Which Way To the Future?
In this fiscal environment fools rush in where angels fear to tread. But since there are so few angels among the major players, the fools are prescribing everything from faith healing to major surgery. My foolish muse says it is time for a little demythologizing.
* Our democracy, since its founding, has struggled with the issue of how to create simultaneously a political and economic system that would both encourage the human desire for freedom and meet the quest for personal security and well being. Our Constitution and bill of Rights are case studies in the psychological recognition that our most noble and creative natures can thrive only if our social/political system will protect us from self destruction by our reptilian drives for domination and power. We call it "checks and balances." In many ways we are reliving today the debates between Alexander Hamilton and John Adams. The issues have never been clearly resolved.
* For some, our economic system (free market capitalism) is viewed as independent of our social contract. For others, our economic system has evolved as a hybrid to meet the changing needs of our social contract. For the former folks, the Paulson "clean" plan makes sense. For the latter, it seems clear that this is a time to adjust the hybrid so that it is more transparent, promotes the public trust and produces an economy that is less skewed to reward the few at the expense of the many.
* In short, it is time to admit that the "free market" has not been "free" for many decades. The actual hybrid market is a byzantine mix of tax incentives, subsidies, price supports, import tariffs, etc., all fueled by special interest lobbies. We need to confess that for many years we have been operating much like the rest of our European democratic allies since W.W. II. "Socialism" is not an evil term if it means a system which advances our social good, abhors poverty and seeks justice (fairness) in our economic life. Remember John Kenneth Galbraith's remark that the only type of respectable socialism in America was socialism for the wealthy.
So what does this all have to do with the current crisis?
* If we provide billions (maybe trillions) to rescue our monetary system, ala the Paulson "clean" plan:
a. The bail out will be subsidized by Federal bonds, a large percentage of which will be purchased by China, giving hem a larger claim on America's destiny.
b. The interest on the bonds will be added to the interest on the federal debt and paid in large part by our tax revenues.
c. The treasury Department will perform a symbolic wink and lease our economic system back to the same institutions (persons) that over sold our credit in the past, leveraged our assets and expanded our credit. We will do it all over again.
d. Most Americans will continue to play the game by consuming more than they need and maxing out their credit lines, while complaining about taxes.
e. The economic leaders will praise the "free" market and fund the political campaigns of these enablers.
* If we do nothing, just let the system blood-let itself and trust the invisible hand of the free market:
a. We would set off an economic earth quake the after shocks of which would be felt in most of the world's economies.
* So what should we do? Take some hard medicine.
a. If we do not "prime the pump" we would face a serious economic recession from which may take several years to recover.
b. If we fully "prime the pump" (maybe over one $Trillion)with tight oversight, we would fuel inflation and risk another cycle of leveraging/deleverging with potential serious political instability and loss of international credit.
c. So the solution is a political compromise:
1. Prime he pump gradually with stringent government oversight and appropriate tightening of credit and encouragement to live more simply and trim our wants more to our needs. And then stop priming the pump as confidence returns. This first step has already been taken with the nationalization of Fannie Mae and Freddie Mac.
2. Establish a reincarnation of the Resolution Trust Corporation, as we did in the 1980s with the S&L failures. At the same time institute the most effective aspects of the Glass-Steagall act. (The new version might be given the ironic title, the Greenspan Memorial Act.)
3. Admit to Americans now that we have a "hybrid"and not a "free" market economy. Make it clear that we will n longer reward or give social status to greed and avarice. We will n longer be proud to let 4% of the world's population consume 24% of its energy resources.
4. We will be balancing a recession with elements of inflation. We will need to tolerate an unemployment rate of between 12% and 15% with interest rates that do not exceed 10% and a GDP between 2% and 4%. The guiding hand will have to be very visible.
5. We will learn to be proud of a nation that invests its resources in education, health care and improving the quality of life for all of its citizens. We will strive to be known again as the land of opportunity for all.
M.F.A.
* Our democracy, since its founding, has struggled with the issue of how to create simultaneously a political and economic system that would both encourage the human desire for freedom and meet the quest for personal security and well being. Our Constitution and bill of Rights are case studies in the psychological recognition that our most noble and creative natures can thrive only if our social/political system will protect us from self destruction by our reptilian drives for domination and power. We call it "checks and balances." In many ways we are reliving today the debates between Alexander Hamilton and John Adams. The issues have never been clearly resolved.
* For some, our economic system (free market capitalism) is viewed as independent of our social contract. For others, our economic system has evolved as a hybrid to meet the changing needs of our social contract. For the former folks, the Paulson "clean" plan makes sense. For the latter, it seems clear that this is a time to adjust the hybrid so that it is more transparent, promotes the public trust and produces an economy that is less skewed to reward the few at the expense of the many.
* In short, it is time to admit that the "free market" has not been "free" for many decades. The actual hybrid market is a byzantine mix of tax incentives, subsidies, price supports, import tariffs, etc., all fueled by special interest lobbies. We need to confess that for many years we have been operating much like the rest of our European democratic allies since W.W. II. "Socialism" is not an evil term if it means a system which advances our social good, abhors poverty and seeks justice (fairness) in our economic life. Remember John Kenneth Galbraith's remark that the only type of respectable socialism in America was socialism for the wealthy.
So what does this all have to do with the current crisis?
* If we provide billions (maybe trillions) to rescue our monetary system, ala the Paulson "clean" plan:
a. The bail out will be subsidized by Federal bonds, a large percentage of which will be purchased by China, giving hem a larger claim on America's destiny.
b. The interest on the bonds will be added to the interest on the federal debt and paid in large part by our tax revenues.
c. The treasury Department will perform a symbolic wink and lease our economic system back to the same institutions (persons) that over sold our credit in the past, leveraged our assets and expanded our credit. We will do it all over again.
d. Most Americans will continue to play the game by consuming more than they need and maxing out their credit lines, while complaining about taxes.
e. The economic leaders will praise the "free" market and fund the political campaigns of these enablers.
* If we do nothing, just let the system blood-let itself and trust the invisible hand of the free market:
a. We would set off an economic earth quake the after shocks of which would be felt in most of the world's economies.
* So what should we do? Take some hard medicine.
a. If we do not "prime the pump" we would face a serious economic recession from which may take several years to recover.
b. If we fully "prime the pump" (maybe over one $Trillion)with tight oversight, we would fuel inflation and risk another cycle of leveraging/deleverging with potential serious political instability and loss of international credit.
c. So the solution is a political compromise:
1. Prime he pump gradually with stringent government oversight and appropriate tightening of credit and encouragement to live more simply and trim our wants more to our needs. And then stop priming the pump as confidence returns. This first step has already been taken with the nationalization of Fannie Mae and Freddie Mac.
2. Establish a reincarnation of the Resolution Trust Corporation, as we did in the 1980s with the S&L failures. At the same time institute the most effective aspects of the Glass-Steagall act. (The new version might be given the ironic title, the Greenspan Memorial Act.)
3. Admit to Americans now that we have a "hybrid"and not a "free" market economy. Make it clear that we will n longer reward or give social status to greed and avarice. We will n longer be proud to let 4% of the world's population consume 24% of its energy resources.
4. We will be balancing a recession with elements of inflation. We will need to tolerate an unemployment rate of between 12% and 15% with interest rates that do not exceed 10% and a GDP between 2% and 4%. The guiding hand will have to be very visible.
5. We will learn to be proud of a nation that invests its resources in education, health care and improving the quality of life for all of its citizens. We will strive to be known again as the land of opportunity for all.
M.F.A.
posted by Merle F. Allshouse at 4:29 AM
1 comments
