Friday, September 19, 2008

The Economy, Stupid

The ailing US and Global economy has been an interest of mine for about ten years. Suddenly, everyone has this deer-in-the-headlights look on their face as they struggle to comprehend the grim sounding jargon spewing from talking-heads on the 24-hour news networks.

Now, I should be clear that I'm no math whiz or economics major, so if I can understand some of the basic principles at work here, anyone can.

First I think we can agree on some familiar colloquial gems: 1) That power corrupts and 2) That money is power.

So let's think of money as a bag of Halloween candy, and financial institutions as small children.

If no one is supervising a child with a giant bag of candy, what's the logical outcome? He's going to stuff himself with candy until he pukes, right?

This happened once before in our history; stock prices were over-inflated and banks were extending too much credit. Although these weren't the only reasons for The Wall Street Crash of 1929 and The Great Depression that followed, which were decades in the making, the important point is that there was little or no government oversight of financial institutions, and they gorged themselves on candy until their gluttonous waste was spontaneously purged all over the American economy.

In order to rebuild our country and ensure that such a chain of events was never repeated, FDR helped broker the Bretton Woods Agreements, which instituted domestic and global financial rules, and set up government oversight of financial institutions.

To put it simply, instead of trusting the child to regulate his own intake of candy, the government keeps a close eye on him and makes him account for everything in his bag. This is called REGULATION.

Okay, now here's the important part; over the last 30 years, the government has been involved in a systematic DE-REGULATION of our financial system. This deregulation led to things like gambling in the stock market and predatory lending practices. Gambling in the stock market led to inflated stock values, and predatory lending helped contribute to inflated home values since no price for a house seemed unreasonable as long as everyone could get financed.

With the upcoming Presidential elections, I am obligated to point out that McCain has been a driving force for deregulation for almost all of the 30 years that it's been happening.

For far too long, our legislators have operated under the Adam Smith principle of the Free Market: that corporations and financial institutions will do what's right, without oversight, because in the long run, doing what's right will bring them more success.

But this notion fails to take human nature into account. For instance, it's a fact that if a child eats a little of his candy at a time, his candy will last a lot longer and he'll get more enjoyment out of it in the long run. But even if the child is fully aware of this fact, he's still more likely to eat too much candy if no one is watching.

Republicans in particular like to present us with the notion that if corporations and financial institutions are allowed to make money without government restrictions and supervision, they will make a lot more money, and all that profit will naturally trickle down to the rest of us. That's the equivalent of saying that if you allow a child to fill his bag by snatching candy from smaller kids, he'll eventually have plenty to share with everyone!

The obvious action we can take immediately is to get Obama into the White House. He's going to need to invest unprecedented amounts of money into building our infrastructure, which only a Democrat (Like FDR) would be willing to do.

Why invest in infrastructure when we're already in debt?

1) Roads, buildings, train tracks and schools have actual value, as opposed to the subjective value of stocks or even money.

2) Building stuff puts people to work.

3) Putting people to work gives them confidence in themselves and their country, and when they get their paycheck, they'll go buy stuff, which will drive our economy back to where it needs to be.

See, when Republicans scare people with talk of "Big Government," they're talking about the kind of government that regulates corporations and protects the average citizen and small business owner. One example of this strategy is when they talk of universal healthcare: "Do you want a government bureaucracy standing between you and your doctor?" You mean in place of the corporate insurance bureaucracy that's standing between me and my doctor right now?? Why, yes, I do.

So, in conclusion, if everyone in this country votes according to their actual financial interests this November, then Obama should win 95% of the vote and McCain should win 5%.

Of course, that prediction is not taking human nature into account.


nunya said...

Hello dear, I was wondering if you were ever going to post anything again.

I'm thinking that the candy and kids ananlogy is maybe a bit to simplified.

I'm thinking that this shitstorm started in the 60's and it's got to do with how much actual control of enrgy markets "the West" has. Around 10%.

Heather Annastasia said...

I was wondering if I would ever post again also. 60 hour work weeks...

You're absolutely right!

First, the kid and the candy is too simplified, but we have to start somewhere. This is all Greek to most people, and I've noticed a light goes on when I give this analogy. Did you see Obama's speech today? Even MY eyes were glazing over. He was talking way over most people's head.

As far as when the shitstorm actually started... probably when we started printing paper money. Our entire economy is symbolic and subjective. A dollar is only worth what we perceive it to be worth.

Energy markets are just one piece of the puzzle, though they are a big piece. As far as I'm concerned, it's inexcusable that we still rely so heavily on oil anyway, but that's drifting off into another issue.

Anonymous said...

The world is heading for a religious war, and then the price of oil will skyrocket...and terrorism will stifle the economy. Read the book "Clash of the Gods" now on to get a sense of what is going to happen.

Heather Annastasia said...

Isn't "Clash of the Gods" a study of early Christian art?

As for a religious war... the religious are always fighting wars. It's their thing.

Let's just get rid of religion altogether and pour our energy and resources into something useful like science and technology.

nunya said...

Isuppose that my biggest concern over putting people back to work creating infrastructue would be the infrastructure itself. To date, the system we depend upon is ridiculously unstustainable and wasteful of energy and water.

US companies only control around 10% of the energy supplies in the world, and we use around 25% of them.

In other words, FDR could put people to work when we had a shitload of our own oil, and there weren't already roads, dams, bridges and electricity plants in place.

Heather Annastasia said...

Which is exactly why we need to put people to work solving these problems.

We can put scientists to work discovering environmentally-friendly oil alternatives (while we eliminate the oil interests that have been actively strangling these innovations for the last 30-odd years).

We can put engineers to work designing green buildings, magnetic-levitation train systems, nuclear power facilities, and water desalination plants.

We can put college professors to work educating people for all these high-tech jobs.

And of course, we can put the average Joe to work building all this stuff!

I say, don't pour a trillion dollars into the stock market to prop up a bubble that is doomed to pop; put a trillion dollars into America itself, building the stuff that has actual value and will actually benefit the average American.

Why are we even considering handing all this money over to the financial geniuses that ran our economy into the ground to begin with??

nunya said...

Ok, I undnerstand your point, those are great ideas. They do require raw matierials, though, and it looks like American supplies of raw materials from Latin America (we've taken those for granted) are headed other places.

Anonymous said...

You make some good points. Investments in infrastructure are hardly ever bad investments. (That pesky bridge in Alaska perhaps an excpetion)

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here4people said...

I really disagree with Heather regarding who is responsible for the economic crisis we are in. If we look at the facts and actually research the history on how we got to where we are it is because of the democratic party. You have to remember that from a time that a president is in office it takes about 8-10 years for that presidents changes to take full effect.

The following paragraphs below are from By Jeff Poor
Business & Media Institute.
Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats.

And one of Fannie Mae’s main defenders in the House – Rep. Barney Frank, D-Mass., a recipient of more than $40,000 in campaign donations from Fannie since 1989 – was once romantically involved with a Fannie Mae executive.
In 1991, Frank and former Rep. Joe Kennedy, D-Mass., lobbied for Fannie to soften rules on multi-family home mortgages although those dwellings showed a default rate twice that of single-family homes, according to the Nov. 22, 1991, Boston Globe.
According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that “could pose risk to the taxpayers.” He told the Post he worried the Treasury Department “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were “exaggerated,” a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.

Heather Annastasia said...

I love how Republicans are trying to sooo hard to scapegoat Fannie and Freddie... Like this whole economic mess was caused by two mortgage companies. And of course, since Fannie and Freddie were federal programs to help poor people, these are the two companies that can be tied to Democrats more than Republicans.

I'm glad to see that it hasn't been working.

The truth is that very few politicians can walk away from this mess with no blood on their hands (Dennis Kucinich is the only one that comes to my mind), but this economic crisis is largely and obviously a result of the richest people in our country running a muck with too little government regulation and oversight.

And who represents the rich folk?


And who represents more government regulation and oversight?


It's obvious who is more responsible for getting us into this mess, and it's obvious who is better suited to get us out of it.

Heather Annastasia said...

I forgot to comment here at the time, but a few days after I published this post, The Rachael Maddow show totally ripped off my Halloween Candy metaphor.


collin said...

The three reasons you quoted relate to a popular theory in economic management called Keynesian Theory, after a British economist who worked for parliament during the Great Depression.

The problem with his theory is that it's usually misapplied. It operates under the premise that borrowing money to invest in infrastructure is great- so long as the funds are paid back.

Governments are terrible at doing this. The best America has ever done in this respect when its fiscal policy adopted it, was to monetarize the debt. This is when the federal reserve prints bills and lends money to the fiscal branch of the government, and that branch then pays those bills to lenders- literally paying debt by printing money.

Nixon did this in the 70s when he removed your currency from the gold standard and printed bills to repay French loans to America. Germany did this following World War 2, and people literally took wheel-barrows full of "money" to the market to buy a loaf of bread. The result in both cases was a huge increase to inflation. And now your government is doing the same thing again. I read some months ago that the Reserve lent several trillion to some undisclosed party; the only rational identity I can think of is the Federal Government itself.

Heather said...


Yes, borrowing money, even to build infrastructure, increases inflation. That's a problem.

But inflation is out of control anyway because the wealthiest Americans are looting our entire economy right out from under us.

The real issue is that the value of money is subjective, and we tie that subjective value to things which have actual value, like houses and factories and roads.

The only real way out of the tailspin we are in towards our own self-destruction is a complete upheaval of the fundamental workings of our entire financial system... which probably isn't going to happen and we will be passing the world superpower baton over to China, which is a shame because they still have a lot to learn about the value of humanity and the environment.

Civilization will have to take a step back before it can begin to step forward again.