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Saturday, January 10, 2009

The Reindustrialization Bank of America

Unfortunately, the reporting about Obama’s ‘stimulus” in the Press has concentrated overwhelmingly on the price tag. This is the kind of thing that is catnip to the economists, who love a number and a model the way a kitten loves a ball of yarn. It is also a way of shirking the occasion. No number will bind up the economy. No number will produce out of its pocket the road back from the abyss for the U.S, still the most powerful nation in the world. The abyss is not just getting fewer video games for the kids at Christmas. It involves a worldwide environmental crisis, as well as a nationally limited one – the drought in the West – that is getting bigger every year. It involves a worldwide cultural crisis, as thirty years of dumbing have put us all on the day shift of endless pantysniffing idiocy, strangling the capacity to daydream and replacing it with various forms of porno. It involves the decline and fall of the war system – Hitler’s triumph, the system has been used for sixty years in the developed countries (as well as the U.S.S.R) as the economic stimulus of first resort, the prosperity of which served to buffer the population that gained from it from feeling the traditional reach of the wars that were directed against less fortunate populations.

The list of projects included in this article by James Galbraith, who has been reliably clearsighted about the problem of predator capitalism, is a great place to start putting faces on the -000000000000 numbers. Here’s a selection:

The industrial crisis requires immediate action if the auto companies are to survive. For such cases in the future (and there probably will be some) the relevant precedent is the Reconstruction Finance Corporation, headed during the New Deal by an intrepid businessman, Jesse Jones, who saved many important companies with a combination of loans and workout plans. A new RFC would enable the federal government to assist industries– perhaps not as large, not as essential, or as threatening as the collapse of the automobile industry would be — but on a somewhat systematic basis for the duration of the crisis.
As for helping the workers who are most severely affected by the industrial aspects of this crisis, Teresa Ghilarducci, professor of economics the New School, has proposed a simple and effective step that would further the cause of universal health care: reduce the age of Medicare eligibility to the age of 55. That would take much of the cash burden of healthcare costs off of enterprises, where they don’t belong anyway. And it would provide the opportunity for many workers who would like to retire but won’t do so because they can’t afford to lose their health insurance.
The housing crisis requires mortgage abatement, a resetting of the toxic adjustable rate mortgages already being initiated through Fannie Mae and Freddie Mac, and also a concerted effort out in the neighborhoods to restructure mortgages and to keep people in their homes. Here the historical model is the Home Owners Loan Corporation, which did this in the 1930’s — an enterprise that took about 20,000 people to manage 1 million mortgages. Essentially the same effect could be achieved today by buying back the mortgages through Fannie and Freddie and then turning them over to a restructuring facility – the present version is known as the H4H, or Hope for Homeowners program.
The point is that while you cannot effectively stabilize the price of housing, you can try to save the existing housing stock, stop the spread of blight, the abandonment of homes, and the homelessness that results from an unchecked wave of foreclosures. We will then have preserved those neighborhoods and those communities for a better day.

The great mistake of the boys of October was not just in approving a program that could easily be seen to be the biggest bank robbery in history, perpetrated by the CEOs of the financial system, but in not seeing the opportunity before them - given the numbers the government was willing to put up, we could easily have created a national bank, capitalized to the tune of some 700 billion dollars, that would invest in re-industrializing the U.S. True, the political fighting would be intense, as this kind of thing entails some shocking encroachments on U. of Chi school verities, and would rightly be seen by the upper 10 percentile as an erosion of their share of the national wealth. But the falling of the industrial base has since made it even more obvious that Citi was a bad investment for America. Galbraith is right to hark back to the Reconstruction Finance Corporation of the 30s, and if such an entity had been in place in December, we could have begun to coordinate a really comprehensive response to the twin problems of a worsening dependency on oil and an American auto industry in freefall. A number of intermediate steps might have to be taken to solve these problems that would involve creating public entities ex nihilo, and then spinning them off to private investors. For instance, it just might be the case that U.S. autos could double their mileage if, as in Europe, cheap diesel fuel were available. In Europe, such fuel has long been subject to a refining process such that it is a lower emission fuel than U.S. gasoline. There is no comparable refinery capacity in the U.S., so the U.S. government should simply build one. Such would by no means be the final step towards creating a much more sensible green vehicle –hydrogen offers one path, electric rechargeable batteries another. Now is the time to pour money into R and D on all innovative engine types, so that we have the prospect of replacing the entire fleet of cars in the U.S. with green ones that can hook up to be recharged anywhere in the U.S.

At the moment, the idea of the state interfering this massively in the economy still lacks popular support. However, it doesn’t lack economic rationality. The private sector has long misallocated capital to projects with short term horizons to please equity investors. This has been a big factor in the de-manufacturing of America – which is a story not only of manufacturing jobs lost, but of big manufacturing opportunities squandered. Investors are as aware as anyone that those companies that are innovative – that show the greatest productivity growth – aren’t as profitable as those companies that are quarter to quarter beauty pageant winners. There are exceptions, like the computer industry, but one notices the shortfall in say broadband too – as opposed to, say, the abundance of I-phones. One requires heavy capital investments that will result in a slow but steadily increasing yield, the other doesn’t.

4 comments:

The Intellectual Redneck said...

Have you been wondering who is responsible for the bank crisis and the failure of Fanny Mae and Freddie Mac? Every voting age American should be required to watch this video. The video is from 2004 Congressional hearings about regulating Fanny Mae and Freddie Mac. You will see Republicans pointing out problems and calling for more regulation of Fanny Mae and Freddie Mac. You will see Barney Frank, Maxine Waters and other Democrats denying there is a problem and criticizing the regulators and Republicans for trying to prevent the upcoming crisis. If this video doesn't make you ashamed to be a member of the Democratic Party, nothing will.
Proof positive that democrats are responsible for bank crisis

roger said...

Actually,IR, that is almost insanely silly. If you want to understand who is responsible for the subprime crisis and the housing crisis, go back to Senator Phil Gramm's speeches made in support of deregulating the mortgage industry, made in 2000, and codified in the bill he promoted and wrote. Let's quote Senator McCain's dear advisor, shall we?

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.” - 2001

Now, I'm getting all tearful about Gramm's mother. And like the rest of America, I just want to make a gift of the economy to her. Get rid of that terrrible big guvmint, and put in a small guvmint that relies on sharks and the mafia, otherwise known as the upper class, to take care of us poor children!

"He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world."

Is that sweet or what? You might want to look up the driveby shooting known as the Commodity Futures Modernization Act.

Then you can go through the entire history of Reagonomics, which became the standard for both Dems and Republicans over the last thirty years, and recognize that, basically, the insane premise was the vitiating the labour power of the class that owns the least wealth in america - the bottom 80 percent - and massively rewarding the wealthy - to the point where the top 10 percent income bracket had, in 2005, the largest share of the wealth since 1928 - and you will begin to have a clue about what has been happening. In essence, the housing crisis was caused by the simplest thing - the fact that, during the Bush years, the rate of increase of the median income stangnated to zero. If it had gone up at the rate it had during the Clinton administration, the traditional ratio of income to housing cost - 3 to 1 - could, conceivably, been preserved.

Not, of course, that Clinton, who agreed with Gramm about small government, is some kind of hero. The tepid tax hike on the wealthy that began his tenure, and his refusal to spend the surplus on, say, socializing medicine could well be seen as opportunities squandered.

So, look back into the past, try to ask yourself what happened to America since the seventies and why we would ever permit 15,000 families to control 5 percent of the national income, and that we would end up with more economic inequality than any other country in the developed world,and indeed next to Mexico in OECD's latest poll of these matters - and then come back to me.

roger said...

PS - you will want to go here for the Phil Gramm story:

http://www.nytimes.com/2008/11/17/business/economy/17gramm.html?pagewanted=all

Brian said...

You're sorta saying this, and you are MORE correct than ir, but cannot it be that you are BOTH right. Not that I believe the Republicans in the first commentor's piece had anything good or moral in mind (they probably just want to get rid of any government role in mortgages altogether) but you can't deny the venality of Mr. Frank. Of course...as you point out, said venality represents 0.00001% of the venality and disastrousness of the right wing policies that have created this mess.