notes from the ice age

In the Postulates of the Political Economy, William Bagehot writes:

'In the Athenian laws,' says Demosthenes, 'are many well-devised securities for the protection of the creditor; for commerce proceeds not from the borrowers, but from the lenders, without whom no vessel, no navigator, no traveller could depart from port.' Even in these days we could hardly put the value of discounts and trade loans higher. But though the loan fund begins so early in civilisation, and is prized so soon, it grows very slowly; the full development, modern banking such as we are familiar with in England, stops where the English language ceases to be spoken. The peculiarity of that system is that it utilises all the petty cash of private persons down nearly to the end of the middle class. This is lodged with bankers on running account, and though incessantly changing in distribution, the quantity is nearly fixed on the whole, for most of what one person pays out others almost directly pay in; and therefore it is so much added to the loan fund which bankers have to use, though, as credit is always precarious, they can, of course, only use it with caution. Besides this, English bankers have most of the permanent savings of little persons deposited with them, and so have an unexampled power of ready lending. But ages of diffused confidence are necessary to establish such a system…

That diffused confidence reflects, among other things the power relationships within a society that have been imposed on the distribution of assets. So what has the ice age of the neo-liberal society established? We have been living on an unproven supposition, from which is derived a practical aporia. The supposition is that only by ensuring that the businessman can achieve the greatest possible real compensation can we motivate the capitalist system beyond its tendency to crisis. And the aporia is that the money made by that businessman will depend on the demand of a population which will otherwise have their own compensations squeezed, the natural consequence of guaranteeing the businessman the greatest compensation possible for his activity. Crushing the bargaining power of labor is always the first and greatest of the tasks of conservative government. So thoroughly was this accomplished during the last thirty years – the years of the Reagan economy – that we rarely see anybody write, anymore, about the bargaining power of labor. We have, bizarrely, decided that the power of to compensate should lie solely with those in management. Hence, the general shape of the new economy is indistinguishable from the drivers to increasing economic inequality. This should be distinguished from immiseration – it is possible for the working class in general to gain purchasing power over time in an economy in which their economic power vis a vis the top income tier diminishes. However, there are limits to how far this movement can take place. That’s the simple alpha and omega of the ‘new economy’.

Business Week has an interesting article that gently asks if we are at a reckoning point, or as the author, Michael Mandel, puts it, How real was the prosperity?


Here are some highlights:

“Personal Spending. The rule for a prudent individual is simple: Don't spend more than you make. For a long time, the U.S. economy obeyed that rule. As far back as the 1960s, personal spending, adjusted for inflation, has basically tracked the overall growth of the economy, as measured by gross domestic product. Sometimes consumers would get ahead of the economy for a few years, and sometimes fall behind, but never for very long.
That pattern changed in the 1990s. As of the third quarter of 2007, the 10-year growth rate for consumption was 3.6%, vs. GDP growth for the same period of 2.9%. This difference represents an enormous gap. If consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.
…
Consumer Lending. The past 10 years will go down as one of the greatest consumer-lending sprees ever. Adjusted for inflation, consumer debt—including mortgages—rose an average 7.5% per year since 1997, far faster than the 4.2% rate of the previous 10 years. The last time debt rose so fast was the 1960s, as the postwar generation bought homes and autos. If Americans had kept borrowing at their pre-1997 pace, they would have had about $3 trillion less in debt.

The extra debt also represents a formidable obstacle for banks and other financial institutions that might want to lend more to consumers. "Going forward, we're not going to see this credit-driven growth," says Alistair Milne, a professor and banking expert at City University in London. "Banks are saying, 'we have to be more careful here.'"
…
Corporate Earnings. Yes, there's been a profit boom in recent years. Corporate earnings, as measured by government statisticians, have averaged 8% of GDP over the past decade, up from a low of 6.5% in the early '90s. That has helped propel stocks upward.

But here's an unfortunate truth—the profit surge has been mainly in one area, financial services. Financial institutions have benefited from the consumer credit boom, the proliferation of new financial instruments, and relatively low rates. By contrast, the earnings of nonfinancial companies over the past decade have averaged about 5.3% of GDP, about the same since the mid-1980s. There are few signs of any acceleration, even after years of restructuring. “

Mandel’s figures speak for themselves. However, in an economy shot through with an ideology tailor made for the wealthy, but requiring an ever increasing level of demand from the not-wealthy, these are figures that dare not speak their name. So the job of weaving lies is left to political reporters and the like. Take this analysis of the Bush economy by Sheryl Stolberg, one of NYT’s Washington reporters (a pool from which we have gotten Judith Miller and Elizabeth Bumiller, whose very names echo all the freighted servilities and stupidities of the decade): “Echo of First Bush: Good Economy Turns Sour.”


“Mr. Bush has spent years presiding over an economic climate of growth that would be the envy of most presidents. Yet much to the consternation of his political advisers, he has had trouble getting credit for it, in large part because Americans were consumed by the war in Iraq.”

Notice how neatly the wisdom of 2004 is turned around, when the word from the governing class was that it was the popularity of Mr. Mission Accomplished that covered up the dissatisfactions with the economy. But now we have that ‘climate of growth’. In order to put the nail in, Stolberg quotes, of all people, Bruce Bartlett:

“From a strictly economic perspective, it is difficult to blame Mr. Bush for the current crisis. Even some economists who have been critical of the president, like Bruce Bartlett, who worked in the Reagan and first Bush administrations, say he cannot be held liable for the burst of the housing bubble or problems in credit markets.”

Well, is that precious or what? Why choose this particular economist who is critical of the president – why not, say, Paul Krugman? Because the first rule in political reporting is that a Republican who has criticized a Republican has been washed in the blood of the lamb – thus, anything that Republican says is as precious gold. The same rule applies to Democrats only to the extent that the Democrat doing the criticizing is Senator Lieberman. This is the code of the pack.

Anybody who looks at Mandel’s figures will note that the three trillion dollar lag is close to the two trillion dollar surplus, which came about due to the payroll tax increase put in by Reagan and the extremely mild increase on the marginal income of the wealthy by Clinton. They will further note that the swag was distributed by Bush to his wealthy buds. End of story.

Except it isn’t even the beginning of the story for birds like Stolberg, whose heart belongs to daddy.

“Once the stimulus package is passed, the president plans to turn his attention to making his tax cuts permanent, an approach that Joel Kaplan, the deputy White House chief of staff, said would provide “the foundation for continued economic growth.”
“And I think the historical record will reflect that,” Mr. Kaplan said.
Still, for the White House, there are obstacles ahead. Democrats are unlikely to agree to extending the tax cuts and, despite the seeming bipartisan enthusiasm for the stimulus package, it could run into trouble on Capitol Hill. Even if the package does pass, some economists — Mr. Bartlett among them — believe it will do little to improve the nation’s economic health, leaving Mr. Bush vulnerable to accusations that he did too little, too late.

Mr. Bush has roughly 51 weeks left in office. He had hoped to spend the time focused on creating peace in the Middle East and stability in Iraq. Now he has a new battle on the home front. And here in Washington, where finger-pointing is practically a pastime, the economic blame game has only just begun.”

The tears of things cry out for the President. We wonder what conservative shithead Stolberg is going to do her Plutarchian life with – Bumiller chose Condy Rice.

Come out of the cupboards, ye boys and girls…