I'm sure you recognize the guy on the left. The abandoned building on the right is the Fisher Body Plant. Image credit: Jalopnik
Every time I try to write something about the economy, I have to stop. It's just too depressing. My view of the economy is that it's not going to be better for a long time. That's not because it has to be that way. As several economists have pointed out, things could be fixed, or at least put on a much better course than the one we're on now. Unfortunately, that's not what either Congress or the Obama Administration want to do.
So what are we left with? Ian Welsh summarized it pretty well yesterday:
In 4 to 8 years, the Republicans will probably get back in again. They will do stup[i]d things again. By the end of their orgy of looting and warring (which will be even worse than Obama’s) the country is going to be extremely damaged. Right now things could be fixed. They probably won’t be, because Barack Obama has no intention of fixing main street, but they could be. By the time the US gets its next real chance, well, this hole is going to be mighty mighty deep.
Bank Profits And the The Choice America Has Made
It's been perfectly clear that the bankers are in charge of our economic policy recently. We've poured several trillion dollars down that rat hole, and who has benefitted? So far, Goldman Sachs, the former employer of Treasury Secretary Tim Geithner:
Goldman Sachs has reported a $1.8bn (£1.2bn) net quarterly profit, beating analyst expectations.
In contrast, the previous quarter had seen the firm post its first quarterly loss since going public in 1999.
The bank also said it would place $5bn worth of its stock on the market, to raise funds to repay an emergency $10bn loan provided by the US government.
Goldman Sachs Sees Strong Results
One of the big beneficiaries of the AIG bailout was, not surprisingly, Goldman Sachs. In a sense, they're paying off our loan with the bailout money we gave AIG.
Why this is the priority of our government, to sacrifice our economic future for the benefit of a few, is certainly an interesting question. My own thought is that it's because Obama is a believer in the Chicago School of economics, and that his political future depends on support from the financial sector and their allies. As part of an interesting essay on money policy, Stirling Newberry has offered his own idea:
What has happened is this: for decades the United States Dollar had two functions. One was as the central currency of the domestic economy, the other was as the lingua franca of international commerce. During Bretton Woods the other currencies of the world were pegged to the US Dollar, but even after this time, the United States, as the provider of security to the "Western" market, was the place to store wealth. While this is often termed being the world's "reserve" currency in popular thinking, "reserve currency" is a very specific term of art in finance, and it means something different: specifically the currency that banks do their exchanges in and hold reserves of liquidity for. This is not the same thing as being the currency that everyone uses to store their wealth in - a very large difference. In sociology the term is that the US dollar has "hegemony."
The two parts were connected: the health of the US consumer economy was the measuring stick for the developed world's economy. Over time all of the other developed world economies were gradually "coupled" to the United States. We provided security, they sold us "stuff" and used the money to buy capital goods and resources. After the collapse of Bretton-Woods, the United States was allowed to run a chronic trade deficit, in part because we developed the developing world, and the profits made up for part of the difference, in part because we spent down the credit gained after World War II, and in part because the United States provided military security, and was being allowed to over spend as a means of paying for that security.
The #Money Thing
I can't discount this idea. It sounds like a conspiracy theory, but as some wise person once said, it's not a conspiracy when everyone already knows his role. We've certainly acted as the Western world's hired gun for some time. We've been quite willing to do it, in fact. As Newberry goes on to point out:
One can see this dynamic playing out in the recent G20 summit: where France and Germany wanted financial regulation, but were not interested in stimulating domestic consumption. One can see this in the debt markets: the treasury auctions in the United States have gone off, where as the UK auctions have stuttered. The libertarian illusion was that good old Americans were pulling their weight in the world, and that this imperial scheme was dropped on top of it. The reality was that the imperial scheme is profitable in the eyes of the rest of the world, whereas American suburbia and exurbia are the designated losers of the economic world. They aren't willing to loan us money to buy their goods any more, but they will loan us money to bomb the Taliban, kill pirates, and prop up the global financial order.
The #Money Thing
For the record, both France and Germany did pass stimulus packages of their own. Germany's stimulus package was similar in size relative to their GDP as ours was to our own. What they didn't do was pass more stimulus, as we and other consumer-oriented markets demanded. Nevertheless, there's some informed self-interest in the decisions of countries like China, India, France, and Germany in their current policies towards us. They don't want industrial or commercial competition, but they don't want pirates, either.
Despite the generally bad automobile market, and the recent turbulence caused by last year's inflated oil prices, the Obama Administration is still allowing J.P. Morgan to refuse to loan Chrysler the money it needs to keep from going bankrupt. While he has called for the ouster of GM CEO Rick Wagoner in return for additional loan guarantees, he has done no such thing in the case of the financial institutions that ruined our economy and are now receiving a free bailout at taxpayers' expense. As close as we've come to that is Geithner's tease a couple of weeks ago. Manufacturing has shrunk to less than half the portion of our economy it was fifty years ago, while the financial industry grew roughly the same amount, at least on paper.
In the next few years, I think we'll find out just how many of us can be employed selling Chinese-made goods to each other, and being the world's armorer and security guard.
If there's one piece of advice I'd give to aspiring American engineers and computer scientists it's this - learn a foreign language. If you want to do work in those fields, you'll probably be working for foreigners before too long.
UPDATE: Added links to descriptions of Germany's and France's stimulus plans. I also amended that paragraph to say that only Germany's effort was similar in magnitude to ours. France's does seem a bit paltry in comparison. I'd remembered a larger figure, for some reason.