Tuesday, November 17, 2009

More on Contrasting 1929 With Today

Earlier, I brought up some differences between 1929 (the year the Great Depression began) and today. Among those differences there is the more timely use of counter-cyclical fiscal policy, the continued easing of monetary policy, a larger public sector and, even if I didn't mention it last time I'll mention it now, greater income support programs (unemployment insurance, general welfare assistance) relative to what we had in 1929.

All of these things have worked to prevent us from having slipped into a downward economic spiral as happened between 1929 and 1932 (the worst year of the Great Depression). Obviously though, we're not out of the woods yet. Unemployment (especially in the USA) continues to rise, along with bankruptcies and foreclosures. Supposedly the big bust in commercial real-estate is still to hit. Some economists have said that employment is a "lagging indicator" meaning that it takes a while for unemployment to rise in tandem with a financial meltdown and credit crunch and then it takes a while for employment to rise after the financial and credit crises have been resolved.

The problem with that analysis is that there doesn't appear to be any indication that there's going to be any sector producing good, stable employment for large numbers of people anytime soon. We're going to be mired in an even more dismal labour market than we've had since 1990, and this time the "credit" (re: DEBT) that sustained the expansion of household consumption is tapped-out.

So, are we still headed for economic Armageddon?

Perhaps. Here's the thing. It might be possible for us to limp along like this as a society for a number of years. The factors I mentioned earlier still have a lot of life in them, especially government counter-cyclical spending. All of the weeping and wailing about exploding deficits is misinformed, dangerously simplistic nonsense. Crooks and Liars had an interesting graph that serves once again to dispel all this deficit hysteria we've been conditioned to feel but which should have been forever dispelled by Linda McQuaig's bestseller: Shooting the Hippo.

We are not in any sort of danger of hitting a "deficit wall." Neither is the United States. We aren't today and we weren't in 1993 when Paul Martin and Jean Chretien were slashing billions in needed public services while simultaneously giving away billions in tax-cuts to the wealthy and the corporations.

Even after years of bush II's tax-cuts and deficits, and Obama's stimulus spending, the USA's debt-to-GDP ratio is still under 60 percent. I once read somewhere that the "debt-wall" that a nation crashes into and then becomes unable to borrow anymore money is hit at a debt-to-GDP ratio of 80 percent, but this is bullshit. Japan has a debt-to-GDP ratio of almost 120% and it's in no danger. The simple fact of the matter is that a Canadian household with an income of $100,000 and with no other outstanding loans or credit card debt except for a $300,000 mortgage has a debt-to-householdGDP ratio of 300 percent. And when a couple making 100 g's a year buy a $300,000 house, nobody shows up screaming at them for burdening their kids with a crippling level of debt.

The point is, Canada, the USA, the whole industrialized world, can limp along at this anaemic level of economic growth for years to come with no danger of ever hitting a "debt wall." Of course, elites will continue to propagate the easily-demolished claim that all of these necessary deficits (for insufficient counter-cyclical spending on construction projects and military spending AND for continued financial sector bail-outs) are going to require belt-tightening and social welfare cuts, education cuts, etc., in order to prevent us from going completely bankrupt, and that brings me back to the central problem.

We COULD still have an economic collapse because the causes of the 2008 collapse are still with us, and under the deluded policies of our elites, becoming even greater. There is simply nothing in the real economy that points towards sustainable economic growth. The last few years of the bush II bubble were built on deficit spending (with USA military spending being about the only thing that "benefited" ordinary US-Americans) and a real-estate/financial bubble built on massive fraud.

The wars continue, but the real-estate bubble has collapsed. We now have a stock-market bubble based on the US Federal Reserves expansion of the money supply, which is unsustainable. Meanwhile, the elites have completely failed to learn their lesson and instead of directing some of the wealth back into households to spend in the real economy, or to prevent homelessness and bankruptcies from exploding, are insanely trying to squeeze yet more blood from ordinary people's bodies. They're laying people off, in both the public and the private sectors, and calling in debts.

The way I see it, most all of us go through life hoping for the best. Thinking "it's going to be okay" when for the vast majority of us, it doesn't end okay. We all die and most of us die painfully and in fear. Very few of us get the uplifting "good death" drifting painlessly off to the big sleep after having shared our last affections for our loved ones gathered 'round. We all say "it's going to be okay" simply to get through day to day.

It's the same with elites. They imagine "it's going to be okay" while they continue to plunder and reinforce the patterns that almost did them in the last time. For them, this has not been so bad. In the USA, the tax-payers rescued them and instead of unemployment they're getting $21 billion dollars in bonuses. Rather than see the trauma of the working class as a problem, they see it as an opportunity. Manufacturing is a good environment for trade unions. It's awesome when manufacturing jobs go to dictatorships in the global South, because it destroys the union movement in the home countries where you can't just shoot union leaders like you can in Indonesia or Colombia. Using the deficit as an excuse to slash the public sector is another way to destroy those pesky union movements. Get everybody working in low-paying, uncertain service sector jobs and the whole working class can be tamed into submissiveness. Overburdened with debt and with no job security, you can ask anything you want from them. And, "it's going to be alright" because, well, it just will.

Who cares that these people will be less capable of sustaining the consumption levels that were totally unrealasitic (but for expanding credit-card debt and an imaginary rise in real-estate wealth) for the past twenty years? Who cares that this continued shovelling of taxpayer dollars relies on an economy that hasn't yet gone completely down the toilet?

Well, they should care. Because it might be impossible to sustain this nightmarish policy, even on it's own terms. To speak nothing of the possibility of a democratic revolt as the injustice of this system is stripped naked for all to see, as elites resort to such blatant theft to sustain themselves.

And this all ignores the reality that we're headed for an environmental catastrophe that requires we direct the bulk of our resources and talents to something other than propping-up a bunch of insular, selfish pricks in the banking and investment industries.

That's enough for today.


Real_PHV_Mentarch said...

Great analysis, Thwap. Hat's off.

thwap said...

Thanks. I don't keep up on the economic writing the way that i used to.

I wonder if someone with more training would agree with the general theory there.