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Crisis and Economics: a Love Story

Now

Since the onset of the post-Keynesian backlash of the 1970s economists have tended to put forward ‘political’ views that support one variation of crude capitalist ideology or another. The purgatory of the last seven years has forced assertion of economic contradictions that more closely approximate theoretical incoherence. On the one hand ‘the economy’ is either at long last, or has been for some considerable period of time, on the mend and on the other some nebulous malady— ‘secular stagnation’ or some such, precludes ‘normalization’ to a pre-crisis state of affairs. Policy prescriptions are meeting the facts of ongoing dislocations while political posturing forces improbable explanation through the filter of Party politics. And while implausibility has rarely been a hindrance to selling bad ideas, subsequent facts do occasionally place them in the context they deserve.

The back-and-forth of aggressively bland, quasi-academic, economic blather could be taken as a side show was it not for its implications. Federal Reserve policies are being framed in populist terms, as salvation for the forty-six million people receiving food assistance and the overwhelming majority of citizens living paycheck to paycheck, when the inside scoop is that bankers have re-taken the economy to the point where any effort to ‘normalize’ economic policies would quickly send the financial and financialized economies into crisis. The paradox of populist posturing in support of policies that knowingly or, worse yet, unknowingly support the forces of banker hell might be entertaining if millions of lives weren’t dependent on good outcomes.

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Graph (1) above: in the larger scheme of things it is way past time for the fascination with finance to go away. In the meantime, restoring the value of stock prices relative to economic production illustrates the inflation that Federal Reserve rescue efforts have achieved while mainstream economists prattle endlessly on about negative real interest rates. While the national / international mix of economic production has shifted over time, it hasn’t gone so far that the graph illustrates other than wildly skewed social priorities. The ‘wealth effect’ of rising financial asset prices is the theory that the rest of us will get jobs as waiters in expensive restaurants and performing yacht maintenance if the rich are made even richer. Source: St. Louis Fed.

Left substantially unsaid is that current circumstance is a function of the irresolution of the last seven years, which itself is an outcome of the neo-capitalist revolution of the 1970s. The mainstream debate over trade ‘imbalances’ versus inadequate fiscal and monetary policies leaves unaddressed the disparity between the full recovery of corporate profits and ruling class incomes and bank accounts and the unrelenting grip that the Great Recession has on everyone else. Implied in the terms of the mainstream debate is that all is not well. And implied in the fact that all is not well is that the mainstream debate is wholly irrelevant to policies likely to be implemented. Put differently, why haven’t the Federal government and the Federal Reserve done for the rest of us what they’ve done for the rich?

Is there something fundamentally different about the incomes and wealth of the rich that makes their recovery easier to facilitate or have they recovered because they have been the central focus of recovery efforts? To split the policy debate difference, if some combination of trade imbalances and inadequate demand are perpetuating economic weakness, why has this only affected the poor and middle classes? And if a center – periphery frame is applied that places the rich in the center and the rest of us in the periphery, why would changing trade, fiscal and monetary policies to boost growth not also disproportionately benefit the already rich? Together these questions suggest that there might be good reasons why mainstream ‘advice’ is being ignored in official circles. This written, the actual reasons this advice is being ignored are unlikely to be the good reasons.

History

In history, the moment in 2008 – 2009 when there was a palpable sense that most of what was understood about the modern world had been an illusion was used to create the compound misconceptions that pass for explanation in the present. This is to take a walk through the tightly circumscribed political imagination used to restore political viability to demonstrably dysfunctional political economy. What came to the fore in the depths of crisis was precisely how thin the façade of official competence was and how dependent on the particular arrangement of circumstance it had become. This tattered façade is now put forward as economic substance as if image and substance were interchangeable.

The official explanations coming from Washington and Wall Street post- 2007 were selective in that they posed distinct categories of economic resilience, ‘winners’ and ‘losers,’ when in fact the entire system would have spiraled into oblivion had it not been for state intervention. Press accounts touted the viable—Goldman Sachs and Ford Motor Company, while the facts were that these were among the most in need of state intervention for continued survival. And the reason why they were in need ties apparently disparate pieces to the broader economic system. The individual pieces were connected through interdependencies— cross liabilities and supply chains, which linked the viability of one to the viability of all. The apparent goal of official explanation was to create the illusion that select players were viable without government aid.

The difference is crucial— by facilitating the claim that only individual companies needed temporary aid in exigent circumstances the deception was maintained that the broader economic system remained viable. In fact, government bailouts went far broader and deeper than press reports ever came close to suggesting. The point is that Western capitalism is put forward as a system of economic Darwinism premised on corporations and individuals finding their own way when broad swaths of corporate America would have fallen by the wayside in 2008 – 2009 without government support. As with economic recovery for the rich and ongoing misery for everyone else, what is made apparent through selective government rescue efforts is that there are wildly divergent economic outcomes living inside of one economic mythology.

Politics

In the realm of politics, by the time of crisis George W Bush’s clueless hick routine had satiated the American taste for reckless whimsy and a more polished snake-oil salesman was needed to restore state-sponsored capitalism. Barack Obama restored the façade of competence and his twice won election proved him up to the task of effective misdirection. Between bank bailouts, automaker bailouts, scam mortgage relief programs, the ACA (Affordable Care Act), illegal surveillance, militarization of the police, ‘humanitarian’ interventions and trade agreements intended to undo environmental agreements, Mr. Obama proved himself a capable steward of façade restoration. The question of why he chose to ignore the advice of liberal economists is best answered by the economists— Mr. Obama clearly understands his own reasons for doing so.

The depth of Mr. Obama’s cynicism was placed in calculated relief by professional apologists through assurances that ‘the Republicans are worse.’ Left unconsidered is that had Mitt Romney’s, Jeb Bush’s or Hillary Clinton’s names been placed on Mr. Obama’s policies no surprise would have resulted. The bank bailouts restored corrupt and predatory bankers, the automaker bailouts restored executive salaries while cutting working class wages, the mortgage relief programs preyed on desperate homeowners for the benefit of bankers, the ACA brought new ‘customers’ into the most expensive and least effective health care system in the developed world and Mr. Obama is busy reversing his environmental policies with trade agreements. Needless to say, each of these policies has been given the patina of necessity by the very-same pundits now perplexed by economic policy inertia.

Trade and Environment

The latter point is illustrative in that ‘professional’ environmentalists have engaged themselves with the minutiae of environmental agreements that will be fully reversed by the Investor-State Dispute Settlement (ISDS) rules in the TTP and TTIP ‘trade’ agreements that Mr. Obama is determined to see passed. As with the ACA (Obamacare) program that has liberals and progressives passionately defending a Heritage Foundation plan to preclude real health care reform through privatization of existing government programs, environmentalists are proclaiming Mr. Obama’s cynical sleight-of-hand a landmark pledge to reduce greenhouse gas emissions when, even if taken at face value, the plan is a cynical hoax.

The year 2005 was chosen as the benchmark for U.S. greenhouse gas emissions because it is the highest level ‘achieved’ before the U.S. substantially outsourced emissions to countries with lax environmental regulations. Likewise, Mr. Obama’s plan to limit the amount of coal burned by U.S. utility companies has the now ‘excess’ coal being sold overseas as if location bore relation to its effect on global warming. Restrictions on emissions will cause the loss of real and prospective profits under ISDS rulings meaning that under Mr. Obama’s trade agreements taxpayers must pay corporations for restrictions on their ‘right’ to pollute. Mr. Obama is seeking fast-track approval for these trade deals so that they can’t be amended by Congress.

Sisyphus, Meet Ostrich

The choice for die-hard Democrats is that either Mr. Obama doesn’t understand the true effects of his policies or that he considers his constituency too stupid or preoccupied to understand them. With what is by now political custom, Mr. Obama’s policies will come into full effect after he has left office. As with George W Bush’s experience with Democrat Bill Clinton’s bank deregulation, Mr. Obama’s failure to resolve the outsized, predatory role of finance in the global economy will at some point come back to bite Hillary, Jeb or whatever corporate-state chair-warmer occupies the Presidency at the time. Were there the political will and the social mechanisms needed to lay responsibility for crisis where it belongs, the last crisis would have ended capitalism for our lifetimes.

That Mr. Obama’s policies are indifferentiable from those of other mainstream political candidates cuts both ways— other than general demeanor, what difference does it make which candidate holds office? As with the Supreme Court’s appointment of George W Bush to the Presidency in 2000, the background premise is that the status quo can hold its own no matter how pointless and destructive an American leader’s policies might be. Conversely, the conceit that façade is substance is demonstrated through restoration of the façade— leaving in place the same executives and bankers that so recently produced crisis. Doing so assumes they are mere placeholders in a larger game, that their actions are inconsequential to ‘ultimate’ outcomes.

Co-dependence between the major political Parties has produced the shift hard right of recent decades. What reads as hyperbole in the realm of the political, that Barack Obama, and Bill Clinton before him, represents radical capitalist interests, and with them the politics of the radical right, is simple analysis in more encompassing frames of economic possibility. With Democrats so openly representing the interests of the capitalist class Republicans have no direction to go but crazy. In response a cottage industry of Democrat apologists has arisen to call out the increasing implausibility of the Republican program without addressing the Democrat’s move hard right. Had left political economy been implemented by Mr. Obama its likely success would have rapidly brought Republicans back from the far fringes of Western thought. As things stand, the space between the radical right and the lunatic fringe has become the home of the American ‘center’ for some three decades now.

Resolution

The American tendency toward living in an ever-present is a Zen Armageddon of sorts. There is the capacity for mass destruction without the collective memory to prevent it. Where is the disjunction between official explanations and lived experience? The economists now making policy recommendations are modern day court pleaders, technocrats whose interest in the wellbeing of ‘the people’ is belied by their professional / career concern that keeps them tethered to an irrelevant ‘center.’ Ultimately these technocrats and ‘official’ explanations are vague assertion that help is on the way. The question back is why have those who least needed it already been helped? They didn’t need court pleaders and the policies enacted on their behalf were effective. From this point forward the policies that matter account for this difference.

Rob Urie is an artist and political economist.                  

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Rob Urie is an artist and political economist. His book Zen Economics is published by CounterPunch Books.

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