In the arresting prologue to his book, The Crisis of the Old Order, Arthur Schlesinger Jr. describes America on the day of the inauguration of Franklin Roosevelt -- an economy nearly shut down, people starving, machine-gun nests around Washington, opinion-makers taking of the need for dictatorship, capitalism given up as dead, even the March sky dark and foreboding. Pace today's revisionists such as Amity Shlaes, FDR indeed restored confidence and began an economic recovery that was only tripped up when he reverted to his instinctive desire to balance the budget and back away from stimulus. If it makes them feel better, many of the New Deal's successes built off the programs first established by Herbert Hoover, the often unfairly maligned onetime progressive. Yet those policies had not been pushed with the energy or scale demanded by FDR.
Many liberals and progressives want to see the current economic phase of the Great Disruption as a Depression-like opportunity. Meanwhile, conservatives such as Ms. Shlaes -- and the reactionary thugs who consider even Social Security, as they would phrase it, SOCIALISM!! -- use the Depression and New Deal as a foil. The reactionaries back then wanted to raise taxes to balance the budget. Otherwise, today's right is little changed intellectually from its predecessors.
And yet as I watch us move along the leading edge of history every day, I doubt many of the Depression analogies. We are not yet, most of us, on our backs. We have lost a huge amount of wealth -- more than we realize, when one factors in the 25 years of destructive mergers, deindustrialization, deunionization and unwise trade deals. The floodwaters intrude on our peripheral vision -- a friend laid off, a "depressing" news story. Otherwise, life goes on. American Idol goes on. A new release of Grand Theft Auto. Watchmen brings to the screen "the greatest graphic novel of all time" (was Sad Sack a graphic novel?). Talk radio continues to stir up the faithful. We are entertained, distracted, agitated, yet sleepwalking. Hoping for the next bubble. The next "Flip this House" casino economy moment. We don't realize how gone it all is, gone with the wind.
I watched the movie, The International, a couple of weeks ago and was struck by how the European scenes showed cities both lovingly preserved yet vibrantly contemporary and functional (including high-speed rail and trolleys). Back in America, whether the producers intended it or not, things looked seedy. It says something that all South Carolina can do to honor native son Ben Bernanke is name a freeway interchange after him. These and Wal-Mart parking lots are what pass for our public spaces. What tourists of the future will want visit our ruins?
Bernanke's hometown of Dillon, S.C., has the school so dilapidated that teenager Ty'Sheoma Bethea became famous for writing the president to seek stimulus funds to help the students help themselves. Almost nobody cares to even think about these things. Life goes on. Drive, drive, drive in a dehumanizing landscape. Watch our underclass grow. Watch our schools fall apart. Those few who notice are merely talking to each other, while the larger country sleepwalks -- or sleepdrives. They are oblivious to the discontinuity rolling slowly down on them.
The recession is unlike what confronted FDR. It is much more complex, much more global. For example, Roosevelt famously -- or infamously -- torpedoed a London economics conference in progress. He didn't want to deal with world issues at a moment of national peril (and he didn't want to be bound to the dead-hand of the gold standard). Today we have no such luxury. China owns our debt, and is dependent on our continued "consumption" to keep its factories going -- and avoid a violent reaction at home. Yet we're tapped out. Done.
FDR's "bank holiday" actually began with governors and Herbert Hoover. (Roosevelt was also vehemently opposed to federal deposit insurance, but had to give into the demand from Congress.) Yet these banks were 3-6-3 kinds of institutions -- borrow at 3 percent, lend at 6 percent and be on the golf course by 3 p.m. It was comparatively simple to sort out the insolvent institutions, re-open the better capitalized ones, and stop the bank runs. And these were all relatively small banks.
It's becoming clearer every day that the bank run now is on the U.S. Treasury. Bailout money to AIG went to pay "counterparties" who in many cases turned out to be the big banks demanding more taxpayer bailout funds on their own. They are "too big to fail." They are prisoners of an unregulated shadow banking system and 3-6-3 was long ago replaced by swindles, aka derivatives.
We need a holiday and stress testing on the shadow banking system and, as the character says in Pulp Fiction, we need to get medieval on all these swindles, wiping them from the books, reorganizing and breaking up the insolvent banks, etc. Do you have any confidence that Tim Geithner, product of Wall Street and cohort of Hank Paulson, knows what he's doing? So much wealth has been pissed away. But in other cases it went somewhere. When will we have accountability, prosecutions and restitution as retirees contemplate a future of poverty?
Reality is bearing down on us, and not even the Ben Bernanke Interchange will offer an escape.
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.
Posted by: soleri | March 09, 2009 at 03:27 PM
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.
Posted by: Emil Pulsifer | March 09, 2009 at 06:43 PM
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.
Posted by: eclecticdog | March 09, 2009 at 07:46 PM