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It's the Economy, Stupid
I think it's fair to say that, as of this morning, economic concerns have fully and firmly eclipsed other issues in the presidential race. We're likely already in recession; the Federal Reserve is taking unprecedented steps to bail-out the financial markets; consumers are reeling from higher prices; and this may only be the tip of the iceberg. But you wouldn't know it to listen to our presidential candidates, who have remained resolutely oblivious to the nature or extent of the present crisis. For the most part, they continue to recite the poll-tested bromides that have dominated economic policy discussions on the left for much of the past decade. When they turn to the economy, the candidates compete to denounce free-trade pacts and decry excessive corporate pay. It's tough to believe that they're changing the minds of uncomitted voters that way. If the Democrats are going to prevail in November, they need to explain to voters how the Republican Party managed to derail the world's most powerful economy - and then they need to convince them that Democrats have a plan to get it back on track. But even a cursory review of the rhetoric on the trail reveals how poorly the candidates have performed at that essential task.
Let's start with Obama. A speech he delivered last month in Wisconsin lays out his approach in a fair amount of detail. It begins promisingly enough by assigning responsibility for the present disastrous state of affairs in clear and direct language:
We are not standing on the brink of recession due to forces beyond our control. The fallout from the housing crisis that's cost jobs and wiped out savings was not an inevitable part of the business cycle. It was a failure of leadership and imagination in Washington - the culmination of decades of decisions that were made or put off without regard to the realities of a global economy and the growing inequality it's produced.But what are those decisions? Obama simply recites the standard litany of Democratic complaints: tax cuts, trade deals, Iraq, corporate lobbying, CEO pay, and outsourcing. The mortgage crisis, he argues, was simply "the straw that broke the camel's back." You'll forgive me, senator, if I don't join you in blaming NAFTA for this recession. Obama seems to have mistaken the peripheral for the central, and the central for the peripheral.
Hillary, remarkable though it may seem, has been even further from the mark. She, too, starts by assigning blame:
[T]he problem with our economy is not the American people. Instead, the problem is, in part, the bankrupt ideas that have governed us for the last seven years. They have rewarded the very few at the expense of the many.But it's tough to tell, from her speeches, precisely what's gone wrong - just that it's all Bush's fault. The speech almost immediately turns into a laundry-list of popular policy proposals, many with their own catchy names. The highlights include suspending foreclosures and adding green-collar jobs in the short-term, and then looking forward by addressing the energy crisis, investing in infrastructure and education, expanding unionization, reforming the tax code and health care, and encouraging saving for retirement. It's all part of her Economic Blueprint for the 21st Century. And they may all be worthy notions, even if the particulars are debatable. But other than suspending foreclosures, none of them is more than remotely connected to the present crisis.
So let's detail what neither candidate seems willing or able to say on the stump. The present crisis is indeed the result of decades of poor decisions made by successive administrations, compounded by the specific policies embraced by President Bush and his appointees. But it's not (mostly) about any of the problems listed by the two candidates.
We face our present crisis because the government chose to abdicate its regulatory responsibilities in favor of blind faith in the marketplace. Seventy-five years ago, after the worst financial catastrophe in our nation's history, FDR oversaw the passage of an extensive regulatory regime intended to insure that such a collapse could never happen again. Over the subsequent decades, as the financial system evolved and banks found innovative ways to evade these regulations in the pursuit of profits, those rules were updated in an effort to keep pace with the changes. Then, during the Reagan administration, there was a fundamental change of course. Instead of trying to keep up with changes, regulators began racing in the opposite direction, hurrying to remove regulatory hurdles in the interests of growth.
The theory was simple. Spreading risk over a broader array of institutions and investors would serve to diminish the exposure of individual banks, thus accomplishing by market forces what once required regulation. These institutions could then offer an array of innovative products that would benefit consumers. The theory was also spectacularly wrong.
The result was a failure on two separate (though related) levels. The first failure has become evident over the past couple of years. A frenzy of irresponsible lending and borrowing, fueled by structural innovations like the securitization of mortgages, fueled a spectacular real estate bubble which is now collapsing. That led to the second failure, which is now being revealed in spectacular fashion. Financial institutions assumed risks they neither accurately assessed nor fully understood, while outdated rules and passive regulators failed to curtail their excesses. Now the music has stopped.
Two particularly vivid incidents can serve to illustrate this two-tiered failure. In 2001 and again in 2004, Office of the Comptroller of the Currency successfully pre-empted the attempts of state regulators to reign in some of the worst excesses of the marketplace, arguing that only the federal government had the right to intervene. It will come as little shock to learn that OCC is a classic captive agency, receiving 96% of its funding from the banks it's supposed to be supervising. Its primacy affirmed, OCC sat on its hands, refusing to act until it was far too late.
The second incident is unfolding this morning. Investment banks like Bear Stearns became, in effect, lending institutions - buying up mortgages and repackaging them for sale, thus effectively setting the standards for loans in the marketplace. Banks have long been subject to extensive regulation, in part on the theory that since the Federal Government effectively guarantees their deposits, it ought to have a say in how they shoulder risk. This weekend, we learned that taxpayers will also foot the bill for the collapse of investment banks. Alas, there is no similar regulatory scheme in place to limit their risks.
So let's return to the campaign trail, to explore the remedies being proposed by Obama and Clinton in response to the present crisis. To his credit, Obama has gone further than Clinton in focusing attention on the problem of irresponsible lending and borrowing. His platform highlights two particularly useful proposals: the STOP FRAUD Act, which would crack down on some of the most abusive lending practices; and the HOME score, which would provide a simple metric (like an APR) for borrowers to measure the costs and obligations to which they are agreeing, empowering them to act more responsibly. Both candidates have proposals to limit foreclosures. Hillary wants to do "everything possible to ensure that we don't lose any more homes" to foreclosure, calling for a 90-day moratorium, a five-year adjustable-rate freeze, a $30 billion fund for local communities, and a package of similar measures. Obama proposes bankruptcy reform (which would effectively pressure lenders to be more proactive in restructuring loans) and a generous mortgage tax credit targeted at lower income households. Most economists are agreed that Hillary's bailout would trade the possibility of short-term relief for the certainty of long-term problems; the verdict on Obama's proposals is more split.
It's easy to get wrapped up in the debate over these specifics, but that debate omits what the candidates have left unsaid. Both remain firmly committed to the notion that homeownership is an unequivocal good that ought to be enjoyed by the broadest possible number of Americans. That's the sort of thinking that landed us in this mess in the first place.
So here are two heresies that both candidates need to embrace if they're going to address the present crisis and convince voters that the Democrats have faced up to our economic problems, and have the solutions we need:
Regulation is what makes free markets function:
Every speech the candidates deliver this spring must include this essential theme - We're plunging into a recession because Republicans removed the regulations that make our economy run smoothly. And, of course, its corollary: We can rebuild our economy by standing up to special interests, and passing rules to make the markets run freely and fairly. There's no need to shy away from this sort of talk. Most Americans understand instinctively that's something has gone horribly wrong, that financial institutions have behaved with breathtaking irresponsibility, and that it shouldn't be allowed to happen again. John McCain, to the extent he pays attention to the economy at all, tends to embrace the gospel of the free markets. He and his party are largely responsible for what's gone wrong; Democrats can make a compelling case that they can set it right.
Sometimes, homeownership is a nightmare, not a dream:
When ownership can only be achieved on terms that rely on rising prices or the prospect of future wealth to finance the deal, then families are better off renting. By extension, some families are now in homes that they can't afford and shouldn't have purchased. We don't just need policies that will prevent foreclosure - that amounts to denial, and will perpetuate this mismatch of resources and obligations. We need to develop mechanisms to ease the painful adjustment, enabling families to extricate themselves from ill-advised loans without either fully absolving them of responsibility for their decisions or sentencing them to financial ruin, and without precipitating a further collapse in the market. We need to admit that home prices were artificially inflated, and aren't going back to where they were anytime soon. And then we need to change the huge array of federal homeownership incentives to embrace a more reasonable goal - equal access to homeownership for all who can afford it.
There's still time to make this economic case. Each candidate can frame it in the terms with which they are most comfortable. Obama can speak of the failure of leadership in Washington, which has allowed special interests to defeat regulation, and preyed upon the aspirations of Americans. Hillary might unveil seven discrete proposals, all part of her New American Dream Plan, designed to reform the financial industry and homeownership. I'm not going to detail the specifics. Reasonable people can disagree over both the precise nature of the failures and the proper remedies. The whole point of a campaign is to hear the candidates articulate their own understandings of the crisis, and to lay out their particular solutions. So far, however, all we've heard is silence and denial. And that's not going to put anyone in the White House.
Transforming the debate requires three simple steps. The first is to pin blame where it belongs - not on NAFTA or the decline of unions or an inequitable tax code or an unaffordable war, but on a failure of regulation and on policies that fueled a housing bubble. Then the candidates need to stop pretending that everything will be fine again, and speak a truth most Americans already know and are ready to hear - we've had a binge, and we're going to have a long, painful hangover. And that will set the stage for a message that can win in November - policies and proposals to set us on a path toward renewed and responsible growth, consistent with our values and consonant with our aspirations.
If you've enjoyed this, please share it with other readers by clicking the 'recommend this' link. You can find more analysis on my blog. As always, I welcome your comments and corrections, and thank you for your feedback.
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Comments (46)
Best reader post in weeks, FlyOnTheWall!
Clinton and Obama have apparently charted a campaign strategy for this week based on Iraq and ethics issues. But you are right that now everything changes, and this nomination may very well be decided by which candidate responds most credibly, in real time, to an economic crisis that has just been thrown in their laps.
March 17, 2008 10:50 AM | Reply | Permalink
What is true is that neither of our candidates is doing an even minimally adequate job of addressing this country's deep economic problems.
March 17, 2008 10:55 AM | Reply | Permalink
Steve:
There's no doubt that each of those elements has had a significant impact on our economy, and on the growing inequalities in the distribution of wealth. But I would submit that, individually or collectively, they had so far proven insufficient to plunge our economy into recession. That's why, as recently as last year, our economy was still growing, even if the fruits of that growth were poorly shared. The housing bubble, however, has produced a percipitous drop in the assets and financial security of most Americans and simultaneously spawned a credit crisis in the markets that, in tandem, have produced a recession. That doesn't mean these other issues are unproblematic or that they aren't worth addressing, and I hope my post didn't imply as much. I simply meant to state that the housing crisis is the elephant in the room that no one cares to honestly address.
March 17, 2008 11:10 AM | Reply | Permalink
You're an outstanding writer, Fly. Want to help me with my dissertation? :)
March 17, 2008 11:01 AM | Reply | Permalink
Fly- they put us on the road there, and they created the political climate that made our new robber baron era of soaring inequality and irresponsible financial deregulation possible in the first place. The crash was bound to come; if not this particular mortgage-induced liquidity crisis, something else would have triggered it. No meaningful change will come until the entire mess is addressed seriously, not just a piece of it. It would be awfully nice if we had a presidential candidate capable of doing so, but sadly we don't.
March 17, 2008 11:19 AM | Reply | Permalink
Excellent advice Fly. I wrote the following in a blog post last month. I think it falls into the first phase you recommend for transforming the debate on the economy.
Along this same line, the headlines are full of talk about Mozillo's golden parachute and CEO earnings. It is important that we look at their incentives and how compensation is rewarded. But, this is only the side effect of capitalism without regulation. The purist capitalist will talk about how the system is socially beneficial often touting the creation of new medicines. But, we cannot allow them to continue pretending it is inherently good. It's goal is money and always more of it. Capitalism is what we have and we are all dependent on it's success, but this does not mean we allow it to continue in it's current form. I do not believe this current difficult patch is just part of the business cycle. We should not argue against capitalism, but the need for it to evolve. We can point to many successful companies who have products or services that are a detriment to our society. We can show that capitalism has no loyalty to the consumer or to the worker, only to the shareholder. Yes, it is how jobs and products and services are created in this system. But, it is only regulation that ensures some of those social benefits you talk about. You need only to look where regulation does not exist to see this, case in point China. Capitalism will even sacrifice the long term goals of a company for short term gains. Here I picture a family going through foreclosure and the maxed out consumer.
Blaming Mozillo or compensation committees for the results of capitalism is like blaming Bush for the results of neoconservative policy. Yes, errors were made and they must be held accountable. But, they are not the root of the problem. The solution is to make clear to the American people the importance of checks and balances.
March 17, 2008 11:22 AM | Reply | Permalink
Great post. I'd argue that Enron belongs on the "Spectacular" list as much as Bear's collapse.
Another couple of wrinkles that merit consideration are the decoupling of the dollar from it's hard peg to gold and the role petroleum plays (and will continue to play) in the housing collapse. Both of these issues count as catastrophic failures of foresight in government that still have nauseating implications for the future of our economy (and our country) even for a pessimist like me.
March 17, 2008 11:27 AM | Reply | Permalink
The gold standard is looney-tunes stuff. Don't go there unless you really want another Great Depression. I don't think you understand the link between the gold standard and mass unemployment during panics before it was abandoned- for good reason- in 1914.
March 17, 2008 11:38 AM | Reply | Permalink
I'm not talking about 1914, I'm talking about 1975, when the dollar was floated, changing from asset-backed currency to credibility-backed paper.
If you've bought groceries lately, you can see that our credibility is nosediving.
March 17, 2008 12:10 PM | Reply | Permalink
Nailed it again, Fly!!!
I like your framing. And I must admit that I fear health care is going down the drain... as we try to rescue and repair the financial system. It's going to be a painful 4 years, no matter who gets in. They've been predicting some kind of epidemic flu for a while now, and if it comes when jobs are scarce and the economy is in terrible shape, that will just add one more suffering to those who can least afford it.
Even if we elect a Dem, we're going to have to be on top of the president and the congress like never before, making sure wrongs are righted.
March 17, 2008 12:17 PM | Reply | Permalink
Also, think how ethanol is driving up the price of grain and thus meat of any type. We've got a huge number of things that need fixing! We can't have people starving because they can't afford food! I think we're going to end up bailing out the ethanol companies as well. (many farmers were encouraged to invest in them!) This is like a house of cards. It's the worst of all possible series of the law of unintended consequences.
Meanwhile our president tap dances his way into history!
March 17, 2008 12:28 PM | Reply | Permalink
Are you an attorney, Fly? I see some of the language of lawyers here ("classic captive agency," etc.).
Just curious. Your writing is excellent.
March 17, 2008 12:36 PM | Reply | Permalink
Excellent post.
I am no fan of NAFTA and believe it has contributed to myriad economic problems.
That said, you hit the nail on the head. Democratic candidates - all of them, the DNC and all its organizations - need to be delivering the message you laid out: Regulation is what makes free markets function:
We're plunging into a recession because Republicans removed the regulations that make our economy run smoothly.
We need to give a counternarrative to the GOP laissez faire the-market-is-never-wrong message.
March 17, 2008 12:39 PM | Reply | Permalink
Anyone have any idea why Hillary isn't running on this issue...
instead of, oh, Iraq?!?
March 17, 2008 1:43 PM | Reply | Permalink
Are we (or should we) be operating under a command economy? Given that we are likely in agreement that we have a free-market economy, should I really try to muster some sense of outrage that a GOP watchdog wasn't holding my hand when I signed the sub-prime mortgage loan paperwork?
I thought we invaded Iraq for oil. What a disappointment that W wasn't lying on that one claim that we didn't go in for cheap oil.
Let's raise taxes. That will save our economy fer shur.
March 17, 2008 2:14 PM | Reply | Permalink
That isn't really the point. The problem isn't that consumers weren't protected from sub-prime predatory lending; the problem is how interconnected the investment and mortgage markets became at the same time that the housing bubble expanded (due in part to sub-prime predatory lending).
A housing bubble bursting (and lots of people foreclosing) wouldn't have been such a terrible thing, if it hadn't brought down the investment markets with it. THAT's what the regulation was intended to prevent, the very regulation that has been neglected.
March 17, 2008 2:23 PM | Reply | Permalink
Furion:
This, and the post below, are cogent responses to complex issues. Your point regarding the spread of this crisis into broader markets is particularly welcome.
I would add, however, that this debate is often characterized by false choices. I think there's ample blame for all parties. We can fault regulators for failing to curtail predatory, deceptive, or irresponsible lending practices, and hold accountable the consumers who freely chose to take those ill-advised loans. If the abuses of the lenders fail to excuse the borrowers, than surely the reverse should be true, as well?
March 17, 2008 2:47 PM | Reply | Permalink
Fly,
This is an incredible post. You took what were half-formed and mostly vague ideas floating around in the sea inside my head and turned them into solid, well-thought out concepts and a discussion of cause and effect.
Simply fantastic. I had a nagging problem with merely blaming the entirety of our economic issues on the housing crisis, but I couldn't lay my finger on why; this has certainly helped to point me in the right direction.
I read a theory once that basically said that the reason Republicans (conservatives) are so bad at running the government is because fundamentally, they don't want to. There's something inherently contradictory about espousing laissez-faire economic policy, and then taking the helm of a government where regulation is a key functional feature. In that sort of contradiction, the implicit behavior, then, is to regulate BADLY. I think maybe that's some of what's going on here.
It's also, incidentally, probably largely behind McCain's refusal to address the issue beyond espouse the wonders of laissez-faire capitalism.
March 17, 2008 2:19 PM | Reply | Permalink
I'm not positive about this, but I think it was Bill Maher who pointed out that Republicans are essentially always saying, "Government doesn't work! So, put us in charge of it."
March 17, 2008 3:43 PM | Reply | Permalink
Lunch hour and the Fly. It’s a good thing.
I agree that we should all make the case that what is needed is tilt against the deregulation of the banking and financial industries. But, the will to remove legislative barriers between banking, securities, et al., was shared by centrist Dem AND Bush(es) alike. For HRC to have any credibility on criticizing the shift to the ideology of the unrestrained market (Selling credit risk! What a great idea!) she would need to confront WJC’s legacy directly and refute it. I mean to say that Clinton would have to wipe her memory before she could surmise it was “a failure of regulation” that created the “housing bubble” (more accurately the collapse is across residential and commercial mortgages). It was after all Bill Clinton who repealed Glass-Steagall by signing the Gramm-Leach-Bliley Act that opened the door (I’d go farther and say kicked out the jams) to these unregulated structured investment vehicles. So -- HRC would need to essentially fault the Clinton white house for coddling Goldman Sachs (Robert Rubin, former chair and WJC’s Secretary of the Treasury) and Alan Greenspan. Can she run against the failings of the former Clinton?
March 17, 2008 2:24 PM | Reply | Permalink
Detroit:
It's an interesting question, and it's underscored by the pair of quotes I excerpted above. Clinton blames "the bankrupt ideas that have governed us for the last seven years," while Obama more accurately describes the problems as "the culmination of decades of decisions."
But I don't think it's entirely fair to say that she'd be running "against the failings" of her husband's policies. Deregulation wasn't a Clinton innovation; as you correctly note, it was a collaborative entreprise. If she chose to tackle this issue head-on, she'd be running against the status quo - which, of course, is what she's now trying to do, anyway. The difficulty that she'd face in doing so on economic policy is no greater or lesser than the broader challenge of convincing the electorate that she represents change.
A shift in the focus of her rhetoric and a new set of policies targeted to the specific causes of the present crisis (as opposed to addressing its symptoms) would certainly help.
March 17, 2008 2:41 PM | Reply | Permalink
March 17, 2008 2:33 PM | Reply | Permalink
March 17, 2008 2:43 PM | Reply | Permalink
FOTW - Thanks for responding. It's true that I was not being entirely fair in laying special blame at the feet of WJC. I disagree however that HRC (if I read you correctly) has no special burden in running against the status quo on economic policy. If I were an intrepid reporter I would ask her to comment on the contradiction, and perhaps put the myopia of 1999 into sharper historical context than she has (to my knowledge) as yet.
March 17, 2008 2:55 PM | Reply | Permalink
Fly,
Obama has released a statement about the state of the economy - how would you say this plays into the comments you've made in your post? Has he addressed some of your concerns, or continued avoiding them?
March 17, 2008 3:31 PM | Reply | Permalink
I'd say it's a sober, reasonable assesment of the situation - and that it's long overdue. I'd point out that it didn't come in the form of a long-planned policy speech or linked to new proposals, but as a reactive statement timed to breaking news.
Still, it's most welcome. I hope it's a harbinger of things to come.
March 17, 2008 3:46 PM | Reply | Permalink
...And, while we're on the subject, I'd also direct readers to Clinton's statement on the matter, also released this afternoon.
I have to say, though, that I'm profoundly dissappointed in Senator Clinton's take. It's evident that she's still thinking more like a home-state legislator than a presidential candidate. Far from laying the blame for the mess where it belongs, she takes pains to note that she spoke with Paulson and Geisner (of the New York Fed). That may be an effort to stress her knowledge and experience, but this is hardly a moment at which most politicians want to be closely tied to economic policy makers, particularly not to those like Paulson who blew their chance to avert the crisis.
She also stresses that she's "keenly focused on the impact of these market developments on the lives and livelihoods of thousands of New Yorkers." I read that, and my jaw dropped. I would expect Chuck Schumer to put out a statement like that, but is sympathy for "the many employees of Bear Stearns and their families" really what should be foremost in her mind this afternoon? Or even the ripple-effect on "the New York economy as a whole"?
Even at the policy level, the release is more of the same. Clinton favors bailouts - for homeowners, for Wall Street, for everyone impacted by the crisis. No more foreclosures. No more collapses. Well, that's nice. But how are you going to pay for it? On that, the release is silent.
So score one for the Obama campaign, for finally (albeit belatedly) facing up to what's going on. And perhaps the pundits might do well to hold Clinton's feet to the fire on this one. There's been a lot of discussion about which candidate can speak more credibly on national security issues. But today's reactions point to a related question that's been largely overlooked: which candidate can speak credibly on economic issues?
Until this morning, there was good reason to believe that the answer was the senator from America's financial capital. But if Clinton finds herself hemmed in on the one hand by her ties to the economic policies of the Clinton years, and on the other by the demands of her home-state supporters, she may find it impossible to deliver sharp attacks on either the Bush admnistration or on Wall Street financiers. And as the public mood shifts, that could be a real liability.
March 17, 2008 6:53 PM | Reply | Permalink
Great post, Fly!
The one thing I would add to your list of problems (although it is related directly to deregulation), is the consolidation of financial assets through aggressive mergers and takeovers.
A bank failure is a lot easier to deal with if it is one out of 1000 banks than if it is one out of five.
There are definitely some benefits to the "economies of scale", but the current situation shows that the consolidation of many companies' liabilities into corporations like CitiBank has some serious consequences.
There was a definite increase in mergers since the Reagan years in every area of the market that was deregulated sufficiently to let it happen.
March 17, 2008 3:46 PM | Reply | Permalink
Obama should hire Tanta.
March 17, 2008 4:25 PM | Reply | Permalink
As usual, a reasoned and thought provoking post. I would add a couple of points:
Increased regulation should include limits on "buying on margin." My dim memory of high school history is that the "crash of 29" was caused, to a substantial degree, by the ability of investors to buy on 10% margain, and that one of the subsequent reforms put severe limits on that practice in the equity market. It is clear that no such limits have existed in the bond/securities market, based on reports that Bear Stearns may have been, in certain cases, leveraged thirty fold. Making it harder to leverage a company (I'll leave the HOW to those with greater expertise), means that it is harder for companies to collapse like a house of cards, simply because they have more real assets in the game.
In the same vein, home ownership for those who can afford it should mean the end of 0% down purchases. Why not require people to have some "skin in the game" before they buy a house? (Again, I will leave the HOW MUCH to those with more expertise). It makes perfect sense that people who put nothing down on a home purchase will walk away when the value of the house goes South. What rational person wouldn't? Why not make people save a bit, and then invest it in any home they might purchase? Anyone who has put their own money into a house is much more likely to stay with it.
Bottom line: increased regulation should make it somewhat harder to play with other people's money. That in turn reduces the probability that the taxpayers will be stuck with a bail out.
March 17, 2008 5:27 PM | Reply | Permalink
It seems to me, both of the two Democratic candidates are pretty much happy capitalists.
One of the reasons they, and not someone like John Edwards, are vying for the top spot is because Edwards was scary! He thought Business shouldn't run unfettered, at the expense everyone else.
I don't recall Clinton or Obama making a strong case about reigning in Business, and, as you note, they're still not.
I don't expect anything momentous from either. Certainly not from Clinton -- lest we forgot, she's running on her record from the Clinton White House, and those years were very business-friendly.
Why, Fox News and Clear Channel wouldn't be where they are today without Bill Clinton. Wasn't that the DLC's thing? Pro-business?
March 17, 2008 6:20 PM | Reply | Permalink
FYI, Obama talked with Gwen Ifill on The News Hour with Jim Lehrer about the financial meltdown.
March 17, 2008 6:44 PM | Reply | Permalink
Fly on the wall quote: You wrote: When they turn to the economy, the candidates compete to denounce free-trade pacts and decry excessive corporate pay.
Are you suggesting that these are not contributing factors?
quote: they need to explain to voters how the Republican Party managed to derail the world's most powerful economy
I can assure you the Democrats are complicit in this derailment.
quote:Obama simply recites the standard litany of Democratic complaints: tax cuts, trade deals, Iraq, corporate lobbying, CEO pay, and outsourcing…
quote:You'll forgive me, senator, if I don't join you in blaming NAFTA for this recession.
It is you that is ignoring the outcome, of the decision to enact NAFTA. The politicians were warned; America was warned, about the giant sucking sound that Ross Perot spoke of. America’s leaders planted this SEED and it is now reaping.
quote: just that it's all Bush's fault..
He was the President for 2 terms, he had both House’s, rubber stamped everything. So unless you’re trying, in a vain attempt, to belittle the notion that under his watch he was not the culprit. Bush reminds many of President Hoover, whose, inaction, failed to lessen the impact of the Great Depression.
quote: Speaking about Clintons “laundry-list of popular policy proposals… The highlights include suspending foreclosures and adding green-collar jobs in the short-term, and then looking forward by addressing the energy crisis, investing in infrastructure and education, expanding unionization, reforming the tax code and health care, and encouraging saving for retirement.
None of them is more than remotely connected to the present crisis.
We have a mess and these are solutions, these are not the causes. I think a winning message is to remind the people that the Democratic Party spending revenue, on projects that directly benefit the working class, then and only then do we recover from the abuses of unfettered capitalism.
quote:FDR oversaw the passage of an extensive regulatory regime intended to insure that such a collapse could never happen again.
FDR did things to help the people, President Bush has shown time and again his focus is bailing out unprofitable business interests.
quote: We're plunging into a recession because Republicans removed the regulations that make our economy run smoothly. And, of course, its corollary: We can rebuild our economy by standing up to special interests, and passing rules to make the markets run freely and fairly…
He and his party are largely responsible for what's gone wrong; Democrats can make a compelling case that they can set it right.
I disagree. The American people are sick and tired of the blame game, the Democrats are complicit, and most people believe that both parties are crooked. If we adopt your so called winning strategy, it will be viewed as scapegoating , a weak, indefensible position. Blurring the distinction. What we need our solutions not accusations. FDR won multiple terms because he offered solutions.
quote: equal access to homeownership for all who can afford it.
Therein lies the rub, for all who can afford it? Do you not see, the poverty? Do those who have the ear of politicians, really care that people live in squalor, multiple Families in one household.. Shareholders aren’t impressed with charity. They’re attitude is GET your butts back to work, and if your families sick, deal with it on your own time.
quote: Transforming the debate requires three simple steps. The first is to pin blame where it belongs - not on NAFTA or the decline of unions or an inequitable tax code or an unaffordable war, but on a failure of regulation and on policies that fueled a housing bubble.
I disagree, with your pinning the blame ONLY on lack of regulation.
Not all purchasers of homes, were expecting home values to appreciate. Many were concerned that the demand was making it difficult to purchase. Who wanted to be at the mercy of Landlords demanding higher rents?
Historically, the middle class through Unionization, had the leverage to ask for wage increases, to cover inflation.
Had the ARM's held stationary, the housing meltdown would have occured, as a result of inflation,and gas prices up, food prices up, education up, energy prices up. What are your solutions to those contributing factors? Highe wages?
No pressure could be exerted to increase wages.. Higher wages could have changed the dynamics, then it’s possible to meet the monthly payments.
Instead the Federal Reserve decided to raise interest rates, in an attempt to dampen, demand for higher wages.
SEE now how they screwed up, and is BACKING THE RATES DOWN. What was so imperative, that they increased them months earlier?
Homeowners could have stayed in the homes, had the ARM’s stayed low; in that event you wouldn’t have seen AS MANY foreclosures, and then a meltdown of prices.
Regulation in the mortgage industry, could have been reapplied, incrementally, without the death dealing sudden stop.
How would you reign in excessive CEO compensation? Yet the workers haven't received wages enough to cover inflation?
How do we reign in a President, who favors bailing out failed business concerns, rather than keeping Families, children, protected from the elements. Children in stable homes, being educated.
What is the Presidents plan for this disruption?
Winning Plan
The Democrats stand for what families value, the value of home ownership.
March 17, 2008 6:52 PM | Reply | Permalink
With all due respect, Fly, I think you are off base here.
There's a lot of wonk here in your post (which normally gives it your distinguished quality) that obscures the central issue: Energy.
I started posting a reply to you, and it got so long that I put it into it's own blog:
http://tpmcafe.talkingpointsmemo.com/talk/2008/03/fly-gets-it-wrong-its-the-ener.php
I thank you for motivating me to get some thoughts out in extended form. Only a blogger of your caliber could have motivated me to do so in response.
March 17, 2008 7:18 PM | Reply | Permalink
I must say I was very proud of Obama's response to the bailout!
It is much closer to my line of thinking than what Hillary said and made me very happy with him.
Now I want to hear more!
March 17, 2008 7:47 PM | Reply | Permalink
Clear Thinker-
I think that your arguments regarding energy, and Fly's regarding lack of regulatory oversite are both equaly valid. To say that it must be either "the economy" or "energy" is to create a false dicotomy.
Fly-
Last month, Obama was asked in an interview with the Reno Sun Times what sort of expertise he would be looking for in a running mate. His answer was someone with on the ground military experience and/or someone with a very good grasp of the economy. Hopefully both.
Also, it seems to me that if we are looking at how to get the economy back on a sustainable path, military spending is going to have to be seriously curtailed.
During Obama's foriegn policy forum a couple months back, one of his advisors talked about how an economy in crisis can end up spending more and more of it's budget on the military and falling further and further into dept, with the final result being a military dictatorship. (Military Kenseyism? I think it is called, although that term was not used in the forum as far as I remember.) A strong economy, it was pointed out, makes us more secure.
And I would like to close with a quote from Obama's statement on the economy released today. It seems, in general principle, to agree with your asessment of the situation.
"History will not judge President Bush kindly for his failure to act in a way that could’ve prevented or alleviated this economic crisis. There have been few Administrations so out of touch with the concerns and the struggles
of working Americans and so beholden to the lobbyists and special interests who blocked any kind of regulatory oversight of the financial
sector. Whether it was subprime lending, credit cards, or bankruptcy laws, Washington has allowed these special interests to prevent sensible policy that could have prevented the most serious effects of the current predicament."
Thank you, Fly, for another serious and thought provoking peice.
March 17, 2008 8:38 PM | Reply | Permalink
Ame,
Step back: the economy is a man-made thing, an abstraction to deal with trading.
Energy is part of the physical reality and pervades everything humans have ever done... even before there were theories about how to manage trading (e.g. "economics").
This is the point I was making.
March 17, 2008 9:42 PM | Reply | Permalink
Clear thinker,
I agree that a sound energy policy is the most important task for our next President. I also agree that our current patterns of energy use are not sustainable.
However, I still feel that your larger point and Fly's specifics are entirly compatible. Your post regarding the energy crisis provides a larger context in which Fly's points regarding the need for more responsible regulation of our financial dealings still hold true.
Can you agree to that? Or am I missing something still?
March 17, 2008 10:09 PM | Reply | Permalink
I guess I'm saying that people tend to think in terms of a "right" to buy a home and the central point of Fly's post is how the economy, etc. needs to be regulated to help that.
I'm saying that, even more fundamental, is the "right" to bear children and yet that is what is causing the larger problem. However, with significantly fewer children, we won't have a growing economy and people expect 2-3% growth per year.
For the record, 2% growth per year (sounds measlely, right?) is a *doubling* every 35 years.
Put another way, in the lifetime of an average human, things grow 4x (!) -- at this "paltry" rate of growth. That's what has eaten up our resources.
Without cheap energy there is no economy to talk about. And we are at the point (peak oil) where there is no more cheap energy.
So that's my point. I agree my point on energy provide a larger context which is why I think it is more fundamental and needs to be addressed head on. One of the reasons for that is you have to immediately recognize that your quality of life will drop if our civilization as we know it is to survive -- and if you talk in terms of economics, you can keep hiding that issue.
These concepts are greatly extended in the other blog:
http://tpmcafe.talkingpointsmemo.com/talk/2008/03/fly-gets-it-wrong-its-the-ener.php
Fly weighs in over there as well and we agree that none of the candidates are dealing with the energy issues adequately.
Thank you for patiently hanging in there with me as we discuss this.
March 18, 2008 12:30 AM | Reply | Permalink
fly: "Transforming the debate requires three simple steps. The first is to pin blame where it belongs - not on NAFTA or the decline of unions or an inequitable tax code or an unaffordable war, but on a failure of regulation and on policies that fueled a housing bubble."
We have a far greater failure facing us, and it is that of the economic system we improperly call "capitalism." If one were to survey a hundred people, perhaps two of them would give a better than embarrassing description of how it actually works.
Capitalism is the system the right likes best, and they'll continue to fight for it regardless of its ever more evident failures.
The left? America barely has one, and it's afraid to criticise capitalism because -- aside from the fact that it's as American as apply pie — they don't think there's an alternative.
There was once an American called Henry George. He did what Marx failed to do, which was to solve the most difficult problem of economics: the equitable distribution of wealth.
He wrote all about it in a book called ~Progress and Poverty~, published in 1879. With the exception of the Bible, P&P was probably the bestselling book in America in the nineteenth century.
Henry George's fans have included Leo Tolstoy, Samuel Clemens, George Bernard Shaw, Albert Einstein, Winston Churchill and many, many others. But you might have to ask a thousand Americans before you found one who had even heard of Henry or his book.
The board game, Monopoly, was invented by another American, a woman, to illustrate Georgist economic principles. What has been forgotten is that it can be played in two entirely different ways. The only way people have played it for decades is the one that shows how an economic system should ~not~ be set up. It's the one in which one player wins when he has amassed all of the wealth and everyone else has gone bankrupt.
The slogan, "It's the economy, stupid," is itself barely above stupidity. But what would one expect from a political propagandist, or in today's toothless political vocabulary, a political operative?
An intelligent discourse would go something like this:
"The economy is fucked. Why?"
"It legitimises monopolies and monopolistic practices."
Politicians in America are, by and large, in the pockets of monopolists.
Even the most honest and well-meaning politicians do not understand economics, and in particular how to achieve an equitable distribution of wealth.
Journalists in the corporate media do not, by and large, understand economics and are in the pockets of monopolists.
As a consequence, one does not hear much intelligent discourse on the subject of economics in Congress or the corporate media.
Especially at election time, when ignorance and/or self-interest would be most embarrassing.
March 17, 2008 11:33 PM | Reply | Permalink
So how do you play Monopoly the other way? It's very name implies that there is only one way.
I'm curious.
March 18, 2008 12:32 AM | Reply | Permalink
I appreciate your curiosity. If you would like to understand what the rules would be and why, you'll have to read ~Progress and Poverty~.
March 18, 2008 9:34 AM | Reply | Permalink
In the 1930s, the financial system was hammered and one of the worst possible responses was protectionism.
.
We later learned that people are people, where ever they live, and that they deserve the chance to have a . . . a chance.
.
Driving someone else out of a job because you haven't bothered to keep your skills up to par is really, really rude.
And, very bad economics.
March 18, 2008 4:16 AM | Reply | Permalink
Every nation has been protectionist, until it gains a high enough economic engine to want broader markets. This dates back to Henry VIII in England and English wool.
People *are* people after all.
March 18, 2008 5:13 AM | Reply | Permalink
For a refutation of every argument that can be made on behalf of protectionism, read Henry George's ~Protection or Free Trade~.
Free trade and free markets is the way to go.
That said, there's no such thing as free trade or free markets if one allows monopolies and monopolistic practices. The fact that we do allow monopolies and monopolistic practices throughout the world is the reason we don't have free trade or free markets.
Remove all legislation which allows monopolies (for example, Microsoft) and monopolistic practices (for example, drug patents), and you will have free trade and free markets, and as a result, a thriving economy. Read Henry George's ~Progress and Poverty~.
March 18, 2008 9:54 AM | Reply | Permalink
clearthinker,
Here's another version of what you just wrote:
"Every man has been violent, until he gains a high enough social role to want safer societies. This dates back to Cain and Abel.
People *are* people after all."
No, it doesn't make any sense to me, either.
Not as trade and not as murder.
March 22, 2008 9:51 PM | Reply | Permalink
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