A War of a Different Sort
Posted: December 14, 2011 Filed under: Austerity, Banksters, Democratic Politics, Economy, globalization, income inequality, poverty, productivity, U.S. Economy, unemployment | Tags: Federal Reserve, investment, the Great Depression, The Great Slump 25 Comments
In the May edition of Vanity Fair, Joseph Stiglitz [economist and professor at Columbia University and recipient of the Nobel prize in economic sciences, 2001] wrote a prescient essay entitled, “Of the 1%, For the 1% and By the 1%.”
In a strange way, the piece voiced what would months later become the rallying cry of the Occupy Wall Street Movement, a foreshadowing of the public’s growing discontent with high unemployment, rising poverty and income disparity as well as the social damage resulting from Government failure to address the problems: the distortion it creates, how income disparities breed a climate of imbalance and lack of restraint, encouraging:
. . . no limit to the adventures we can undertake; corporations and contractors stand only to gain. The rules of economic globalization are likewise designed to benefit the rich: they encourage competition among countries for business, which drives down taxes on corporations, weakens health and environmental protections, and undermines what used to be viewed as the “core” labor rights, which include the right to collective bargaining.
In addition, Stiglitz underscored how inequality erodes our national identity–the sense of fairness, equal opportunity, our sense of community–the very elements we consider American staples. In fact, while listening to the GOPs’ endless political debates these past months, I’ve felt like a stranger in a strange land. Abandon child labor laws? Let the uninsured die? Begin massive deportations?
Really?
In any case, Stiglitz was the first to sound the warning in clear, concise and effective prose.
Which is why I found Stiglitz’s recent VF piece, ‘The Book of Jobs,’ required reading. Great title, btw. Even better is the comparison made between the Great Depression of the 1930s and the present downturn. Or as Stiglitz refers to our current dilemma: the Great Slump. An interesting aside, Paul Krugman pulled out all the stops over the weekend and called our economic crisis a depression, period. Hardly a surprise for the underwater homeowner, the long-term unemployed or those juggling multiple part-time positions to make ends meet.
I’d encourage readers to take a few minutes and read Stiglitz’s recent essay. It’s amazingly concise and clear, even for non-economic types [like myself]. But here’s the gist: Ben Bernanke, a self-proclaimed scholar of the Great Depression, turned on the money spigots in response to the 2008-2009 meltdown because traditional wisdom said the Great Depression was the result of excessive money tightening by the Federal Reserve. So, doing the opposite would be the charm, right?
Not quite. As Stiglitz notes, this time we have proof that monetary manipulations were neither the cause nor the answer.
Why?
Because despite the flood of money, we’re still in the crapper. Consider this an Advanced Economics Lab experiment, playing out before your eyes.
So what is the root problem?
The economy itself, Stiglitz contends, a structural dislocation, a weak economy disguised by whopping bubbles in the real estate and financial markets, the easy, even crazy availability of credit, but basically a shift in the jobs we have to the jobs we need.
This is eerily similar to the precursor of the Great Depression. Then, massive unemployment resulted as the country moved from agriculture to industry. The cause? Increased agricultural productivity. What was once done by 20% of the population would be accomplished [with surplus] by 2%. Currently, the economy is moving from industry to service. Again, this shift has been provoked by increased productivity.
What is old is new again. With a twist, of course: the impact of globalization.
Industry to service? you say. Most Americans wince at the prospect of ‘service’ jobs—low skills, lower pay, 8 hours of mindless burger flipping.
Not really.
For instance, addressing our energy needs alone will require an abundance of high tech skills [and commensurate wages] to develop cleaner,
more efficient fuels. Support of basic research work is critical in this and other areas and leads to increased innovation and economic growth. Examples are plentiful—research produced the Internet and biotech industry, spawning huge upticks in economic growth. And this is something Americans excel at—thinking outside the box. Education will be required to retrain the work force and prepare and encourage our children with requisite skills and creative know how. In addition, infrastructure, a growing national concern, offers years of labor for out-of-work construction crews. We certainly don’t need an American version of ‘London Bridge is falling down.’ The Minneapolis bridge collapse in March was one too many.
Yes, Stiglitz says, we will need to rein in the banks, turn them back into the boring businesses they once were [they’re suppose to be serving us, not the other way around]. And we will need to seriously re-evaluate our tax policies, most of which favor the rich. But to solve the most critical problem—structural change—will require investing in our future, our own people. Private enterprise will not and cannot do that on a massive scale [I can hear Republicans wailing in unison].
FDR had World War II, spurring the necessary investment [spending] that launched the US into an unparalleled cycle of growth and prosperity. We are now faced with another war, a battle of ideology and political one-upmanship. Yet the solutions are real and within our grasp, Stiglitz suggests. I, for one, believe him.
Now it’s a matter of mustering the national will. We employed that fierce will during the Second World War; our survival and ultimate victory depended on it.
As it does once again.
peej
Carissa
bostonboomer
ecocatwoman
mablue2
peggysue22
quixote
skydancingguestblogger
Mona (aka Wonk the Vote)
Sky Dancing 
Stiglitz can always distill the lessons of economics into something fully understandable and germane. You are so right that there are many lessons we should take from this. We have 1 in 4 of our children living in poverty right now with all that means. Yet our answer to the problems that they have that are seriously outside the realm of the class room with rampant privatization of education and the idea they could be made janitor slaves to learn work ethics. Our policymakers look to the faraway past for simple answers rather than actually figuring out what’s wrong and really solving the problems.
I’m impressed [as a non-economic type] that Stiglitz is so clear and sensible. The only way you can make this argument to a layperson is with clarity, rather than the hodge-podge, vague and/or circular reasoning we hear coming out of political mouthpieces. They seem to go out of their way to confuse or agitate. Instead of insisting that it’s all hopeless or the sky is falling, I think it’s important to tell people that the solutions are actually there. It’s a matter of working towards them and the future . . . for everyone. Not just a select few.
The privatize the world push is not a magic pill. In fact, it can turn into a real nightmare when greed is the main ingredient. The history is pretty bleak when these flat-tax, austerity driven, extract all resource programs are put into place. Might be good for profit but it’s certainly not beneficial to people. Gingrich’s economic plan has been panned right out of the gate, just a laundry list of giveaways to special interests and more tax cuts to the so-called ‘job creators’.
Sometimes I think the GOP is simply hellbent on bringing the country to its knees. The ideology pushes against all rhyme and reason.
Rortybomb has a good article up on some alternative measures of unemployment. If so many folks hadn’t dropped out of the labor force since 2007, our unemployment rate would be 11 percent rate now.
another one while i’m at it:
New Post: How Credit Collectors Have Reinvented a 21st Century Debtors’ Prison.
http://www.newdeal20.org/2011/12/14/how-credit-collectors-have-reinvented-the-debtors-prison-67301/
That’s terrible. This country needs far more Legal Aid.
Gah. It’s about debtors being imprisoned for failure to appear in court. I’m in default on credit card debt, have gotten no summonses to court, but I get a lot of phone calls from strangers, some law firms, which I usually just ignore at the advice of a lawyer I saw in Sept 2010. They usually want a lot of info out of me (I have given them none) while withhoIding info about themselves from me. I don’t even know who’s legit and who’s not, I just hang up. I wonder to what creditors my debt has been sold and what is going to happen with all this.
No wonder no one seems to know what the ‘real’ % is. I think they make the calculations deliberately complicated to mislead and hide the bad news–the economy is not getting any better, there are no green shoots, never were and next year is going to be an absolute bear.
And still Congress and POTUS fiddle.
That is a great link to Rotybomb Dak, thanks!
It looks like it will take quite a while to get out of this mess, since people can’t spend a lot of money now. While people pay down their debts and try to deleverage their lives, there is no substitute for government to spend money regardless of our national debt. Not just the US, but the whole world, is in the control of short thinking plutocrats who are going to let us go down the drain. I’ve come to believe it’s what they want so they can buy everything in sight for pennies on the dollar.
In the meantime, some of these are really very good.
The 40 Best Protest Signs Of 2011
Excellent post. Of course Dakinikat has been telling us this stuff for years now, but Stiglitz is great. To me this does have the feel of a “big D” Depression. I think many of the people who are suffering the most are basically invisible, not covered by the media or talked about in DC. I know they must be because the media does report how many people have lost their homes and savings and jobs. But they seldom put names and faces on the statistics. The heartlessness of the Republicans who are trying to cut as much of the safety net as they can is just stunning.
I consider Dr. Dak my online economic’s mentor. I’d been reading Dak’s posts and essays long before I started commenting. Btw, I think you’re right about the invisibility of the problem. It’s one the things that Occupy has shattered by pushing the visual and the message. And it’s having an impact.
I honestly do not understand the Republicans anymore. The ideology makes no sense [it’s all over the place] and seems based on mean-spiritedness and deep-seated prejudice. against women, gays, Muslims, whatever.
Not a winning proposition.
What will the 1% think of next? Debtors prison — done that. Pee in a cup to get unemployment — done that.
Arizona is a state where the unemployed can go off and live in the desert. I don’t know how many unemployed are living down here — my guess is thousands. I’m also seeing retired folks working at grocery stores etc.
The first protest – was peaceful and force and violence was used by agents of the 1% to end the visible protests.
Gandhi continued to use peaceful protests — and eventually won.
It seems to me that the cops are trying to provoke the protesters so that they can increase the violence. In a game of violence — the 1% will win. And their agents will cause a lot of harm to the by standers — so call collateral damage.
What happens when the bill comes for people who can’t afford the Health Insurance bill — that part of 0 care for the Insurance companies will be coming due soon. And as far as I can see there are no cost controls in place — will we see families near the poverty line — jailed?
Excellent post. And the insight about a fundamental shift in types of work is an important one. Although Krugman has been saying for a couple of years that this is not a lack-of-skills unemployment crisis, but a lack-of-jobs crisis. They’re both right, I’d say. The cosmic picture includes a shift; the immediate short-term problem is a lack of demand causing businesses to reduce production, which causes them not to hire.
A couple of minor things re Bernanke. He’s not a “self-proclaimed scholar of the Great Depression.” He is a scholar of the Great Depression. In terms of dealing with the financial crisis, the only tools a Fed Chairman has at his disposal are money-related. He can flood the system with money (which is what he did, although there’s plenty of room to argue that the methods could have been implemented better). He isn’t in a position to order legislation with a large enough stimulus or to semi- or completely nationalize the banks. He’s even less in a position to alter the socioeconomic structure of the country, about which Stiglitz is right. We need that.
About globalization. Interesting, isn’t it? Corporations can globalize, but workers? Hell, no. You and I can’t go to wherever our labor is worth the most. Or, you and I in the US can’t buy our drugs wherever they’re cheapest. Only the megacorps get to lower their costs by globalizing.
When workers ‘globalize’ we are declared terrorists, when all we are doing is chatting about inequality within our respective systems. I mean really, we are even exporting our raw waste materials to China to be recycled, while we do all the media campaigns about it. How silly are we, that we export all the jobs out? In that scheme, we lost out in 1) Recycling 2) Creating raw material 3) Creating new items from said materials 4) Selling the new items made…
He flooded the coffers of the TBTF banks with money and got nothing in return. He could have made some demands for those trillions, if he had been a true scholar of the Great Depression instead of a pretend one. The Fed is not an impotent institution.
Too true, ralph. I buy into very little of what these men say anymore.
If it wasn’t for Bernie Sanders getting a partial audit, we would have never known about the 16 trillion dollars sent out the door to both foreign and domestic corporations and banks. I heard Dylan Ratigan claim when you add up all the funds [the way they circulate them] it comes to 29 trillion dollars out the back door. 29 trillion!!!!! The numbers are so gargantuan you can’t even get your head around them. I can’t even conceptualize 1 trillion, let alone 29.
But Congress doesn’t want to extend unemployment payments or cut payroll taxes to give working people a break.
Ugh.
You did notice I’d said that, right? Not putting any requirements on the banks in return for the bailout was the biggest mistake/crime that the Fed/Congress/Treasury/government made. That’s not the point of what I was saying. The point is that he did do one important component of what the Fed is there for, and did stop the financial system from going over the cliff right then. I don’t know if you remember, but at the time there were actually quite a few people saying he shouldn’t do it, Congress was doing nothing at their end (well, duh), and if Bernanke hadn’t had quite as much background on 1930s economics as he has, he might have been more easily bullied into holding back.
It’s important to remember who’s at fault here (banksters, Greenspan, revocation of Glass-Steagall, etc.). Bernanke is not some pure, shining soul, but he hasn’t contributed most of the crap and he has stopped some of it from falling on us.
Yes I noticed the slim caveat and remember the times quite well. Perhaps it would have been better, after the initial buffering, to take down those TBTF banks via the FDIC instead of propping them up forever.
In case you haven’t noticed, they are still being propped up and without the FEDs secret, and not so secret, infusions of cash would be still insolvent now. I suspect a lot of them BofA, Citi are probably insolvent now and are zombies.
Thanks Helicopter Ben 🙂
Thanks for the read, quixote. Sorry, didn’t intend to suggest Bernanke could have written legislation. That falls to our hapless Congress. And yes, it was snarky to say ‘self-proclaimed’ scholar of the Great Depression. I’m just so-o-o tired of all these people, hiding behind veils of secrecy and double-talk. In the meantime, workers are still without jobs, people are losing their homes and family situations grow worse.
I went to the mall last week, did a little Christmas shopping and expected moderate crowds [it’s normally a crush this time of year]. I was relatively early [11 a.m.] but still it was the first week of December. The mall and stores were empty. That says volumes. And even the people there? No bags.
This season is going to be mean and lean.
No argument about the meanness and leanness out there. Or the double-talk. It’s one of the things I think should be a requirement in my “Re-imagined Democracy”: a Plain Language amendment with transparency laws that actually work!
(Or maybe they’re getting everything off Amazon??
)
The thing that’s really scary is that our on-life-support, comatose economy looks like it’ll soon be sharing its bed in the intensive care ward with Europe. And I don’t know if there’s room for two on those hospital beds.
I consider Dr. Dak my online economic’s mentor
a lot of us do.she is good 🙂
I’ll second that in a heartbeat! 🙂
Yep, Yep. The infernal mantra about high tech jobs is getting really old, however. We need roads and bridges and structurally sound buildings. If we aren’t going to drive then we need free underground cable installed in all homes. It isn’t techies who are going to build that-it’s industry and construction. Or, we could just sit around on our asses and let other countries do it for us, like the USAN solar and wind companies Spain and China bought out.
All those buildings the oligarchs are holding for their 20 year depreciation value have to get maintained. That’s why waterproofing and roofing are still good trades. Are we going to give up commercial buildings? Or just the ones that are past their expiration date and/or have too much toxic waste to bother?
What precisely is a service industry in this day and age?
It used to be people like waitstaff, auto mechanics, bank tellers, social workers, DMV workers, bad credit hounds, TV and other repair people, etc. I think the question deserves a answer from the salons currently using it, because words change nuance over time. Do they mean the same thing as the DOL?
I can definitely see how the service industry of bad credit hounds is experiencing a growth, and is lilkely to for some time to come.
JP Morgan Hit by Ripple Effects of Rakoff Decisions Nixing SEC No Admission Settlements
Good for the judge!