“…The capital we thought was there is gone. A lot of it was actually translated over the years into Hamptons villas, Gulfstream jets, and other playthings that will now go up on Ebay or some equivalent as we turn into Yard Sale Nation in a general liquidation of remaining assets….Everything is for sale and nobody has any money.”
— James H. Kunstler, 9/15/08
The tremors come faster now. Candidate McCain mimics Herbert Hoover asserting that the economic “fundamentals” are sound, even as Wall Street asset Hank Paulson announces the latest lofting of US Treasury life preservers. The fiscal flotation devices will allow Hank’s cohorts a “soft landing” in more comfortable climes than await the majority here in America the Deflating.
Even the corporate media, reflexively dedicated to promoting “consumer confidence” and keeping the gullible in their seats long enough for the swag-toting executive larcenists to make for the exits, murmur about a new 1929.
With the usual misdirection, the press reports plummeting Wall Street stock prices as if they mattered to ordinary people. In fact, as economist Dean Baker has repeatedly pointed out, “[T]he stock market is not a good barometer of the economy’s health. It can be driven up as a result of a redistribution from wages to profits, or simply as a result of irrational exuberance. Neither is good for the economy as a whole, although anything that pushes up stock prices is obviously good news for the small minority of people who own substantial amounts of stock.”
Meanwhile, Baker’s colleague at the Center for Economic and Policy Research, Mark Weisbrot informed Miami Herald (9/1/08) readers that real — inflation adjusted — wages have been virtually stagnant for 34 years. Since 1973, as the stock market climbed, “productivity — the amount that workers produce per hour — increased quite substantially…” But, while this “ ‘useable productivity’ — the increased production that we can expect to be reflected in rising wages –” rose 48 percent from 1973 to 2007, paychecks didn’t. The “economy” grew but only the well-connected at the top benefited. Wall Street exulted in the new profits extracted from the under-compensated toil of the same working people who were now repeatedly urged to cheer the increasing fortunes of their masters.
As the downscale waged workers fell behind, they were offered EZ credit, first through deregulated credit card loan sharkery, and then, as the real estate bubble was ruthlessly inflated, through the infamous “home equity extraction” gambit and/or serial “house flipping.” Their “defined benefit” pension plans —deferred wages — were converted into crap-shoot “defined contribution” schemes and Enron-ized.
Most people’s “wealth” is represented by their house and maybe their car. People were encouraged to feel (and act) richer as the housing bubble and its heady irrational exuberance seemed to boost house values by $8 trillion nationwide. But now the music has stopped, the chickens flutter home to roost, and the piper shrieks for payment. As massive asset deflation continues, housing prices return to their long-term historic levels, and on average Baker notes, that vanishing $8 trillion in illusory “housing bubble wealth” translates into a $110,000 hit per homeowner. These hapless folks, “will see much of the equity in their home disappear.”
Since so many Americans essentially re-mortgaged themselves in bubble time — using their house as an ATM machine through an equity withdrawal — and continued to consume at a level their stagnant or declining wages no longer allowed, this implacable (and unfinished) deflationary swoon spells real pain.
Yet the media / political focus is on the Wall Street Weak and Dr. Hank’s hundred billion dollar injections. Pundits and “analysts” worry aloud about the fate of a rumored “free market economy” — a construct that exists only in the misty realm of unicorns, Easter bunnies, tooth fairies, “honest Republicans”, and “good corporate citizens.”
Sadly and unsurprisingly the story is an old an familiar one: Government socializing costs and risk while securing the outlandish private profits of society’s greediest people. There’s nothing new here.
The more interesting question is whether we are at a point in our rather lamentable and bloody history when the usual tricks may no longer work. In a country that no longer manufactures much except weapons of war, or cultural weapons of mass distraction, kept afloat mainly by massive infusions of foreign capital, with a domestic / domesticated population famously dependent on “credit” and buried in personal debt, are we approaching the End of Something?
As James H. Kunstler has reminded us lately, in that last great greed-induced deflationary spiral, called the Great Depression, the US had not yet squandered its vast oil and gas reserves, its productive industrial base, demeaned and vanquished its proud and self-conscious working class, depopulated its agricultural landscape, emptied and beggared its great cities. And outside of a few genocidal romps against the American Indian and the “pockmarked Khadiak ladrone” Filipinos, the population had not perhaps yet acquired the taste for blood, booty, and blitzkrieg that now so exemplifies The American Way.
“The Great Depression of the thirties never came to an end,” wrote John Kenneth Galbraith (American Capitalism, 1952). “It merely disappeared in the great [W.W.II] mobilization of the forties.” And — by the 1950s –in an effort to prevent another Depression, “the permanent war economy was born.” For decades, a not-yet bankrupt America found the money for easy living, suburban sprawling, and endless war: Guns and butter.
But now the butter may have to be put aside. Our foreign creditors grow weary of enabling our haughty bloodlust. The European Union, with its prosperous cities, assertive worker culture, and strengthening currency has surpassed the US in economic size and power — not to mention standard-of-living.
Presidential candidates flatter a distracted public that the US is “the hope of the world — the shining city on the hill.” But like much of their hucksterism, it’s a comforting lie. That hour (if ever it existed) has passed.
Something less congenial this way comes.
RICHARD RHAMES is a dirt-farmer in Biddeford, Maine (just north of the Kennebunkport town line).