How will historians look back on the economic era we're living through now? This is the kind of light 'n easy question I wrestle with when I'm running on the elliptical trainer at the gym… The paradox of people making history is that the real meaning of what they've done and of how they've done it can only be grasped well after the fact. So the first problem is defining a coherent period to interpret. The challenge here is that we're now only at the very beginning of a new period, so its significance isn't really knowable in a deep way… If, off the cuff, I were to draw up a schema of American economic history, I would say that the election of Reagan signified, at least symbolically, the end of the broadly based liberal consensus that resulted in the New Deal and the War on Poverty. Capitalists in the 80s began to take back a lot of the power that had been stripped from them over the previous 50 years. The capitalist gains were consolidated during the 90s as most of the Reganite assumptions became accepted truisms in mainstream American political discourse: Welfare state, bad; state spending on anything other than defense, bad; taxes, bad; collective bargaining, bad. Unregulated markets, good… Everybody wins when capitalists are free to pursue their business interests. Wall Street’s interests and Main Street’s interests are the same…
But there’s a wrinkle in all of this because the capitalist consolidation of the 80s and 90s was built on the flim-flam foundation of over-easy credit, deregulation, and rampant financialization. I say flim-flam because typically the way out of recession is to allow a Darwinian shakeout of weak firms, thereby allowing the markets to adjust back to some semblance of equilibrium. Then innovation, pent-up demand and eventually rising wages bring the economy back to life. But with a badly eroded and increasingly uncompetitive manufacturing base – or what people are talking about when they say that we don’t produce anything anymore – policymakers had to find other ways to prop up the economy. At the tail end of the first Bush’s presidency, the Federal Reserve began to pump tons of liquidity into the markets and aggressively lower interest rates in an effort to lift the economy out of recession. In lowering interest rates so dramatically after almost two decades of inflation paranoia, the Fed essentially encouraged ordinary people to use the debt markets to finance lifestyles that their otherwise stagnant incomes could not afford. Although the S&L crisis and the failure of Long-Term Capital Management were initial and largely unheeded signs of the pitfalls of the neo-laissez-faire turn in U.S. economic thinking, the policy created an unprecedented if also unsustainable boom. Throw in the commercial exploitation of the internet and the innovations of the dot-com era, and the American economy looked superficially like it would grow indefinitely. The Dow went through the roof, passing 7,000, then 8,000, then 9,000, the 10,000, the 11,000. People were talking about Dow 36,000, and they were taken seriously! I can remember watching Abbey Joseph-Cohen, one of the superstar equities traders at Goldman Sachs, talk to Louis Rukheiser on Wall Street Week about the American economy being like a freight train that could not be knocked off course. Only now do we see this for the mania that it was.
It’s clear that the Fed long ago stopped thinking about the long-term implications of monetary policy. It’s all about the political economy of the here and now. Historically low interest rates in the naughties fed a boom in the mortgage markets that took on a life of its own and acted as a temporary fix to much deeper structural problems. People not only bought houses they had no business buying, but used the artificially inflated equity in their homes re-do their kitchens, buy a few extra inches of flat screen, get nicers car, take longer vacations on Maui... And just as the internet bubble burst in 2000, the mortgage bubble burst in 2008. So now we’re at a point where there are seemingly no bubbles left to inflate, unless there's something unforeseen - something we take for granted - like water or air, that will eventually be commodified and make for a market that will act as a solution to our economic problems, even as it leaves millions of people without he most basic of necessities. I'm just thinking out loud here. The main point here is that here we are at the end of the age of Reaganism, the end of the flim-flam era, the end of the bubble era, the end of empire. It's the start of something new. But what is it, exactly? What will it be? An age of austerity and a deteriorating way of life? Will things improve, or will they continue a slow decline indefinitely. It's much too early to tell...
No comments:
Post a Comment