Opinion: Obama and the economy. New ideas, Yes/No, is the question

You wouldn’t give America’s economic problems to anyone you liked. It’d be like giving them Plague with a birthday card. At administration level, it’d be a disease with a deficit and some pretty shaky credit ratings. You’d also get, at no extra charge, some of the most antiquated, convoluted, ideology-soaked economic thinking and retro-babble currently available on Earth.

At this point in time, even the IMF, whose own self-cranial incestuous logic would make anyone wonder why alphanumeric skills are considered so important, is referring to the present economic multi train wreck as “the largest financial shock since the Great Depression.”

Awfully sweet of them to notice.

I don’t know when insularity and pomposity became such essential parts of economic thinking, but the obvious fact is they’re not very good at it.

Bizarre almost beyond belief is the strange mystique of the politicized economics in America. It’s like “Keynes” and “Friedman” are magic words, just utter them, and everything is solved.

The New York Times, after the IMF comment above:

…The details are too technical for most of us to understand. (They’re too technical for many bankers to understand, which is part of the problem.) But the root cause is simple enough. In some fundamental ways, the American economy has stopped working.

No, they’re not too technical to understand, they’re too stupid to make sense.

The logic behind securitizing enormous amounts of money based on bad risks and an overheated overvalued market isn’t complicated. There was money to be made, and nice figures to release in the financial press, which lapped them up.

The deficit, meanwhile, had blown out. America’s huge economy can handle amounts of debt nobody else could even consider. America thrives on debt, and Victor Kiam’s book was the sacred text of making your way to the top geared to the hilt.

But when you’re talking about trillions, there’s the little matter of what the revenue system can take. Taxation isn’t some sort of hobby based on annoying capitalists on principle. Deficits are dangerous at a certain level. They can trash revenue and budgets, and the US Federal and state budgets are carrying a huge load.

During a credit crunch, where money is scarce, and it’s a sellers’ market, with rates likely to rise, borrowing becomes a lot trickier.

Taxpayers are the bank of last resort. They’re the ultimate bottom line. The American taxpayer is feeling more than slightly queasy after all the recent hits. With every reason to regard both government and corporate deadbeats with suspicion, and all the non-specific babble with contempt as much as distrust, the public isn’t impressed.

Their own access to credit has been reduced. Their real spending, (which, incidentally, isn’t done on an occasional basis when poked with a stick), just happens to underpin the domestic economy, and has been hit hard. Businesses are cutting back, and the public has found itself over committed at the worst possible time, when charges and inflation are rampant, and the banks are in damage control.

You’d never guess, based on current political rhetoric, that there was any need for taxes. Nor would you guess from The New York Times article that political ideology was an irrelevance in a whole new economic situation. Quite the opposite. There’s eight pages on the subject of Obama’s introduction to economics, his thinking, some of which is interesting, and a trickle of some mindsets among the article’s quotes on the various topics which are grotesque:

IV. The End of the Age of Reagan?

“The market is the best mechanism ever invented for efficiently allocating resources to maximize production,” Obama told me. “And I also think that there is a connection between the freedom of the marketplace and freedom more generally.” But, he continued, “there are certain things the market doesn’t automatically do.” In other words, free-market policy isn’t likely to dominate his agenda; his project would be fixing the market.

And it does seem to need fixing. For three decades now, the American economy has been in what the historian Sean Wilentz calls the Age of Reagan. The government has deregulated industries, opened the economy more to market forces and, above all, cut income taxes. Much good has come of this — the end of 1970s stagflation, infrequent and relatively mild recessions, faster growth than that of the more regulated economies of Europe. Yet laissez-faire capitalism hasn’t delivered nearly what its proponents promised. It has created big budget deficits, the most pronounced income inequality since the 1920s and the current financial crisis. As Lawrence Summers, the former Treasury secretary and Rubin ally from the Clinton administration, says: “We’ve probably done a better job of the last 20 years on the problems the market can solve than the problems the market can’t solve. We’re doing pretty well on the size of people’s houses and televisions and the like. We’re not looking so good on infrastructure and education.”

Superficial idiots, eat your hearts out. There it is, the great aspiration to buy a house and put something in it, as a measure of prosperity. Not actual wealth. Not financial security, or other irrelevancies.

So-

End of the age of who?

This isn’t 1980. The world has changed. It doesn’t work like that any more. The whole concept of free market circa Reagan predates the rise of sovereign wealth funds, hedge funds, private equity groups, the tech boom and bust, the housing boom and bust, the credit crunch, and corporations which are bigger than most countries.

The market works on making money, not making postdated ideological analogies. If you let off a nuclear weapon in the New York Stock Exchange, you wouldn’t hit a single person who gave a damn about economic ideologies that don’t make money. These are problems of the market’s own making, and it’s incredibly inaccurate, not to say dishonest to assume that you can fix them without fixing the markets themselves.

The old style economics have nothing to do with this situation. This is new business, working on volumes beyond the whole concept of previous markets. America needs some new buttons for its machine, and those will have to be invented.

It’s no longer a question of “regulation or laissez faire”. The market needs to be covered against emerging problems, like a computer against viruses. The subprimes and the rest of the derivatives markets have exposed enormous weaknesses in how the market does business.

Funds have been asleep. The big investors have regularly raked in the profits, and failed to see the risks. The financial press has failed utterly to refer to the sheer number of possible avenues they had to check the state of their investments. Enormous amounts of money (more than the entire GDP of some countries) have been lost, but there's no real problems. A crime has been committed, but everybody’s innocent, presumably by definition, because they're "the markets". The information was there, there was a lot of muttering beforehand, and nobody knows anything, now there’s questions being asked.

Exact figures are missing, “because of volumes and variable valuations”. Drivel, and obvious drivel. There’s no such thing as an investment off some database somewhere. A spreadsheet can run multiple values. There’s no such thing as an account without an audit trail, at least, not legally. There’s no such thing as a securities market where people don’t know what they’re supposed to be buying. Banks aren’t famous for being vague about actual transactions.

Even if it was remotely plausible, and there was an atom of possible honesty involved, it can’t be seen as a safe way to do business. That’s not a healthy situation.

The New York Times for some reason spends a lot of time on the subject of tax cuts. I would suggest that’s like asking the entire US tax base what would happen if it won fourth prize in a lottery next week. This isn’t about finding a better cow prod, it’s about fixing major fiscal and financial flaws.

To reduce the entire economic problem to some simple minded choice between “liberals and conservatives” is absurd. The problem is the same, regardless of which particular packet of band aids is used.

This is Obama’s problem, if he wins in November.

There’s a lot more to it than taxes. Tax cutting looks good, but the actual amounts delivered depend on volumes. Cutting works better in an economy where the financial sector isn’t on life support, and even simple investment isn’t a cause for hiring a therapist or two and a few lawyers just to buy some shares on the stock market.

Health, infrastructure, education, and the other big issues with massive attached costs can’t be paid for by anyone but the markets. If the markets don’t work, America doesn’t work.

There isn't a script for this situation. There aren't precedents, easy fixes, or even jingles, for the current issues.

New ideas are needed to solve new problems.

New thinking is needed to create new ideas.

If ever change was needed, anywhere, this is where it must happen. US economic thinking can't stay in 1980 forever. Cold War/Civil War style mindsets about "liberals and conservatives" won't work in this century.

America needs to deal itself a new hand in this game, and make it a good one that can be turned into something.

Because if it doesn't, the whole casino might get up and leave.