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Are Decades of Economic Decline Ahead of Us?

Are Decades of Economic Decline Ahead of Us?

In the fall of 2008, decades of finance-first, bankers-know-best economic policies coalesced to create one of the worst economic crises in history, one that the banks themselves could not survive without staggering levels of government support.

Yet astonishingly, nearly two years after the crash, Wall Street is still setting the economic agenda in Washington. As Congress begins to examine broader economic policy, lawmakers are under heavy Wall Street pressure to reduce the federal budget deficit — even though that could mean deepening the jobs crisis without any substantive economic benefits.

Small-bore reforms

At the same time, the financial reform bill that Congress is on the verge of passing leaves quite a bit to be desired. As the editors of The Nation emphasize, that legislation includes several small-bore fixes to ease the damage caused by Wall Street excess, but almost nothing to actually curb the excesses themselves. The capital markets casinos will largely be left untouched. Congress still has time to improve the bill over the next month as the House and Senate iron out their differences, and many useful reforms remain in play.

Nevertheless, Wall Street’s lobbyists have succeeded in taking the most important reforms off the table. We will not break up the biggest banks this year, nor will we tax reckless financial speculation. We aren’t even banning economically essential banks from participating in risky securities businesses.

Et tu, Buffet?

As Annie Lowrey notes for The Washington Independent, the crisis has even discredited Warren Buffett, one the few financial superstars who previously had a reputation as a “straight-shooter” that invested in responsible enterprises.

Buffett was once a harsh critic of credit rating agencies, the firms who slapped top ratings on toxic mortgage-backed securities and derivatives. But Buffett himself is also a top shareholder in Moody’s, one of the worst ratings agencies. The Financial Crisis Inquiry Commission had to compel Buffett’s testimony at a recent hearing via subpoena after Buffett turned down multiple requests to appear. At the hearing itself, Buffett did everything he could to pass the buck from himself and Moody’s to any other possible target.

Slashing the deficit

Wall Street’s ugly influence on economic policy extends far beyond the realm of bank regulation itself. Right now, financial elites are pushing hard on a right-wing plan to slash the federal budget deficit, and even many moderate Democrats are coming out in support of reduced government spending.

This strategy is a tremendous political blunder, as Steve Benen emphasizes for The Washington Monthly. It’s true that the deficit does not poll very well — but the deficit is only one side of the issue. Cutting the deficit means slashing federal support for jobs — we can help the economy or we can slash the deficit, but we cannot do both at the same time.

Nearly everyone believes that creating jobs should be a top priority for the government, but if politicians only ask questions about the deficit, they won’t hear answers about the economy. The political imperative is clear, as Benen notes:

This really shouldn’t be complicated: invest in more job creation, help struggling states as they keep laying off workers, and make clear to voters that the economy is more important than the deficit. Do this immediately, without apology.

Replacing Social Security with credit cards?

Wall Street loves cutting social services in the name of deficit reduction. Every public good that can be efficiently provided for by the government can also be inefficiently provided by the private sector — replacing public benefits with corporate profits. The bank lobby would like nothing more than to replace Social Security with credit cards for senior citizens. Wall Street doesn’t make a dime on the government’s Social Security payments — but they can make a killing on a privatized market.

Weak job growth=Weak private sector

Lest there be any question about whether or not the government needs to take strong action to strengthen the labor market, take a look at Friday’s jobs report. As Tim Fernholz notes for The American Prospect, this report was the most disappointing piece of economic news in months. While the economy gained 431,000 new jobs during the month, 411,000 of them were temporary hires by the U.S. Census, meaning the private sector is not able to support much new hiring.

There’s a critical lesson there: The only serious engine of job growth in the month of May was the federal government. Absent government hiring, the economy is not improving at all. There is an almost bottomless supply of critical social needs that require work right now, but no private-sector momentum to meet those needs.

The BP oil catastrophe should underscore how important new, green energy is to the U.S. economy — yet U.S. efforts to develop green energy solutions have fallen far behind those of China and other industrial powerhouse nations. Major federal investment into the research and implementation of green energy would be good for our environment and good for our economy.

Don’t let social services suffer

But astoundingly, the advice on the world economy currently coming from top policymakers at the Federal Reserve, the International Monetary Fund and European central banks is echoing the bank lobby line: Slash social programs now, and let the job market fend for itself. As Dean Baker emphasizes for AlterNet, these are the exact same policymakers who missed the housing bubble, made the wrong calls on bank regulation and sent the global economy into freefall.

There has been little change in personnel and no acknowledgment of error at the central banks whose incompetence was responsible for the crisis . . . . their agenda seems to be the same everywhere, cut back retirement benefits, reduce public support for health care, weaken unions and make ordinary workers take pay cuts.

In short, Wall Street and the Wall Street policy agenda remain ascendant, despite economic catastrophe. In the Great Depression, the government actually learned its lesson — we regulated the banks, created Social Security and put millions to work through government hiring programs. That same basic agenda is needed today. Failing to meet it could well mean decades of economic decline.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint.


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photo credit: thanks to Jar0d via flickr
by Zach Carter, Media Consortium blogger

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85 comments

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2:12AM PDT on Jul 2, 2010

thanks

10:13PM PDT on Jun 17, 2010

Thanks for the article.

6:24PM PDT on Jun 15, 2010

The super-consumer economy has declined already and rightly so. Here in the U.S. we consume more material goods per capita than anywhere in the world and that is unsustainable. A quick google of the Atlantic or Pacific gyres will show why. Look at all the crap we throw away, then add all the chemicals and toxins we sweep under the rug of mother earth which can't absorb it all.

But instead of thinking 'decline' we should think 'sustainable life' which, if we can achieve it would be an improvement and indeed a long-term enrichment, not a decline.

Imagine a world in which we all use completely renewable energy like solar, wind, and water power, and we all recycle all our trash. Imagine a world in which animals are not exploited in immane quantities for monstrous greed, but are our valued partners in a long-term sustainable existence. Sound like some kind of liberal utopia? Sustainotopia?

Nonsense. We could be doing all that NOW, today, with existing technologies, and putting people to work doing it. The only thing preventing us are these giant global corporations who would go extinct if we did this, because we'd no longer have to buy crap from them. They'd be deader than the dinosaurs, dinoflagellates and other prehistoric hydrocarbons we refine for fuel.

But they'd much rather have us buy that sickly fuel from them, because they can charge us to extract, transport, refine, and redistribute it. Horribly inefficient compared to solar energy, no?

9:34PM PDT on Jun 13, 2010

What gets me is all these politicians talking how much BP should pay for what they have done, how BP should put money in escrow, and how BP shouldn't be allowed to file bankruptcy.

It never occurs to the politicians that money is not the answer to everything, especially the basically conterfeit paper being printed with no intrinsic value by our treasury.

There is a huge disconnect I am afraid. These politicians, who used to always begging for money to get elected, somehow see money as the solution to everything. Whereas, the audience on care2 see the real value in the environment, our health, the animals, our air, the water, and our ecosystem in general.

The media and the Obama administration has been daily announcing, "we are going to make BP pay". BP can never pay for what they have done to our environment. The corporations can never pay for what they have done to our political system and economy.

9:13PM PDT on Jun 13, 2010

Of course decades of decline are ahead of us, unless we start manufacturing something besides war. No economy in history has survived when that was its main export.

12:13AM PDT on Jun 13, 2010

I don't think we will last too many decades more in the manner as we are going. We're declining too fast for that. We're in a free-fall like Rome when it became too greedy. There will be no recovery. And gold and silver is not the answer either. It clearly states in the Bible that people will be casting gold and silver to the streets. The only real value of gold and silver is its beauty. It does not have a practical use. Someone who is starving can do nothing with gold and silver. You would be much better off growing food which will have value in the future as living conditions continue to decline. The recent incident in the Gulf has helped to seal our fate. For years, we've been destroying our planet in the name of greed, and it cannot continue on the way it has been going. We are making many species extinct. Every species is important in the overall scheme of things and has a role to play. For us to just wipe out entire species has been virtually unheard of until the last several years. Once they are extinct, there is no getting them back. There is a heavy price to pay for all the selfeshness and greed, and I believe we are just beginning to realize the full price.

5:07PM PDT on Jun 12, 2010

At this point, our two party system is so disfunctional, corrupt, and ran by the corporation that it no longer matter if there is a democrat or a republican president. As far as the recession; I think when Bush and Obama had their little sit down and agreed to bail out the banks our fate was sealed.

Remember Obama talking about infrastructor jobs, green jobs(then dismissing the head of agency because republicans told him to), high speed rail jobs, manufacturing jobs, and more promises. The only jobs I see created by the federal government is census jobs that probably is to spy on us better.

The corporations don't really care what the American people think, the politicians think we are stupid, and the corporate media will sell out their mothers. We are ruled by a bunch of sadistic, lying, murdering, war mongering idiots.

I just read about an old lady in Baltimore put out of her house that she already paid for in 1994. A water bill that started out at $360.00 was sold to a third party tax collector. The tax collector then tacked on interest and fees balloning the bill to $3,600. She couldn't pay the bill so her house was taken, her and her son was then put out.

This is happening in Obama's America! Go figure.

3:02PM PDT on Jun 12, 2010

We are absolutely in decline. We no longer produce any real goods to speak of, only financial services and movies. Paper shufflers and fantasy peddlers, that's all we are now. And since these guys on Wall Street are firmly in control of our gov, there's no turning back.

They will sit doing mocrosecond fast trades of valueless extrapolations and watch everything crumble around their asses while they poke and prod for every last scrap of profit they can make on our downfall, never once caring about the future they're leaving their own kids. And they'll get obscene bonuses for every f**king they give the American people!

5:27AM PDT on Jun 12, 2010

Sad to say, but I do think we will have decades of decline ahead of us.

12:54PM PDT on Jun 11, 2010

One of the last things that G W Bush did on his way out the door was a rush re signing of the world trade agreement. This document is part of the foundation of our economic woes. One of the first actions of President Obama was an economic stimulus package that they worked on very hard and had ready to go as a first order of business. Turns out it had to be reworked because the afore mentioned trade agreement does not allow for us to restrict out sourcing jobs. When I heard about it back then I was shocked. Our former president and his father,and their long time friend, and corporate comrade and vice president literally sold out the American people.

As long as the current trade agreement stands we will have a hard time recovering.

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