Roller Coaster Year

From the heights of exuberant irrationality, to omens of the Great Depression, 2008 was a deal-breaking year. As long as the masses kowtowed to the gods of unfettered capitalism they were assured the majority would benefit. Ok, what the ruling class really meant was the majority representing the upper half of society. But still, many prospered: housing values spiked (against all reason, it should be added) providing the ownership class an easy ATM of lots of ready (unearned) cash; the stock market just kept going up keeping those 401k’s rising handsomely; hedge fund managers paid only 15% income tax on their spectacular megamillion dollar earnings – compared to the 35% rate paid by Average Joe Middle-Class - but that was the price of innovation, the ‘good greed’ that kept the money spigot going and exhibited the greatness of capitalism, American style.

But then a well worn quip comes to mind: If something can’t go on forever, it won’t. Think about the nature of a bubble: the bigger it gets, the thinner its walls and likeliness of bursting; when it does reach its limit it has a quick and exciting end and then disappears with hardly a trace.

It was a year of mind-boggling extremes. Crude oil is now barely more than 25% of its July high of $148. In mitigation, there were two special factors that contributed to that very high price. One was the drop in the value of the dollar of about 25% compared to the world’s other major currencies which would lop about $35 off that high price. Speculation was said to have caused another 30%. Minus those two factors the price would have been about $75 per barrel. Still, the speculation part only happened because demand was pushing up against supply.

In any case it was the world’s second oil price shock with a warning of future hard times implicitly included. The first, in 1973, came with a doubling of the price, long lines at the pump and stations running out in front of your very eyes – I was once the last to get filled up. It can’t be emphasized enough that the larger problem wasn’t the spike in prices, it was availability.

The breathtaking crash in oil prices should not lull one into thinking it’s time to rush down to the auto dealer for that giant dream machine. Even if demand remains low for years, the resource is finite and will be drawn down on a daily and yearly basis. Another spike, therefore, is inevitable.

To date, developed countries world wide have been rushing around frantically grasping at straws trying everything they can think of to revive the old economy; essentially to get people to return to their profligate, devil-may-care, heavily-indebted ways. Fortunately for the people the banks have taken their trillions of handouts and hoarded their cash; what little they have used has been expended doling out handsome salaries and bonuses.

This is good: the mindless consumerist ways of the past should die an ignoble death. Unfortunately, the old patterns won’t die easily. The leadership is hoping against hope that numbskull consumerism won’t be totally finished off; that at most it will only be held in abeyance temporarily until a new crop of buyers can be cajoled and manipulated into running up their 28% interest, credit cards to the max.

Ok, I’m being cynical; most people will recognize that is folly and instead get behind frugality and savings until some important change happens in the world. That being the case the one certainty surrounding the present economic crisis is that demand for goods and services will remain dismal, even abysmal. In that case, the only thing that makes sense is to shorten the work week to share what’s available and embrace the deflation that’s inevitable and necessary (and beneficial in the long run) if people are working and earning less.

What’s required is a total rethink of the purpose of economic life and the value of work. What’s needed is a transformation of the concept of Gross National Product (that we must see rise in perpetuity or we tear our hair out in panic) to an accounting of Gross National Health and Happiness.

To that end I propose a two month national holiday in which only emergency and necessary work takes place, which gives people the time to get together and discuss what they want their world to look like, not to mention lets inventories catch up with purchases. This would be organized on neighborhood and local levels with daily meetings and debates on desired futures. Everyone would be eligible for unemployment benefits for that period. All interest payments and accruing interest would drop to zero for that time and there would be a moratorium on foreclosures and credit defaults.

Time to take stock…

Not that I think any of this will happen, but the world still needs its dreamers.

Meanwhile on another topic: Israel is in massacre mode once again using the same tactics that have failed it time after time: Sweet Revenge, it seems clear, trumps all. Next on the blog: being Jewish and relating to Israel.

The Root Cause

What Should Obama Do? The above question, referring to the economic crisis, was posed to me by a friend who often comments, especially lately, on my commentaries. I would have a very difficult time answering that question because what Obama should do is radically different from what I would do.

Nonetheless, there are several areas in which I am in substantial agreement with the President. (My god, what a great relief it is to write about an American President without feeling compelled to be derisive, derogatory, caustic and spiteful.) For sure, massive investment in infrastructure, especially focusing on electric transportation, is something that cries out for happening regardless, so now’s a perfect time to tackle those needs. Increased unemployment benefits, food stamps, assistance to state and local government are obvious responses to the hardship that is/will be felt across a wide spectrum of society. Renegotiation of mortgage loans under foreclosure is another obvious no-brainer (though equally obviously, there can’t be many brains in Washington or it’d already be happening).

There’s an additional factor that desperately needs action that we might agree on, but for different reasons. That is America’s rotten health care system. While we both would concur on the social and ethical reasons for reform, there is an equally important economic reason, which we wouldn’t agree on; that is, the need for job flexibility and short work weeks.

Obama has totally bought into corporate-oriented conventional wisdom that requires manic pursuit of a return to growth by any means possible – bailouts, borrowing, income tax cuts, lower interest rates. Any straw in the wind is being grasped to try to rescue and reinvigorate that fundamentally destructive and bankrupt world view.

People are cutting back on consumption because they have less to spend based on declining wealth – falling asset values - or loss of employment or because they wisely understand the need to save for trying times ahead. Economic activity is thus declining sharply which is good for the world, bad for the old economy. If unemployment spikes as a result and you believe, as I do, that contraction is a good idea, then the only solution is sharing the available work. Stimulus packages will keep the economy from crumbling but won’t bring full employment.

Besides, people need to work less as a matter of principle – more leisure, more time for social life, less money for consumption. This can not happen as long as America has an employer-based health care system which encourages employers to work their staffs longer hours. Thus, single-payer health care is an absolute prerequisite for the purpose of slowing life down and improving its quality. A single-payer bill was submitted to Congress with 93 co-signers but hasn’t received a single hearing so don’t hold your breath; nobody in power wants to upset the insurance, pharmaceutical and health care industries.

The US is projected to have a trillion dollar budget deficit this year as a result of reduced revenues because of the downturn and the cost of stimulus packages and bailouts. The addition to the national debt as a result should not be taken lightly: these are perilous times to take on massive new debts. We are hearing a lot of talk lately of the renowned economist of the 30’s, John Maynard Keynes. In response to Hoover cutting back on government spending to reflect a downturn in revenues caused by the 1929 economic crash, he suggested that government should do the opposite and increase spending to get the economy moving again. He argued that deficits could be made up later on upon recovery.

The problem with invoking him now is that he advocated building up surpluses during good times to balance the deficits of the bad whereas we are beginning this economic meltdown after a string of massive deficits. It can be argued that those large government deficits, along with obscene levels of personal debt are what had kept the economy from stagnation since the start of the Bush disaster. America was essentially on a compulsive borrowing binge.

Therefore, I’m totally opposed to any form of tax breaks except those relating to the least fortunate members of society. The average doctor earns $265,000 per year, so that nearly half would receive a tax break under Obama’s tax cut plans for those earning less than $250,000. They undoubtedly have everything they truly need in life so whatever they would spend the money on would be bad for the world and should not be produced.

As I’ve ranted and railed about ad nauseum recently, the last thing we need to do is rescue the old economy of profligacy, waste and mindless debt-fueled consumption. To that end, the wealthy and corporations should absolutely be reined in.

While I wouldn’t advocate a return to the 91% personal income tax rate of the fifties and sixties, taxes on the wealthiest should be raised to at least 50 or 60%, not only to raise money but also to curb unnecessary consumption. Corporate tax rates should also return to rates of the past sufficient to restore the fifty-fifty ratio of income taxes once paid by corporations and individuals.

Corporations are creatures of the state and must be tightly supervised. For more than a century they have enjoyed the privileges of personhood with none of the responsibilities. When a person commits a crime they are taken out of circulation, when a corporation does, they are slapped with a small fine and thus encouraged to be on their merry thieving ways.

There are several ways the corporations have of controlling the American agenda. The most important and insidious is advertising; it is the root of corporate evil. It’s worth reiterating the stunning conclusion of a study done on the effects of advertising on pre-school 3 to 5-year-old kids. When served mcdonald’s burgers in plain and company wrappers, 80% said the burger in the corporate-logoed wrapper tasted better. America’s children are being educated for the corporate bottom line before their personal health. For the need for luxuries before the health of the planet. Americans are told it is their duty to buy things they don’t need and often can’t afford, thus building mountains of debt, for the sake of the economy.

I would remove advertising from deductible business expenses, except for a reasonable amount needed by a small local business, maybe $25,000 per year. People don’t need to be encouraged to consume, it’s already a natural response: old things wear out, new innovations come on the market. People will continue to consume without the encouragement of advertising, just not so much of the mindless sort. Let corporations compete based on producing quality instead of slick marketing.

Slowing consumption requires reining in credit. Even as Citigroup is showered with $320 billion in public welfare, it charges nearly 30% interest on credit card debt, for many people making it difficult to ever clear their debt. Thanks to a corporate funded Congress, bankruptcy laws were changed recently to make it harder to erase those debts, even putting credit cards on an equal footing with child support.

Credit has its importance; easy credit is a mistake. People need to be encouraged to save. I got turned off to credit with my first experience. I bought an article - don’t remember what, it was nearly 50 years ago – on a six month payment plan. After 2 months the article broke, but I had to keep paying on it and I thought, this is nuts. In the fifties, you could buy a car with 20% down and two years to pay. If you had to sell before the term was up, you had some equity in the vehicle. Today, with no down and 7 years to pay, you have to take large sums out of your pocket to sell within the first two years: that is crazy.

Tightening credit is a good idea. Let homebuyers bring a 20% down payment with them and let the government subsidize mortgages for the bottom half of society. Anybody with a solid history of work and responsibility should have access to their own home. In recent years they’ve been excluded from home ownership by artificially high prices. Prices which only could’ve risen with the help of ‘innovative’ subprime mortgages.

The Root Cause of the current economic meltdown is too much money in the hands of the wealthy and powerful. They have time on their hands, they are obsessed with making money and often have no scruples. With money to burn they have created an economic bubble, a Ponzi scheme of epic proportions; one that is bringing hardship to people all over the world.

Therefore, excessive wealth must be curbed and all forms of speculation taxed. Even a small stock transaction tax would discourage short term speculation. Let investment be for something more than pursuit of a quick buck; something that embodies lasting value. International currency transactions should be taxed and the proceeds used for development aid to the world’s poor.

Unfortunately, Obama’s picks for his economic team do not leave much room for confidence since they are uniformly on the corporate bailout side. They helped to create the deregulation that is responsible for the current crisis and most likely have no other idea how to fix the system than repeat the mistakes of the past.

Repeating the mistakes of the past will only dig the hole deeper with debt that will have to be paid eventually, and paid with even more pain than it would take to start to work it down now.

I realize my economic prescription involves a severe deflation with serious consequences, but, I would argue, no more serious than the impacts of propping up the old economy. At least, we would come out with a sustainable, well-being oriented lifestyle designed to benefit the majority who’ve been left out in these past decades of conservative trickle-down economic thinking.

Bailout Madness

I’ve been feeling the need to write about something besides the financial bailout – the strangulation of Gaza, the mass fascist coup attempt in Thailand, the carnage in Mumbai – but the bailout money has been flowing so fast and in such fantastical amounts, it’s almost beyond superlatives and comprehension.

I titled one of these commentaries, “Cure Worse Than Disease” way back when we were talking less than a trillion dollars. Now by one reckoning we are up to $4.2 trillion, by another nearly $8 trillion. In addition to the recent well publicized bails of Citigroup to the tune of $320 billion and another $800 billion to a wide array of corporations in need of a handout, there’s the small matter of $2+ trillion in loans made to financial institutions by the Fed whose recipients it is trying to keep secret, else, the thinking goes, precipitate runs that would break them. Bloomberg is suing under the Freedom of Information Act to try to force transparency.

Bailout protagonists, which include just about everybody in government, business and the punditocracy, will explain the money is all about restoring confidence and is in the form of equity and investments so when the economy gets back on track, i.e., people return to their primary role as consumers and head back to the auto dealers in droves to buy the latest model, honcho-sized SUV’s - amongst other hallmarks of the consumption economy - and the government will get its/our money back.

The first point to consider is that the Fed has printed up or borrowed trillions of dollars to help its friends totally on its own, with no oversight from any level of the US government. The second ponderable is when it will all end. What if the job needs another five or ten trillion? And what if, and this is the real corker, people don’t go back to their stupid, heavily-indebted mindless-consumerist ways?

We are assured that the consequences of not acting to stem this massive economic breakdown would be staggering, mind boggling, catastrophic - to that you can add your choice of another ten or so similar words expressing disaster of epic proportions.

However, the magnitude of the resources going into this corporate feeding frenzy at the public coffers is so overwhelming, we are entering a lose-lose situation. If the money does in fact does succeed in keeping the banking sector afloat, it’ll come at a nearly unbearable cost to society.

The third question, which is only being asked by the those of us on the radical fringe: Why do we want to prop up and save a rotten system; one that’s dedicated to consumption in a world being overtaxed by unconscious, unsustainable consumption?

In any case the old ways are finished. It’ll be years before people have the theoretical ability to return to their mania for consumption and by then, if the economy does start to pickup, resource depletion and rising prices will end forever the possibility of that numbskull lifestyle.

This actually is a perfect time for those of us who recognize the world’s desperate need for transformational times, for there truly is a crisis ahead of us that dwarfs the current economic one. We are talking climate change, of course. We have received a one-off reprieve in the form of the economic breakdown: The world desperately needs to reduce all forms of resource consumption to avoid the worst of global warming.

We should be delighting in the drop in consumption and using the vast resources that are now going into beating the dying horse of the old economy and using them instead to build the new. In the act of emptying the resource barrel to try to prop up the old we are precluding the new, a change to a sustainable economy of well-being.

Personally, I don’t take delight in calamity as it causes wrenching difficulties for the bewildered and innocent; nonetheless, I think we can all appreciate its cathartic and catalytic powers. Ok, maybe I do take a little delight, but not because I like to see people suffer, but rather the belief that macro political and social changes seldom happen without the force of great events.

It’s hard to say if we still have the opportunity to properly respond and adapt to this calamity: the door is closing fast.