair and the damage too severe. Krugman is increasingly pessimistic that the administration can seize control given its narrowing window of opportunity.

Then there is James Kunstler's viewpoint, one I'm reluctantly beginning to consider. He's optimistic, in his perverse way, that we'll somehow return to more gentle times. We'll grow our food in gardens, adjust our economy to local levels, and live as if life were a Renaissance Faire without the costumes. But this seems a bit too farfetched, wishful thinking without a historian's skeptical gaze.

My achy bones tell me a storm is coming but that we'll survive. Our standard of living will decline dramatically and our national comity will fray. Republicans will successfully return to power by promising the good 'ol days, a promise they can't deliver but one in which they fully exploit racial and class tensions. The nation will somehow cohere but it will clearly be an empire with a limited portfolio and diminished prospects.

I agree that the current crisis is not, at present, Great Depression material, at least, not in the United States and not in most or all of Western Europe.

I would also argue, however, that we are at present in early days, and that the potential for catastrophic problems is probably as great, despite the general tendency for federal governments worldwide toward interventionism.

In part, this is because, whereas the Great Depression was a worldwide phenomena, the destinies of individual economies were not linked to the extent that they now are. The international component of capitalism, in the finance, labor, and consumer sectors, as well as with respect to currency and trade blocs (e.g., the European Union), was not as well developed at the time of the Great Depression. Interlinked economies present more opportunity for major national or regional disturbances to bring the whole web of international connections down, if things go truly wrong.

It really is a question of how things are handled and, equally or perhaps more importantly, of how things develop. Only a minority of truths are intrinsically determined: many of the so called truths of the empirical world are dependent upon the state of information which exists at any given time: the revelation of additional information may easily seem to render former provisional truths false, or former provisional falsehoods true -- at least, until the next revision; and insofar as the "dismal science" of economics depends upon provisional truth, we are always a revelation away from both sudden disaster and sudden emancipation and salvation.

As for old films, and old times, the delightful Europe of yesteryear -- the triumph of post-WW II Social Democracy -- has, alas, in many places, been corrupted by the same kind of neoliberal model of contemporary capitalism which had previously begun America's decline, only with a delay of decades. To some extent, the hucksterism of this movement has been interrupted by the current economic crisis: the mantras of deregulation and "free markets" (operating in a national and international framework of government influences) are no longer as attractive, and no longer fetch the automatic deference of the masses.

Exactly what can be made of this is another question. Much has been made in the American press, for example, of the failure of the recent general strike in France to paralyze the country or bring down the government, but it is seldom mentioned that French law had been amended in 2007 precisely with an eye toward preventing systemically effective labor action.

AIG should be drowned in a tub of its own red ink and its insurees left to account for their losses. Then the Fed can nationalize the weak and nurse the wounded. Geitner has no clue (he is the Peter Principle in action and has reached his highest level of incompetence). There will be no accoutability, but maybe the lawyers will cost the perpetrators a few bucks.

All this said, I think we will come out of this. And not because of any help from the Republicans - they will disappear in our life-time just as the Whigs and the Know-Nothings self-destructed. I think a third-party will arise to claim the middle ground and cast the other scoundrels into the wilderness too.

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