"Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction."
Albert Einstein
Over the past decade or so, on the odd occasion when the topic came up in conversation, I found that when I mentioned the inherent unsustainability of the “ownership society” as it was being peddled and the danger of allowing securitzed-debt and derivatives trading to become the engine or our economy, I was inevitably shouted down and told that I was incapable of understanding the complex nature of modern banking and that the smartest people in the country were working on Wall Street (which confused me, having been so often told that the smartest people in the country worked in advertising or for the CIA...).
Acknowledging my limited perspective as a hobbyist, I’d like to take a moment to try to boil this whole mess down to its failure on a conceptual level and explore some of the problems that economists and legislators (if there are any left whose devolution into mere politicians isn’t irrevocable) will need to deal with crafting into actionable policy as we move forward into the abyss.
The following four ideas are, in my opinion, ‘no-brainers.’ However, I have yet to come across a clear attempt at an analysis of the root conceptual problems succinct to my satisfaction. So here goes.
1. The relationship of banks to housing and real estate needs to be reexamined and reorganized.
The reason that the housing bubble became so fatally inflated was that home prices were based not on what people could afford to pay, but what people were allowed to borrow. They were encouraged to borrow these increasing amounts because their debt was securitized and given a re-sale value.
Once upon a time, working Americans could potentially save up and buy a house.
It rapidly got to a point over the last several decades where purchasing a home without the involvement of a bank became impossible for ninety-five percent of the population, and in that time, we saw the rise of mortgage-backed securities as a primary engine for the financial markets.
I'm not going to get into my moral problems with scumbag flippers, but they're not to blame for the inflation of prices, they just worked the system to their advantage.
Now, as far as blaming the borrower: I've had trouble with debt. I've had trouble with debt because I was convinced that if I could just hold on I would soon succeed in finding a job that would allow me to pay it down. As it is, I've been hanging on by the skin of my teeth from month to month, still looking for a living wage. Add to that corporate America's 30-day standard, in which they sit on what they owe and let it gain a month's interest before cutting out a check, and the death-spiral continues.
2. Supply-side economics just doesn’t work and never has
As these debts were bundled into triple-A financial products and bought and sold and covered in purchased swaps, tremendous amounts of the wealth generated pooled at the top of the system.
Sure, a big part of the problem is that this market-created system of buying and selling fancy IOUs only created imaginary wealth. But there were billions being paid out, and the inequality of wealth reached levels not seen since...1928. Funny, that.
If that wealth had been pumped back into the real economy in the form of taxes invested in infrastructure improvement or investment in private industry and used to create jobs (at least the dot-com bubble created jobs!), is it possible that so many people might not have defaulted on their debts and the cycle could’ve seen itself through?
As it happened, the only thing that trickled down was the opportunity to sink deeper into debt with no opportunity to ever pay it off. (I'm still waiting for someone to suggest a debtors' army to send into Afghanistan...)
3. If the United States is to survive as a capitalist democracy, some real thought needs to be put into the relationship between industry and government.
I know that sounds simplistic, even for a no-brainer, seeing as its been one of the core struggles we’ve been dealing with perpetually in our mere two-and-a-quarter centuries of doing this whole nation thing.
But the current collapse puts us in a unique position to re-examine some of the fundamentals of this relationship and gives us the opportunity to come out of this stronger. (Not likely if knee-jerk McCave-in and his idiot sidekick wind up in the White House. Obama-Biden ’08)
One of the greatest strengths of our constitution is its flexibility (interesting that the ‘structuralist’ school of constitutional thought often favors the interpretation of the 14th amendment that bestows the rights of individuals to corporations. Maybe time to revisit that one, no?)
Personally, I think we face a more immediate danger of slipping into corporate fascism than democratic socialism, but there is a middle road.
Essential to finding this middle road is a functioning legislature that puts governance before politicking (something that John McCain’s spectacular and unfortunate meltdown last week revealed him as incapable of doing) or ideology (some of these no-government-is-good-government Republicans’ zealous and ignorant adherence to dogma rivals the Taliban. I’m sorry if it seems like I’m picking on the Republicans, its just that from Reaganomics to Gingrich’s Contract on America to Bush-Cheney they’ve been behind so much of what’s gone so wrong.)
Anyway, here are my no-brainer ideas:
The labor leaders of the early twentieth-century had a valid point when they argued that industry should be in Washington lobbying for national health-care alongside them. Flash-forward to the late 20th century and what are all the big industries complaining about? The cost of health care.
By transferring the costs of health care to government, private industry will be in a position to maximize their profits, a percentage of which would then be channeled into the national health-care infrastructure in the form of progressive taxes which, to insure quality, could be allotted according to performance. (Why aren't the smartest people in the country working on this?)
As it is, market-based health care and insurance aren’t working out for anyone. Their costs are too high for either corporations or individuals to bear, and the result of competition in the field has had the opposite of its intended effect: rather than receiving the highest level of care for the lowest price, we get the crappiest care at the highest price, which profit-based insurance companies (which makes no sense to me whatsoever) don't want to pay for. (Again, I’m sorry, Senator McCain...but a $5,000 tax credit for health care? When’s the last time you looked at a medical bill??? Why not give me a nickel for a matinee while you're at it?)
The alternative, of course, is no health care for anyone and a Republican-endorsed return to third-world status. But hey, it's not a problem if we don't say it is! U-S-A! U-S-A!
But I digress...
Conversely, there have been some interesting success stories involving the leasing of public infrastructure to private industry. But don’t take my word for it. Give Pennsylvania’s Ed Rendell a listen.
And of course also under this umbrella is the issue of CEO pay. How is it considered acceptable that in a publicly traded company such a high percentage of profit is allowed to be concentrated in one individual rather than channeled to the stockholders...let alone paid in taxes? This seems like one of those things that a healthfully functioning market should have been able to correct, but hasn’t. Anyone who tries to tell you that CEO pay caps are antithetical to free-market economies is a con artist and probably a CEO.
4. The problem isn't globalization, it's centralization
Civilizations have lived in globalized economies since the first Phoenecian jumped into a canoe. The effects of global trade don't become detrimental until the profits from that trade become centralized (Rome didn't last), leading to the unfair exploitation of labor, which brings about stagnation in the mildest cases, civil unrest and violence in the most severe.
When I hear Newt Gingrich and his ilk argue that taxes need to be kept low to make the U.S. an attractive place for multinationals to do business all I can think is, great, we won WWII and became the anchor for the world's economy and now we're supposed to aspire to pimping ourselves out as cheap labor? Asshole. What kind of American exceptionalism is that?
On a national level, one answer is for a strong federal government to foster and oversee regionally based micro-economies. What happened to those thousand points of light? Apparently, they're all pulling in minimum wage at Wal-Mart.
Seems like a completely overlooked advantage of our civil infrastructure.
Anyhow, if the smartest people in the country happen to come across this post, maybe it'll give them some conceptual fodder to translate into numbers by which they can devise a sufficiently complicated numerical apparatus capable of stopping the country from blowing itself apart again.
