Saturday, August 13, 2011

Putting A Myth To Bed

A particularly potent myth has been circulating for about a decade. It is that the world's economic problems began with the fall of the World Trade Center. But, as Jennifer Wells writes in this morning's Toronto Star, it was "greed, not Osama" which wrecked world markets. The fuse which blew the whole edifice up was easy money:

It was a phantom prosperity, as was painfully learned. In his 2007 biography, [Alan] Greenspan too politely acknowledged the role that the “loosening” of mortgage credit terms for subprime borrowers played in heightening financial risk. “Vaporization,” would have been a more apt term. Within the year, Lehman Brothers would declare bankruptcy, the era of bailouts arrived (again), and we all became comfortable with the lexicon. (The Troubled Asset Relief Program would forevermore be known as TARP, and even the innocent were initiated in the ways of collateralized debt obligations.)

And we have yet to recover. The Star's David Olive is an optimist by nature. He too writes today that:

Just letting the fiscally ruinous U.S. tax cuts of 2001 and 2003 lapse would scare up $1 trillion or so, enough to cover two thirds of the deficit. And the long-term threat to the solvency of Social Security and Medicare? America’s population, in contrast with expected declines in most advanced economies, is forecast to surge 41 per cent by mid-century to 438 million. That’s 127 million new taxpaying Americans to the rescue. 

Unfortunately, that will not happen anytime soon. The American Tea Party is committed to no tax increases -- even if that means going back to the tax rates of ten years ago. And they maintain that position, as Standard and Poors declares that it was their intransigence which was primarily responsible for S and P's decision to downgrade the U.S. government's credit rating. Consider this response from would be president Michelle Bachmann:

It isn't true that the government would default on its debt," Bachmann told CBS' Bob Schieffer. "Because, very simply, the Treasury Secretary can pay the interest on the debt first, and then, from there, we have to just prioritize our spending....I have no intention of voting to raise the debt ceiling."

We are where we are because those who brought the economy down refuse to acknowledge their responsibility for the mess they created. And they refuse to acknowledge that their woodenheadedness keeps the economy from recovering.

David Olive may be right that this too shall pass. The problem is that it will take a long time to pass.


Tossing Pebbles in the Stream said...

I read these article this morning and they seemed "right on".

Owen Gray said...

I agree with you, Philip. They're written from a Canadian perspective, but they both show a cogent grasp of the problem.

The bigger problem, though, is that Americans can't agree on what's happening and why. The rest of us can only watch from the sidelines and scratch our heads.

ck said...

I also love another new rationalization from right winged talk radio hosts, bloggers and pundits, when they're talking about the riots in Britain: the social safety nets have gotten too big and have caused this economic debt crisis. They say that the poor have not learned how to be self-reliant and they go on and on with relish, almost a sadistic tone, really.

I've also heard some blame 'greedy public sector workers and their even greedier unions' for the economic crisis.

Anything goes in this blame game but the actual culprit--a deregulated banking system in the US, runaway corporate greed and predatory loans. I fear that the scapegoating of the poor and the working class will continue and the actual culprits will always remain blameless, even if Moody's drops the other shoe.

Owen Gray said...

The people who are responsible for this mess, ck, have worked very hard to convince the gullible that the problem is debt, not unemployment.

The best way to do that is to scapegoat the unemployed.