Not Seeing The Trees For The Forest

Paul Krugman's analysis of the European Debt Crisis,  in this morning's New York Times, should be required reading -- not just for the movers and shakers in Europe, but for our own so called wise men. Krugman's critics on the right accuse him of fiscal hysteria. But his analysis is clear eyed and, therefore, gloomy:

Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries.

But exports can’t boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.

Krugman has never argued that debt is not a problem. But he continues to maintain that it is a longer term problem. What is more important -- in the short term -- is stimulating economic growth, creating jobs, and improving government tax receipts.

For those who believe that debt is about to overwhelm us, all of this is counter intuitive -- just as John Maynard Keynes' solution for The Great Depression was counter intuitive. And, therefore, Krugman's conclusion that, "there is a very wide gap between what the euro needs to survive and what European leaders are willing to do, or even talk about doing" is spot on.

That same conclusion applies to David Cameron's remedy for his country's problems. Cameron was in Ottawa last week, praising Canada for advocating the same policies. Meanwhile, Jim Flaherty has the gall to lecture the Europeans on their lack of fiscal virtue. And Stephen Harper goes on American television, claiming that Canada is a light to the world.

Such incredible and wrongheaded arrogance is more than embarrassing. It's folly -- because our elites cannot see the trees for the forest.

This entry is cross posted at The Moderate Voice.

Inherit The Wind

Forty two years ago, I was preparing to teach my first classes. I had spent the summer at the University of North Carolina, studying John Dewey, Jerome Bruner, Carl Rogers and American Literature. I was one of about fifty students who were about to enter the public schools as teacher interns. We taught during the day, went to school at night, and were visited frequently by the faculty in the School of Education. It was a baptism by fire. But it was training firmly rooted in the real world.

We were white middle class kids. Some of us were southerners -- from North Carolina, South Carolina and Georgia. But a lot of us came from outside the South. I was the only student from outside the country. And, because a number of us were not familiar with the lives of African Americans, the faculty arranged a meeting between us and the kids on campus who were part of the Outward Bound Program. They were high school students who came from backgrounds less privileged than ours.

Martin Luther King had been killed the year before and the ghettos were still alight. During the course of the meeting, the conversation turned to guns and violence. Near the end of the session, one guy, from Long Island -- whose heart was in the right place, but who looked at the world with the flinty realism of a New Yorker -- said, "There's 22 million of you and 275 million of them -- and they have the guns. You can't win."

The Outward Bound kids were not intimidated by our presence. Unlike  their grandparents, they were not going to treat us with deference.One girl, who had been animated during the discussion, looked at us  -- as clear-eyed as the guy from Long Island. "I'd rather die standing up," she said, "than on my knees."

I've thought of her this week, as world markets have roiled and the cities of Britain have erupted in violence. During the last three years, people have been loathe to take to the streets. But, as things go from bad to worse, it would be foolish to think that those of us who live in steerage will not revolt against those of us who live on the upper decks. .It would be wise to recall that line from the Book of Proverbs, "He that troubleth his own house shall inherit the wind."

This entry is cross posted at The Moderate Voice.

The Second Great Contraction

The American economist, Kenneth Rogoff, suggested this week that we stop referring to our present economic woes as The Great Recession, and instead label the present situation The Second Great Contraction. The first Great Contraction occurred in the 1930's. The same thing is happening again.

The problem with our present terminology, Rogoff writes, is that it assumes that our present situation is just another -- somewhat tougher -- garden variety recession, a notion which "is predicated on a dangerous misdiagnosis of the problems that confront the United States and other countries, leading to bad forecasts and bad policy."

The market gyrations of the past week were certainly a reaction to bad forecasting. The debt deal which was reached in Washington is an egregious example of bad policy. The real problem, Rogoff maintains, is that policy makers have not truly understood how bad the situation is:

The real problem is that the global economy is badly overleveraged, and there’s no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression or inflation.

During the First Great Contraction, Franklin Roosevelt's New Deal transferred wealth from creditors to debtors. Economists like Paul Krugman and Robert Reich argue that the same kind of response is required now. They argue for a new Works Progress Administration and a new Civilian Conservation Corps. The need for infrastructure improvement is everywhere -- from bridges that fall into the Mississippi River to huge slabs of concrete which fall onto Montreal's freeways. We live in an age -- in John Kenneth Galbraith's phrase -- of "private wealth and public squalor."

But what the debt ceiling debate underscored  (yet again) was our political and power elites' absolute failure to come to grips with the real problem. And, until they change or are replaced, there will be no large scale public works programs.

In the light of that failure, Rogoff asks, "Is there any alternative to years of political gyrations and alternatives?" -- and then he answers his own question:

I have argued that the only practical way to shorten the coming period of deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4 per cent to 6 per cent for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, as Europe is painfully learning.

Rogoff's suggestion will drive lots of policy makers crazy -- because it's difficult to keep inflation "moderate."  But, at the moment, those who hold the reins of power are not listening to Krugman, Reich or Rogoff. And, in the meantime, wealth remains in the hands of the creditors and hope drains away from the debtors.


This entry is cross posted at The Moderate Voice.

It's Always Been About Jobs

Many people criticize Paul Krugman for being too shrill. But, after all, the policy elites have chosen not to take his advice; and, as economies around the world continue to deteriorate, he has become increasingly frustrated. He writes this morning that:

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.

It is supremely ironic that the day after Washington finally agreed to cut spending -- which we were told would increase business confidence -- world markets plunged. Somebody has been selling snake oil; and it's not Krugman. His message has been simple: Confidence will increase when employment increases. And employment numbers keep heading south:

Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment. Among other things, the rise in long-term unemployment will reduce future government revenues, so we’re not even acting sensibly in purely fiscal terms. But, more important, it’s a human catastrophe. 

If policy makers are smart, they will take Krugman's advice.That means using government resources to create jobs on public infrastructure. We were reminded again this week -- when a large slab of concrete fell onto Montreal's Ville Marie Expressway -- that the need for such programs is critical.

But, so far, nobody --  not President Obama, and certainly not Stephen Harper -- appears to be listening. Krugman is simply repeating what ordinary people have been repeating for three years:  Right now it's about jobs. It's not about debt.

The man has a right to be shrill.

The Children's Hour

Ezra Klein cuts to the chase in today's Washington Post. The White House wanted $400 billion in revenues, and John Boehner knew he couldn't get the deal through the House:

But you can’t get a deal unless you can get the votes. And what’s been clear for some time is Speaker John Boehner cannot get the votes. If you need more evidence, look at the letter Boehner sent his caucus, which is more about pretending that he supports Cut, Cap and Balance -- an absurd and unpassable policy that includes a constitutional amendment making tax increases nearly impossible and capping spending at levels not seen since 1957 -- than it is about informing them as to what’s happened in the negotiations. It’s as if the president walked away from the table and sent out a letter saying that Boehner wouldn’t agree to single-payer health care, and so the negotiations are over.

The simple truth is that the Tea Party now controls the agenda of the Republican Party.This is the party whose presidential candidate confused the birthplaces of John Wayne and John Wayne Gacey. This is the party whose candidate in Delaware claimed to have dabbled in witchcraft.. And, of course, there is Sarah Palin, who advises her followers to "lock and reload."

Perhaps Mitch McConnell's plan to give President Obama the authority to raise the debt ceiling will pass. It is the only option his party -- a party which desperately wants to regain power -- could possibly pass. And that realization simply underscores the fact that the modern Republican Party is run by adults who never grew up.

The world is watching The Childrens Hour.

How Little Wisdom

Paul Krugman has a right to be pessimistic. The powerful elites on both sides of the Atlantic suffer from group think. And, instead of proving the truth of the old adage, "great minds think alike," they offer a vivid illustration of the flip side of that coin: fools never differ.

The movers and  shakers are entirely out of touch with the people whose interests they are supposed to serve:

The disappearance of unemployment from elite policy discourse and its replacement by deficit panic has been truly remarkable. It’s not a response to public opinion. In a recent CBS News/New York Times poll, 53 percent of the public named the economy and jobs as the most important problem we face, while only 7 percent named the deficit. Nor is it a response to market pressure. Interest rates on U.S. debt remain near historic lows. 

And, more than that, they are stunningly ignorant of history -- which could provide them with some guide posts when attempting to find their way through the present crisis:

For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed. 

When historians review the record of our times, they will surely conclude that our so called "best and brightest" were neither. As Krugman reminds his readers, they will recall another old adage: "You do not know, my son, with how little wisdom the world is governed."

This entry is cross posted at The Moderate Voice.

Of Trains and Automobiles

Outside the train station, in Belleville, Ontario, there is a plaque. It proclaims that the building was erected in 1841 -- more than 25 years before Canada officially proclaimed its existence in 1867. The nation was born in the 19th century, during the first attempt at globalized trade -- a period which roughly corresponded to the reign of Queen Victoria. One hundred and fifty years ago, railroads formed a loosely woven quilt which covered all of North America. They symbolized the riches produced by the Industrial Revolution; and they were the source of treasure for a few of the robber barons who bestrode the era.

Canada had three railroads: The Grand Trunk Railway -- which built the station in Belleville -- joined two countries, Canada and the United States. Most of the track was laid on Canadian soil; but the two terminuses were in Portland, Maine and Chicago, Illinois. The Canadian Northern Railway stretched from Quebec City to British Columbia, cutting a wide swath through Northern Ontario to Winnipeg, then heading northwest through Edmonton, and on to British Columbia. The most storied, and the longest of all -- The Canadian Pacific Railway -- stretched from coast to coast and symbolized the country's motto, "from sea to sea." Every small town in Canada had a station, or at least a grain elevator, and was connected to the main route by a branch line. In a large, sparsely populated country, railroads were the heart which pumped the nation's economic blood.

But when the world economy came apart -- in the aftermath of World War I -- railroads were in trouble. Canada never needed three railways. One century built too many railways. The next built too many automobiles. When the Grand Trunk and the Canadian Northern declared bankruptcy in the early 1920's, the Conservative government of Sir Robert Borden nationalized them, blending the two into one. The government dubbed the new entity the CNR -- Canadian National Railways. And, throughout the Depression, Canada was served by two railroads -- from sea to sea.

But after World War II, transportation shifted away from the railroads to the passenger car and the transport truck. In the United States, the Eisenhower administration built the Interstate Highway System; and, by the mid sixties, the Canadian government completed the Trans Canada Highway. Passenger service on both American and Canadian railroads dried up. Tracks were abandoned or "rationalized," with two or more railroads sharing the same tracks. And, on the Canadian prairies, trucks pulled up to the grain elevators which stood beside abandoned railroad tracks. The governments of both countries took charge of what passenger service remained -- in short busy corridors between New York and Washington or Quebec City and Windsor.

If railroads were the symbol of 19h century prosperity, the passenger car was the symbol of 20th century prosperity. And, as the second attempt to globalize trade has come to a standstill, the automobile -- like the steam locomotive before it -- is about to be metamorphosed. But, just as railroads did not totally disappear, automobiles -- and the companies which make them -- will not go the way of the dinosaur. We got a peek at the future last week, when auditors for General Motors -- which fifty years ago was the world's largest industrial corporation -- concluded that the company would have difficulty remaining "a going concern." The company which Walter Chrysler built -- a company once noted for state of the art engineering and innovation -- is about to go under.

As it did for the railways, government will have to become a major stakeholder in a radically transformed automobile industry -- an industry which will no longer be the economic engine of both Canada and the United States. There will be howls from market fundamentalists, who will claim that government should not stand in the way of what the economist Joseph Schumpeter called "creative destruction." But because cars and trucks -- like the railroads -- touch the lives of so many people, a smaller government supported transportation industry -- an industry which will include heavy investment in urban mass transit -- is just around the corner. It is a construct which has been adopted in the past -- and which is about to be adopted again.

Now For the Hard Part

British economic historian and Harvard professor Niall Ferguson was in Ottawa last week. In an interview with The Globe and Mail, he predicted that the global economic crisis is far from over. In fact, he said, things could get pretty nasty. "There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics."

And from Europe this morning comes a story, in The New York Times, that things could be falling apart in the European Union. "The leaders of the European Union gathered Sunday in Brussels," ran the lead, "in an emergency summit meeting that seemed to highlight the very worries it was designed to calm." The economic crisis has driven a wedge between the countries of what Donald Rumsfeld called "new and old Europe." The problem, according to the Times, is that "the 16 nations that use the euro -- introduced in 1999 and one of the proudest European accomplishments -- must submit to the monetary leadership of the European Central Bank. That keeps some members hardest hit by the economic downturn, like Ireland, Spain, Italy and Greece, from unilaterally taking radical steps to stimulate their economies." And newer members of the Union, "including Hungary, Romania and the Baltic states, are in a state of near-meltdown."

The crisis is forcing countries to reach across cultures and political systems. And this is particularly true of the United States and China. Ferguson believes that what he has dubbed "Chimerica" -- the fusion of the United States and China -- "really is the key to how the global financial system works." The United States is the major market for Chinese exports; and social stability in China rests on the system of factories which export to America. The Chinese are the major holders of American debt, which is growing astronomically as the United States seeks to stimulate and stabilize its economy. Despite the deep seated distrust which has existed for sixty years between the two nations, it is essential that they work together.

Unfortunately, says Ferguson, even if Europe and Chimerica manage to finesse their differences, "This is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the U.S." That includes Canada. But because our economy -- unlike the economies of Asia -- is not wholly focused on exporting to the United States, things will not get as bad as they could get. That is small comfort.

We now know the downside of globalization. The brave new world of globalized trade hangs by a thread. As Ferguson has been warning for years, "it's a fragile system."

The Great Financial Chain of Being

William Shakespeare lived in an ordered universe. The moral philosophers of his day conceived of that universe as a Great Chain of Being. God was at the top of the chain; the angels occupied a position immediately below Him; and humanity occupied the link below them. They were followed by animals, plants and inanimate objects. In turn, each of these rungs was itself further subdivided. The King sat on top of the human organization chart, followed by the nobility, followed by various permutations of the common man. This precise organization of the universe guaranteed stability -- unless Lucifer decided to challenge God's authority, or a member of the nobility tried to usurp the power of the King. And, if that occurred, God eventually reached down and set things right. Thus, in Macbeth and Hamlet and Julius Ceasar, pretenders to the throne eventually met their just and richly deserved comeuppance. The Great Chain exemplified what the philosophers called "natural law."

Classical economics has constructed something similar. The very wealthy, or the captains of industry, occupy God's rung on the ladder, followed by the CEO's, shareholders, etc. Mere "consumers" are the equivalent of inanimate objects. That organizational chart has been accepted for most of human history -- with the exception of Franklin Roosevelt's New Deal -- as theologically sound. Indeed, Roosevelt's harshest critics accused him of tampering with natural law -- and they eagerly awaited the day when God would set things right. Forty years ago, God appeared in the form of a bespectaled little man. His name was Milton Friedman; and it was he who re-established The Great Financial Chain of Being.

But, as became clear in Roosevelt's day, the Great Chain is actually the Great Vacuum Cleaner. Rather than allow the wealth of the mighty to trickle down to society's least powerful -- and, apparently, least important -- creatures, this kind of economic organization actually sucks the meager wealth of those at the bottom to the top, because it is maintained by a tax system which is tilted decidedly in favour of the wealthy. Over time, those at the bottom are deprived of purchasing power. They can only purchase goods and services by going deeply into debt; and, eventually, they can no longer support the debt they have accumulated. When the broad foundation which supports the Great Chain begins to crumble, the whole edifice -- like the Twin Towers -- comes tumbling down. What Roosevelt did was to inject money into the foundation of the edifice. His various employment initiatives put money into the hands of those at the bottom and kept the system afloat.

Thus, in a financial crisis, the government must put money into the hands of those who have lost their jobs by giving them jobs which need to be done -- whether it's the Tennessee Valley Authority electrifying the country by building hydro-electric dams, or a Green Economy Initiative to create renewable energy sources.

Those who have been at the helm of the economy for the last thirty years, however, keep insisting that the way to put money into people's hands is to give everyone across-the-board tax cuts. The Americans gave away $150 billion in tax cuts last year and nothing happened. Mitch McConnell, the Republican leader in the Senate, wants another $350 billion in tax cuts. And the word is that Jim Flaherty -- who two months ago foresaw a $100 million surplus, then last month predicted a $30 billion deficit and last week warned Canadians to steel themselves for rising unemployment -- is considering similar tax cuts in the upcoming budget. These folks maintain that the way to stabilize the building is to strengthen the roof. And they scratch their heads when, like the Leaning Tower of Pisa, it continues to sink.

Paul Krugman, this year's Nobel laureate in Economics, has advised President-elect Obama to ditch the tax cuts. "My advice to the Obama team," he writes in today's New York Times, "is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more." That is advice which Canada's opposition leaders should also take to heart. It is too much to expect those who got us here to heed that advice. "By and large the free market medicine men," Thomas Frank wrote in last week's Wall Street Journal, "seem determined to learn nothing from this awful year. Instead, they repeat their incantations and retreat deeper into their dogma, generating endless schemes in which government is to blame, all sin originates with the Community Reinvestment Act, and the bailouts for which their own flock is desperately bleating can do nothing but harm."

The American Revolution, the French Revolution and World War I doomed the Great Chain of Being. But the Great Financial Chain of Being is alive and well.

Hope in Scarcity

We are in for tough times. This morning comes word that Japan is officially in recession. On Friday came news that the fifteen countries which use the Euro are in recession. And then, of course, there is North America, where the storm first came ashore. The last time this happened was in 1979 -- after the first oil shock -- when Jimmy Carter went to the mountain (Camp David) and came down with an address for his countrymen.

"In a nation that was once proud of hard work, strong families, close knit communities, and our faith in God," he told his fellow citizens, "too many of us now tend to worship self indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns. But we've discovered that owning things and consuming things does not satisfy our longing for meaning. We've learned that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose."

Not only was the search for more material goods a dead end, said Carter. It was also a clear and present danger, because it could only be supported by ever increasing energy consumption; and those energy resources would have to come from outside the United States. When Carter delivered his speech, 43% of America's energy came from beyond its borders. Just before the U.S. invasion of Iraq it was 60%.

Carter pleaded with Americans to turn down their thermostats and to wear sweaters, to drive their cars less and to learn to live within their means. But Americans saw him as a modern day Jeremiah, just when Margaret Thatcher and Ronald Reagan were telling their citizens that a brighter future lay with free markets and unfettered capitalism. It was possible to have more -- much more -- not less.

Unfortunately, such a future required a reordering of American and British military priorities. And it was most fortunate that, ten years later, the Berlin Wall fell. Instead of concentrating their attention on Europe, both countries could concentrate on where the oil was -- the Middle East. As Andrew Bacevich makes clear in his book, The New American Militarism, Reagan began the process of refocusing the American military -- a process which continued during the administrations of George Bush and Bill Clinton.

It was a process that began long before the elder Bush's prodigal son took office. Several administrations committed themselves to the same goal: "Only by enjoying unquestioned primacy in the region," writes Bacevich, "-- initially defined as "Southwest Asia" but eventually to encompass all of the Persian Gulf, the Caucasus, and Central Asia -- could the government of the United States guarantee American prosperity and therefore American freedom."

For neo-conservatives -- from Thatcher to Reagan , to the two Bushes and Canada's Stephen Harper -- "freedom" has meant the freedom to have more. Unfortunately, that kind of freedom costs a great deal of money (most of it borrowed) and blood. In the last year, all the bills have come due.

It has taken thirty years to prove that Jimmy Carter was right. We are all going to have to live with less. And getting out of the swamp we are in will take a lot of effort and time. But we are not without hope. As Armine Yalnizyan writes in today's Toronto Star, "It's a time for action, and some of our governments have already begun. Even before this crisis, some municipal and provincial governments had started to focus on how to tackle poverty in a systematic, comprehensive way."

Besides injecting liquidity into the banks,Yalnizyan writes, governments will have "to speed up the repair and expansion of infrastructure . . . ramp up skills development programs . . .[and] improve income supports for those without work."

That seems to be Obama's plan, too; and it would appear that the leaders of the G20 have also seen the writing on the wall. Even Stephen Harper is making noises about the necessity of government intervention.

Obama's election does not mean, as Ronald Reagan boasted, that "it's morning in America" again. But it does mean that a man who knows something about collective action and social justice will be sitting at future G20 meetings. There is a long, long way to go. But we just might make it.

The New Okies

It seemed that every time I sat down to watch the news this week, a picture of former New York governor Eliot Spitzer appeared on the screen. The fall of Spitzer reads like a Greek tragedy. But there is a bigger tragedy unfolding -- and it has been unfolding for sometime now. Despite the media's fixation on Spitzer, what riveted my attention this week was another series of images, broadcast during the BBC's nightly newscast. In Ontario, California -- not far from Los Angeles -- a tent city has sprung up. "Over the last six months," reported The Los Angeles Times, on February 3rd, "more than 250 homeless people have pitched tents near the Ontario airport, creating a burgeoning shantytown that sprawls across vacant lots and spills into side streets." The story continues, "Pregnant women, parolees, alcoholics, the mentally ill, people fallen on hard times: They're all here living on donated food and water." The scene has been repeated in cities throughout North America for over a generation, to the shame of both Canada and the United States.

But, according to the BBC, a new wrinkle has been added to the story. Since the report in The Times, the number of residents in this refugee camp has swollen, because many of the newcomers have lost their homes to the foreclosure crisis which is sweeping the United States. If a home owner loses his or her job, if a relative requires expensive medical care, or if the new monthly payments are out of reach when their mortgages reset, thousands of people are finding themselves in the same position as those in California. It is a scene out of Steinbeck"s The Grapes of Wrath.

While the homeless were taking refuge in tent cities, dismissed investment bankers were testifying before the American Congress. Stanley O'Neil, who used to run Merrill Lynch, walked away with a severance package worth $161 million, even though the organization, under his stewardship, lost $10 billion; Charles Prince of Citigroup walked away with $61 million after staggering losses at his bank; and Angelo Mozelli reportedly pocketed some $115 million, after his nearly bankrupt company, Countrywide Financial, was gobbled up by Bank of America. Angry shareholders, however, forced him to give back $37.5 million of that.

According to salary surveys in the United States, between 1996 and 2006 CEO pay went up 45%, while the pay of the average worker went up 7%. And therein lies the problem. Economic policies of the last generation have led to an unconscionable concentration of wealth in the hands of a few. As Robert Reich (Bill Clinton's former Secretary of Labour) wrote this week,"We're reaping the whirlwind of many years during which Americans have spent beyond their means and most of the benefits of an expanding economy have gone to a relatively small group at the very top."

The story is the same in Canada. As Tom Walkom reported a year ago in The Toronto Star (see my post of March 7, 2007) "the richest 20% of Canadians own 75% of the nation's wealth" and "we allow the country's 100 chief executive officers to make, on average, 240 times more than the typical worker, up from 106 times the average wage in 1998.)"

All this is the consequence of supply side economic policy. The fallacy of that policy, says Reich, is the belief that if you juice the supply side of the economic seesaw, you will (as if by magic) stimulate demand. The problem, however, is that -- because of the concentration of wealth at the top -- there is no money at the bottom to demand anything. And, until recently, the money available was borrowed money. Now even the borrowed money has dried up. To put this situation in perspective, Reich quoted Merriner S. Eccles, who was Franklin Roosevelt's Chairman of the Federal Reserve: "As mass production has to be accompanied by mass consumption, mass consumption in turn implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had, by 1929-30, drawn into a few hands an increasing proportion of currently produced wealth."

It is too soon to know whether history will repeat itself. But the parallels are obvious -- and the burgeoning tent city in California underscores them. I have previously quoted George Santayana in this space: "Those who refuse to learn from history are doomed to repeat it." John Kenneth Galbraith chronicled the political folly which spawned the Great Depression in his book, The Great Crash, 1929. The root of the problem, Galbraith wrote, was the inability of policy makers to recognize that "Money differs from an automobile or a mistress in being equally important to those who have it and those who do not."

In their inability to recognize that fact, the policy makers of the 1920's share one characteristic with the policy makers of the last twenty-five years: they had and have (as Galbraith also noted) an extraordinary capacity for self-delusion.