Bailouts, Bubbles, Boils, and Trouble

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Today, my colleagues at the New America Foundation are having a half day forum titled “Recipes for Recovery: From Washington to Wall Street” at the Hyatt Regency on Capital Hill. It’s free, open to the public and starts at 10 am EST. For those who are not nearby, there will be youtube video capsules posted later.
Headliners are Medley Capital CEO Richard Medley, former Michigan Governor and National Association of Manufacturing President John Engler, Former Congressman William Frenzel, and others. They are well worth listening to — and those who can are invited to attend (I’ll be in Pittsburgh).
But with all due respect to my colleagues, two fundamental aspects of the “recovery picture” are missing from this august set of panelists. First is someone representing labor — even “main street” would be fine. But the link between Washington and Wall Street has been the problem. We need to see a recovery plan that links Washington’s thinking and policy parameters to main street.
And now with the chatter all of a sudden about bailing out automakers, my favored speaker would be Michael Moore with a revival screening of Roger and Me.
More broadly, economic recovery in this country will not mean and can not mean putting everything back in place the way it was. Economic recovery cannot mean re-enabling the gluttony of manic consumption in this country without pumping up “production” and getting a more balanced portfolio between what we produce at home and ship in from others.
I would have incuded in this panel someone who could address the requirement of triggering new, much needed demand beyond American shores — particularly in Japan and China. America cannot see its economic picture improve without some fundamental changes in global economic patterns.
The subprime real estate problems were nationally-self inflicted and toxic financial products were injected intravenously by the U.S. into global financial flows — but the real weaknesses that this problem has triggered are far deeper and more profound. America has been overconsuming and underproducing for some time — and other global dollar holders have been feeding us cheap money to keep us binging. America became the principal driver of global growth — a single massive growth engine that employed people all around the world, while doing little to tend to job retention in the U.S.
And then the subprime crisis acted like a gravity switch — and behaviors now need to change.
We need a global remedy to growth that unleashes demand elsewhere as the U.S. gets its economic house back in order.
— Steve Clemons

Comments

18 comments on “Bailouts, Bubbles, Boils, and Trouble

  1. Kninaariptwag says:

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  2. Laura Harrison says:

    Thank you so much, erichwwk, for your kind words.
    You will not be surprised that I agree 100% with your concerns “that we are viewing recovery policy from a purely nationalistic perspective”, and that we – the US and the world, both – need a stronger focus on international economic cooperation.
    Clear commitment to this simple practical reality of the globalised, interdependent world of today should be essential for anyone appointed to an economic or foreign policy role in the Obama administration.
    I should have mentioned in a previous message that what the Chinese leaders have been saying about the need for international economic action, now followed by their own fiscal stimulus, seems to me to support the view that “we are all in this together”, and that the leading economies need to work together, with US leadership, to work our way out of it. This coming weekend is one important step in a long journey.
    Gordon Brown, for whom I usually have nothing much to say, continues to say sensible things about the need for an internationally coordinated fiscal stimulus, and the need to avoid a descent into protectionism.
    The risk of protectionism is, I have to say, my one great worry about the Obama administration. The Democrats were once proudly the party of free trade…
    John Maynard Keynes is sometimes wrongly rolled out to defend protectionism by people who quote, out of context, things he said in desperation at the depths of the Depression. His friend and first major biographer, Roy Harrod, wrote of Keynes having reverted to the free trade commitment of his earlier life. Markwell says that it is not quite as simple as that, but that, at least from “The General Theory” on through Bretton Woods and beyond, Keynes favoured free trade accompanied by internationally coordinated Keynesian economic policies and good international economic institutions such as he believed were created at Bretton Woods.
    This may give part pf an initial idea as to why I said that, if Markwell’s Keynes had to be put into one of Brad deLong’s categories – “East Anglian Keynesian” or “MIT Keynesian” – then he was in the latter.
    Brian Lee posted a link to
    http://eh.net/bookreviews/library/1293
    I’ve also located this –
    http://www.politicalreviewnet.com/polrev/reviews/INTA/R_0020_5850_614_1007274.asp
    Great opening line – “For those who think that economics is a dry, technical subject – and in many cases they are right – this is the book to read. …”
    So the “MIT Keynesian”, Keynes himself, was intimately engaged in the economic politics (domestic and international) of his day. In other words, as Steve might say, he was “the closest thing we have to a pre-modern version of Timothy Geithner”….

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  3. David says:

    More solid thinking from Steve Clemons, and an excellent observation by questions. Did we really lose sight as a society of the concept of public policy as central to our lives and our well being?
    I have been getting the impression that voters this time around have shifted from Reagan’s “government is the problem” to beginning to recognize that government must be a key player in the solutions to major problems. About effing time. And while we’re at it, could we please drown Grover Norquist’s misguided prescription in that Reaganite bathtub?

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  4. TonyForesta says:

    Cutting point Steve with regard to the lack of labor or mainstreat
    representation. The key and lynchpin to restoring stability to the
    US and world economy is working Americans. The single critical
    metric for the Obama government is jobs. The unemployment
    and underemployment tsunami that is about to hit mainstreet will
    wrench the final thread out if what us left of our tattered
    economy and a real horrorshow collapse is unavoidable. If poor
    and middle class Americans don’t have jobs – the worlds
    economy will pay a terrible price. Eight years of robbing from
    poor and middleclass Americans to feed and now bailout the
    superrich, the preditor class, .5 % of the population created and
    exacerbated the present calamity. It is time to reinvest in the
    American middleclass, and get and keep poor and middleclass
    Americans working. Failure here, and…. well… It won’t be pretty.

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  5. Edward Mcclendon says:

    Lieberman is a traitor, not just to the DNC and Obama, but to the entire nation. He is an ego-
    centric, lying, wimpish SOB who must not be entrusted with ANY of the Democratic Party chairmanships. He should be expelled from the Democratic caucus, as he will only be a Manchurian Candidate, sending every secret policy strategy on to the RNC, most likely through McCain. The DNC has never seen such a clearly inappropriate legislator. Contrary to Obama’s wishes, Lieberman must be expelled! Obama must not be allowed to over-ride the consensus of the Democratic Party Senators. The man is as dangerous as the re-emerging PNAC!
    E. L. McClendon, Oregon

    Reply

  6. Edward Mcclendon says:

    Lieberman is a traitor, not just to the DNC and Obama, but to the entire nation. He is an ego-
    centric, lying, wimpish SOB who must not be entrusted with ANY of the Democratic Party chairmanships. He should be expelled from the Democratic caucus, as he will only be a Manchurian Candidate, sending every secret policy strategy on to the RNC, most likely through McCain. The DNC has never seen such a clearly inappropriate legislator. Contrary to Obama’s wishes, Lieberman must be expelled! Obama must not be allowed to over-ride the consensus of the Democratic Party Senators. The man is as dangerous as the re-emerging PNAC!
    E. L. McClendon, Oregon

    Reply

  7. Edward Mcclendon says:

    Lieberman is a traitor, not just to the DNC and Obama, but to the entire nation. He is an ego-
    centric, lying, wimpish SOB who must not be entrusted with ANY of the Democratic Party chairmanships. He should be expelled from the Democratic caucus, as he will only be a Manchurian Candidate, sending every secret policy strategy on to the RNC, most likely through McCain. The DNC has never seen such a clearly inappropriate legislator. Contrary to Obama’s wishes, Lieberman must be expelled! Obama must not be allowed to over-ride the consensus of the Democratic Party Senators. The man is as dangerous as the re-emerging PNAC!
    E. L. McClendon, Oregon

    Reply

  8. MNPundit says:

    That would make sense but I don’t see how you get around the fundamental difference that workers in other places can be treated like shit and workers here usually can’t be.
    Another thing is intellectual property. Loosening the ridiculous levels of IP would enable other countries to develop at faster rates and benefit their populations while hurting us very little and rebounding to our benefit as they become customers.

    Reply

  9. BillK says:

    I’m very encouraged to see comments here that point out the role that the military plays in the economy.
    I think it’s time to end the modern military Keynesianism that was ignited by Reagan and stoked back to a raging blaze by Bush’s dual-war response to 9/11.
    I fully agree with JohnH that we need to do less investing in “destructive” assets and more in productive ones, ones that improve our overall productivity as a nation, specifically investments in education, personal health and industrial efficiency.
    Politically speaking, any re-engineering of the economy that entails significant cuts to the defense budget will be extremely difficult to gain traction in Congress (Defense Department spending has a curious way of being spread liberally throughout key congressional districts).
    There’s an interesting report in today’s Boston Globe ( http://www.boston.com/news/nation/articles/2008/11/10/pentagon_board_says_cuts_essential ) revealing a series of very recent briefings from an official Pentagon advisory board that warn that current defense spending is unsustainable and it must be scaled back. One has to wonder at the timing of the Globe’s receipt of these briefings but, regardless of their origins, I hope that the effect is to ensure defense spending is fair game when it comes to re-prioritizing the budget. I would also like to see Obama’s transparency-in-government initiative include making the Pentagon accountable.

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  10. ChristineB says:

    Way back at the beginning of the new trade agreements that shipped our jobs over seas, my matra was, “Who is going to buy the widgets when there are no paychecks at home?”.
    I paint landscapes for a living and I’ve been predicting and planning for this financial collapse for several years. If it was obvious to me I can only assume that the collapse was intentional. The outcome, however, in the form of a newly involved and animated electorate may create some beneficial surprises. We must all get and stay involved.
    What Wall St. found out was that without Main St., they’re nothing!

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  11. michael claussen says:

    John Engler as one of the thought leaders is a joke. He raped the Michigan coffers with hardly a thank you. He peeled of multibillions for his friends in industry. They took that money and ran for the hills. Your organization should take what this larger than life example of corporate greed says with a large grain of salt.

    Reply

  12. MarkL says:

    I feel like the real Steve C. has finally been allowed to emerge since Obama was elected.
    How fascinating!

    Reply

  13. erichwwk says:

    First, thank you VERY much Laura (and Brian) for your astute and detailed reply to past comments of mine re the role of Keynes that were so garbled that I question the value in trying to untangle them. I especially regret my choice of words of re “mining the past”.
    I should have merely advocated reading Leijonhufvud’s “Keynes and the Crisis”, and let him speak for himself, instead of misrepresenting his views. You are convincing me to give Markwell a go.
    Re. the composition of the panel, I am just not familiar w/ these folk, so I can just comment in the abstract on the skills and experience I would like represented, w/o knowing whether they are or are not. But I am concerned that we are viewing recovery policy from a purely nationalistic perspective. So, hopefully these types are included:
    1) Someone capable of, as Laura suggests, capable of sketching out a “model” of the international economy and financial system. In that sense I am a bit troubled that the keynote speech will focus on the US perspective. To me, to start with the perspective of US manufacturing is a bit like starting w/ the view of the elephant in the room by having folks perceive just the tail, the legs, or the body, w/o seeing the whole elephant. We are just too linked internationally.
    2) the key to me is to keep employment and economic activity up, and realize that exporting financial instruments or seigniorage as an offset to the real goods we receive from abroad is an illusion. We need to work not just improve our lot, but that of those from whom we borrowed. We simply must stop the use of our military to obtain privileged access to resources and output, or what James Galbraith calls the predator nation.
    3) Thus we need to talk about our military budget, which some may also see as an offset to the real goods imbalance. But I see it as mostly pork and acceptance of wealth “capture” rather than wealth creation. Some may prefer the labels rent, or even theft. It is in that sense that I feel Bob Gates MUST be replaced as Sect of Defense, and we need someone who sees the military as other than protecting privilege. The missile shield, NATO expansion, his recent increase in military capital contracts all work counter to getting us out of this crisis.
    4) Someone needs to be able to address the role international financial institutions and their instruments play in this crisis.
    5) And yes, the interests of Main Street needs to be represented directly, giving up the trickle down concept of the privileged needing sufficient incentives provide for the masses with leftovers.
    The main issue to me is FAIRNESS, both at the domestic and international level. In that sense, when the classics speak of “competition”, they are really addressing “cooperation”, or how the plans and efforts of individuals are to mesh, especially in an intertemporal sense. It seems to me that markets are great at minimizing the effort to mesh plans that morph at the margins, where the unique perspective of the special information available only to those “on the spot” or “in the loop” matter, but don’t do so well when shocks are the issue. As Laura points out, over the last 8 years we have denigrated international cooperation, and we desperately need that back. I fail to see how we could transition from a petroleum based manufacturing, food production, and transportation society w/o the help (cooperation) of others.

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  14. JohnH says:

    “America has been overconsuming and underproducing for some time.” And the poster child for this overconsumption and underproduction is none other than the Department of Defense.
    “We need a global remedy to growth that unleashes demand elsewhere as the U.S. gets its economic house back in order.” And the U.S. needs a plan that emphasizes investment of productive assets, not destructive ones. Bush implemented a Keynesian progam to get the U.S. out of the 2001 recession. It emphasized massive spending and borrowing on “defense” and homeland security.
    The next Keynesian program needs to “right size” these programs and invest in other areas like infrastructure, healthcare, and renewable energy.
    Let’s hope that the G-20 will make global assistance contingent on the U.S. reigning in its fantastic military ambitions.

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  15. questions says:

    A couple of background thoughts — wasn’t Bush’s “ownership society” motivated in part by a desire to create large numbers of homeowners who would then be more conservative — helping to usher in the permanent Repub majority? Second, when the marginal tax rate drops and capital gains is taxed at 10% and inheritance tax is revoked and hedge fund managers are taxed at the capital gains rate, it’s way too easy to generate huge fortunes that make for huge investment pools that demand huge returns. And when pensions funds join in, the result is short term thinking about portfolio value and no long term thinking about social value.
    To undo this kind of thinking, it seems to me, we need to rethink what money is, what motivates human society, and what ultimately we’re here for. IF we live, make, and earn only for ourselves, we will have endless reruns of this meltdown. If we start to think about money as a public good, if we start wondering why we have so many vast pools of capital that don’t seem to do much beyond search for ever larger returns, then we might be able to remake the economy. Incentives have to change, values have to change, and “mine” has to change.
    This rethinking needs to happen both nationally and internationally. I am certain Obama is aware of these kinds of issues, but I’m not certain that the US is capable of moving in a healthier direction. Obama is, above all, aware of the issue of political possibility even in the face of political imagination.

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  16. Laura Harrison says:

    Steve, it’s great that you talk of the need for “a global remedy to growth that unleashes demand elsewhere as the U.S. gets its economic house back in order”.
    As you know, I’ve argued elsewhere that this is the great imperative of the moment – that the US has to give leadership on the international economic cooperation that is necessary both for the world economy and for the US economy itself to recover.
    This is what the G20 finance leaders were calling for at the weekend. It’s what Gordon Brown and the Brits, and Sarkozy and other European leaders, have been saying. I think it’s what Indian PM (and a leading economist) M Singh has been saying.
    This is also what I’ve pointed out elsewhere seems a key lesson to learn for today from John Maynard Keynes (on the historical background to this, see D Markwell, “Keynes and International Relations”).
    There hasn’t been enough recognition within the US of this need for US leadership ininternational in international economic action. I’m glad you are making the case – you are, aren’t you? – for what Barack Obama called “a global response” to present global economic woes.

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