Some crisis links (11.1.2008)

Americans — the unworthy

Joseph Stiglitz's latest article (via Truthout) seemingly aims to prepare Americans for painful depression to come. Yet, his really disturbing news has less to do with the depression to come than it does with the individuals who will lead the country during the crisis:

As America attempts to work its way out of the present crisis, the danger is that we will listen to the same people on Wall Street and in the economic establishment who got us into it. For them, our current predicament is another opportunity: if they can shape the government response appropriately, they stand to gain, or at least stand to lose less, and they may be willing to sacrifice the well-being of the economy for their own benefit — just as they did in the past.

It is unfortunate but true nonetheless that neither President McCain nor President Obama looks ready to abandon Wall Street or the architects of the current financial crisis. In fact, they appear eager to salvage tainted members of their favorite elite faction when they take office in January, just as one would expect from two party hacks. So, as things now stand, prudent Americans should expect to confront more of the same when the next President takes office. In the end, the differences between the two candidates and their parties will merely emphasize everything they agree upon.

For American citizens, the crucial problem is, as always, political in nature. Given the nature and severity of the current economic crisis, the candidates certain enjoy a rare opportunity to adopt a new path. Yet, the candidates representing the "party duopoly" have simply ignored this possibility.

The New York Times has published article on deflation in the world economy (see also this, this, this, this, this). According to the Times, stagflation such as we saw during the crisis of the 1970s might not be a feature of our probable future. Rather:

The new worry is that in the worst case, the end of inflation may be the beginning of something malevolent: a long, slow retrenchment in which consumers and businesses worldwide lose the wherewithal to buy, sending prices down for many goods. Though still considered unlikely, that would prompt businesses to slow production and accelerate layoffs, taking more paychecks out of the economy and further weakening demand.

The danger of this is the difficulty of a cure. Policy makers can generally choke off inflation by raising interest rates, dampening economic activity and reducing demand for goods. But as Japan discovered, an economy may remain ensnared by deflation for many years, even when interest rates are dropped to zero: falling prices make companies reluctant to invest even when credit is free.

Actually, for Americans, the cure for deflation is well known and can be adapted to fit current needs: The medicine would begin today with the demilitarization of the federal government and the nation's economic system and would proceed via a country committed to implementing an ecologically sound reindustrialization program. But, soon to be President Obama will defend the empire by preparing the country for war.

A view of the crisis from the right (via Naked Capitalism and the Financial Times):

We should worry less about the bigness of our problems than about the smallness of our character. We are out of practice at handling a world of repossessed cars, hand-me-down clothes and cancelled vacations and graduation parties. For many decades, people were steeled against recession by a knowledge that things could be a lot worse. Britain had memories of postwar rationing. In the US, 8m people were unemployed throughout the 1930s. Even people in their mid-40s may remember Edward Heath's three-day week and Jimmy Carter's "malaise" speech.

Most people, though, are too young to remember that stuff. Perhaps that is why we are in the mess we are in. The US has not had a deep nationwide recession since at least 1981-82.

How silly of me to believe that economic problems cannot be explained by relying upon a large dose of crap psychology….

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