The investor class has finally cobbled together its political program lately. The parts come from the dead bodies of far right fantasy going all the way back to Hoover’s day. Martin Hutchinson, to whose country club echolalia the NYT has provided a space and no place to comment, pretty much sums up the whole mindset:
“With the Dow Jones Industrial Average below 7,000 – at 6,763 – the US stock market is well below its early-1995 level, adjusted for changes in nominal GDP. That suggests its cheap – if growth prospects are as good as they were back then. The risk, however, is that too much fiscal and budgetary stimulus will bring on growth stultifying inflation.”
That paragraph is a relic of the true faith of our late Great Moderation: the idea that the economy is equivalent to what is good for the plutocrats, the idea that inflation is solely a product of monetary policy, the inability to understand that the meltdown has undermined every model used by the Reagan-Greenspan-Bush era, and of course, key, the fear that the fiscal and budgetary stimulus is going to lead to higher tax rates for the wealthy. Since the wealthy constitute a narrow and parasitic class, it is going to be hard to get game arguing that we should both supply them with the keys to the Treasury and make sure they pay a minimal amount of their various hordes – hence, the inflation argument – you too, poor schmoo, will be affected if we don’t stop the awful socialist monster!
So sound off, one two. The market isn’t cheap. Cheap would imply that the losses so far are as nothing, and that in reality, the economy is sound. It is far from sound. The stocks are cheap has been a reliable formula to scare up some dough from greedy nimrods, but this time they don’t have the dough. The prospects for growth in 1995 were determined not by the fiscal and budgetary policies of the Clinton administration, but by the last wave of tech innovation that originated in the 30s and 40s – the computer wave. Without another wave of innovation – which, I think, can only be green tech – there’s only the zona winter spreadin’ out so far and wide and cold before the feet of poor and country clubber alike. And finally, there is the tunnel vision, as Tim Duy called it, of thinking that the status quo ante can just be put back together again.
Duy’s piece, quoted over at Economist’s View, indicates that what I have been harping about due to my paranoia seems, actually, to be what the establishment thinks: that somehow we are going back to 1995. That somehow the speculative economy, with the overlarge, overripe financial sector, is coming back. Duy’s piece even contains intimations that he has discovered the Mangle of Inequality! Amazingly, he actually connects household income to household purchases – this is a huge step for an economist:
“Leaving aside the issue of housing prices for a moment, consider the issue of household net worth. I always feel that academics misinterpret balance sheets, particularly household balance sheets. Here Bernanke is saying that debt is not a problem because it is matched by an asset of equal or greater value. Ergo, you have positive net worth, so everything is good. But that debt needs to be supported by a positive cash flow, and the many assets on household balance sheets generally do not generate cash flow, especially owner occupied housing assets. This differs from a corporate balance sheet, where the assets are supposed to be combined in some fashion that generates a positive cash flow.
The cash flow that supports most household debt is independent of assets; it is the result of employment income. To be sure, perhaps some of those assets support the employment, such as a car. But even in this case a Toyota Camry performs the same function as a Lexus. Claiming the latter is necessary for employment is largely a fantasy.
Bernanke praises the power of the household balance sheet, and further supports his contention that households are financially strong by the disposable income growth at the time. What he missed, however, was the importance of declining savings rates, which were quickly converging on zero. When saving rates hit zero, free cash flow for households is gone, and without free cash flow, the ability to increase debt diminishes unless either interest rates fall further or we can divorce credit access from ability to repay. In this speech, Bernanke effectively endorsed the illusion that asset value growth could replace ability to repay for underwriting purposes. Debt accumulation and thus spending can be supported indefinitely as long as asset values increase.”
I’ll quote myself from Feb. 08th – admittedly, my language does have the drypoint hauteur of Duy’s. It is written in dayglo:
“The little thread that ties these things together is the housing market. It is as if the media sphere decided to throw Marx a surprise party: in his honor, they are demonstrating just what commodity fetishism means. The housing market has been curiously disembedded it real location in the world of social labor, and transported into the never land of econospeak and graphs. In the never land, there is never and there will never be any mention of the one overriding fact about the housing market, which is that houses are actually bought by people.
As I have pointed out again and again, like an erotomaniac compulsively returning to the habit of masturbating in public when released from his straight jacket, this is what happens when inequality reaches a tipping point. The half baked neo-liberal theory upon which the American economy has stood for three decades supposes that certain social goods (retirement, healthcare, education, etc.) can be ultimately provided for in the private sphere. How is this accomplished? By making the average household not only a unit of production, but also a source of investment. Thus, X and Y, the double wage-earners in the household, will enjoy a progressively better lifestyle even if their combined earnings stagnate or advance slowly, because they will have socked away money in their 401(k)s and IRAs and they will have invested in an asset, a house, that will bring them a healthy return even as they live in it. It is a bubble gum vision of the good life, worthy less of the American Economic Journal than Teen Beat magazine.
The flaw, of course, is that income counts. It counts so much that if you freeze it or slow down its increase in order to feed the wealthy (who, after all, are investors like all of us! It is the solidarity of capital, here, one for all, or – getting real, heh heh heh – all for one), who, pray tell, are X and Y going to sell their asset to? Another X and Y, in basically the same circumstances? Any child can tell you that no matter how often two poor shits sells a commodity back and forth to each other at higher and higher prices, which they borrow, the end result is not going to be that each gets infocommercial wealthy – it is going to be that each gets financially broken. The commodity didn’t do that. What did that has been doing that for a long time. It is called your Government. Plus your private sector. Check it out. Open your eyes. The Fed has openly tried to batter the bargaining position of labor for years. The commerce department, for decades, has held seminars for businesses about how they can move to labor cheap locales. The industrial policy of the U.S. government – which claims it has no industrial policy – has been directed, for years, at keeping incomes down and credit lines at high interest open.”
And, since I am in a self-quoting mood, I will leave with a link to a piece I wrote for the Austin Chronicle in 2000, all about the neo-liberal theology. Here.