Monday, September 29, 2008

Every cloud has a silver lining

It was a catastrophic political defeat for President Bush, who had put the full weight of the White House behind the measure and had lobbied wavering Republicans in intensely personal telephone calls on Monday morning before the vote. Both presidential candidates also supported the plan. NYT

The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented - many on the RGE Monitor Finance blog forum - alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners. Nouriel Roubini

"A potential calamity," predicts Democratic pollster Doug Schoen. "If the reactions we're seeing hold, we could have real spasmodic anger directed at businesses and corporations." And the timing will have consequences, says financier and onetime GOP presidential candidate Mitt Romney: "Unfortunately, politicians have seized on the politics of envy," he told Fortune, "and they are stoking it this election year like I've never seen in my lifetime." Compared to this, Enron was a warm-up exercise. For all the public outrage over accounting scandals seven years ago, the result in Washington was limited to a financial reporting rule that most Americans have never heard of (though many in the business community still consider Sarbanes-Oxley a destructive overreaction). By contrast, the implosion of Wall Street, followed by Paulson's escalating series of multibillion-dollar rescues, has fired up populist sentiments that were already building in American politics, promising to reshape legislative battles over everything from tax and trade policies to federal regulation. Union leaders like the AFL-CIO's John Sweeney suddenly sound as if they're in the mainstream of public opinion with statements like this: "One thing is certain. No one - no politician, no investment banker, no television commentator, no economist - should be able to say again with a straight face that here in the United States we just let markets do whatever markets do and everything works out for the best." Washington hath no fury like Middle America scorned - and there's reason to think it will only get uglier. The government's massive new financial commitments will severely tie the next President's hands in addressing middle-class concerns. "The next President will have to temper expectations a lot," says Middlebury College economist David Colander, "far beyond what either of the candidates has been willing to talk about." Fortune
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A happy society cannot be based on the idea that the life of the community is merely a race with "winners and losers", because in any race almost all the runners lose and losers cannot be happy with that result.

It is well to remember that Margaret Thatcher maintained that "society" doesn't even exist, only individuals and families. In Thatcher's idea it is implicit that these individuals and families have no stake in any common good whatsoever.

There is a huge difference between a "community" and communism (whatever that might be), but for the philosophy of life that Thatcher represents there is little difference at all.

It is also implicit in her philosophy that most of humanity exists only to serve those of their number that have managed to get the levers of wealth and power in their hands. This is not at all conservative; on the contrary it is radical in the extreme... These are the doctrines of Ayn Rand and her devoted disciple Alan Greenspan... perhaps the man most responsible for this mess.

A true conservative knows that real quality of a society is the quality of what is "average". Anyone who has studied our species know that the exceptional springs from the normal and the mediocre. Most geniuses have normal parents and normal children. And many exceptional people have come from the most unpromising backgrounds and their descendants have sunk quickly back into that obscurity. Has anybody heard much from the Mozarts or the Einsteins lately?

I know the family of one of Spanish literature's greatest poets and playwrights: a name that any educated person anywhere in the world knows as well as his own, and they are the most untalented, if charming, examples of Spain's liberal middle class that you could ever want to meet, unexceptional in every way except their electrifying surname. I went to school with the son of one of America's greatest film directors and one of Hollywood's most interesting actresses and he was without any particular talent except his humor and charm.

The exceptional by definition can take care of themselves. The important thing, to make the world a happy place, is that average people live fruitful, peaceful lives with a dignified old age and can give their children a good education and health care. This only happens on a mass scale in social democracy.

You cannot have social democracy without taxes. That means taxes for working class, middle class and most of all the top earners. At this moment enunciating this unpleasant truth would amount to political suicide in the USA.

The good news is that the American economic model has lost all its shine and charisma for the rest of the world and will no longer be trotted out as the path to take to prosperity. It is now officially a bankrupt ideology.

This means that social democracy will become possible in many places where in the last twenty years or so it was little more than the sin that dare not speak its name and maybe, someday, finally, Americans, as Churchill always said, having exhausted all other alternatives, will do the right thing. DS

1 comment:

Forensic economist said...

"One thing is certain. No one... should be able to say again with a straight face that here in the United States we just let markets do whatever markets do and everything works out for the best."

Just finished reading Polanyi's The Great Transformation which included the following nuggets:

"The outstanding discovery of recent historical and anthropogical research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only insofar as they serve this end... industrial civilization will continue to exist when the utopian experiment of a self regulating market will be no more than a memory."

Yes, even in America we may be rediscovering this.