Obamanomics: Wrongheaded?

According to Mike Whitney, Obama's economic recovery program is very much wrong since it mostly looks set to apply additional monetary WD-40 to the credit market. Even the program's job creation component, the hoped-for byproduct of its stimulus package, means to provide coverage for the demand constraints now afflicting the economy. These constraints take the form of rising unemployment and underemployment, long-term real wage declines, massive personal debt, etc. Yet the stimulus wishes to undo these constraints mostly by incurring additional collective and personal debt. Whitney rightly emphasizes this point along with some of the consequences it entails:

The Obama economic recovery plan is a misreading of the real problem, which is not the availability of credit, but debt. Bernanke, Summers and Geithner are approaching the issue from the wrong end; they want to stimulate the economy through credit expansion and more red ink. This is just more of Greenspan's bubblenomics: the endless boom and bust cycle triggered by low interest crack sold to credulous speculators. The only ones who benefit are the Wall Street insiders….

It should come as no surprise that common Americans now rightly fear the consequences produced by their debt-driven consumption when their consuming will occur during an economic crisis, especially one which promises to be long and difficult. They rightly see the problem as a matter of providing for their personal security, which is, after all, their responsibility. It is because they are afraid and because their fears are rational that they

…will not lead the way out of this economic downturn. It's physically impossible. The country is undergoing a generational shift from profligate consumerism to thriftiness. Stimulus alone won't get people spending. Salaries will have to go up to make up for losses in retirement funds and housing prices; and the face-value of mortgages and credit card debt will have to be written down. Otherwise, spending will continue to falter and the economy will tank. No economic recovery plan has a chance of succeeding if it doesn't address these two key issues: higher wages and debt relief.

Naturally, the Federal Reserve does not want to deal with the underlying causes of the crisis. After all, they're in the credit-peddling business. The Fed's job is to generate business for the financial community, which means creating a favorable environment for credit expansion.

Indeed…. What the crisis demands is a national commitment to debt forgiveness and economic risk reduction for society as a whole, reindustrialization and even unionization! To be sure, a project with these features can only look Quixotic to most Americans.

In any case, the Fed and the government now in power care about more than just securing America's credit-peddling business. Among other things, they care about their internal and external authority, about social stability and system coherence, about their political legitimacy and America's military effectiveness. It is because they care about these specific ends that they must also master the numerous conflicts and related social costs the crisis promises to generate. Most notably these will include: The social disintegration typical of an economy boasting collapsing labor and consumer markets. From what, one might wonder, would most Americans draw upon to construct a collective identity, a sense of national purpose? What would motivate them to sacrifice their short-term well-being if they lack the imperial majesty of Pax Americana as well as immediate access to an abundance of goods and services? If neither guns nor butter are present, if America is not the City on the Hill, the exceptional and indispensible nation, then what? For, why would Americans submissively comply with the rigors of the American way of life if they lack the real and illusory benefits that were once part of that life? They would give their consent to their governors because they have a right to sleep under a bridge?

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