David Atkins at Digby has a good post on the same subject as my last post. He puts it a bit more strongly:
The overgrowth of financialization and its subsequent collapse not only in the U.S. and the Anglosphere but worldwide, combined with misguided austerity reactions worldwide in response to that financialized collapse, combined with trade policies in the U.S. designed to favor corporate expansion over middle-class interests, combined with supply-side tax cuts in the United States, are almost entirely to blame for the sorry state of affairs in the United States and the world.
To quibble slightly, I don’t know that trade policy is such a big factor in this particular downturn, since we had the same trade policies now as under Clinton. This goes to what I think is so wrong with the analysis of Friedman and the other VSPs: the economy sucks now — and sucks for almost everyone looking for work, even Friedman’s beloved educated, high-skilled workers — not just because there’s some lack of American competitiveness but because things went wrong domestically. There’s this idea that there’s this awesome globalization machine, that there will be winners and losers, but in the end it’s great, and the losers should just suck on this. That may or may not be true, but it has very little to do with this economic downturn.
Maybe Friedman’s dream of a flat earth can be realized in a way that doesn’t decimate the American middle-class. But there’s no way of knowing that when we have domestic policies that ignore the middle-class.
Carol
We don’t want to face the truth: globalization has failed America. The jobs that replaced all those manufacturing jobs never materialized-and left America a hollow shell. We never even tried to really retrain people for remaining jobs either.
What we could have done, perhaps, was create part-time jobs or prosumer jobs that helped people meet their basic needs, but that looked too much like socialism to some people.
Derf
Maybe you miss the obvious. That the bobble heads that write this spew don’t have to walk a mile in anyones shoes. They don’t work on wall street or main street. Most are quite wealthy and detached from the other 99% of the population.
In other words, they are clueless.
Samara Morgan
b-b-b-but…..thats what I said!
LOL.
The Snarxist Formerly Known As Kryptik
One thing I will have to add here is that while globalization policies may not have caused this financial crisis, it sure as hell is ensuring that we get fucked over by it a lot longer, due to companies deciding ‘hey, lets pay furriners slave wages over seas so we can wring even more blood out of this stone’.
Jenny
As to the Atkins’ post, my only reaction is: Duh – tell me something new (though he did leave out the part about deregulation).
That’s why I laugh when people say you can fix things overnight. Unwinding 40 years of bad policy is going to take a couple of seconds.
WyldPirate
I have no issues with the content of that sentence other than the fact that it is too damned long. And this is coming from someone that considers themselves a pretty crappy writer.
Why he didn’t use “a combination of” prior to ticking off his “laundry list” of causes to make his point eludes me. It was painful to read for me for some reason. Then again, maybe I’m just being anal retentive.
Keith G
Someday, probably after a bigger crisis, we will have to have the conversation about what the next iteration of American capitalism will be about.
The nature of stationary, labor-intensive manufacturing allowed the working class certain protections that now are gone. This is a problem that will be dealt with sooner or later.
aisce
@ derf
that sounded decidedly uncheerful and cynical. derf the sunshine-and-puppies troll, fearing for the viability of the american middle class? are you feeling alright? i wouldn’t want you catching john galt cole doomer disease.
Jenny
The worst to the trade policy occurred in late 2000, as Clinton was leaving, when the US entered into “free trade” agreement with China.
http://usgovinfo.about.com/library/weekly/aa091900a.htm
“Free trade” with China is NAFTA on massive steroids and human growth hormones. China is 13 times bigger than Mexico. So just think of the China “free trade” deal as NAFTA multiplied by 13.
http://en.wikipedia.org/wiki/Permanent_normal_trade_relations
One last point. In 2000, China owed the US money. Today we owe China money.
Dave
You’re missing a big part of the picture here DougJ.
You’re starting the narrative from “Bankers screwed up.” Bad place to start. Better to start with political and economic power being ceded utterly to banks (dereg bills in the 90s). With all political and economic prerogatives belonging to them, banks could blow themselves up in the financial equivalent of a coke binge comfortable in the knowledge that they own the body politic.
You seem to think economic problems are strictly economic. They’re not. They’re political. And it’s neoliberal politics that says economic agents require all available political power to flourish.
Friedman’s flat earth isn’t an economic utopia, it’s a political one in which capital owns the world. I prefer the communist flat earth, thank you.
Josie
My brother has done quite a lot of research on Peak Oil, and his theory is that the problem is that it is no longer possible to have a growth economy without the oil to drive it. All the recent bubbles – technological, housing, finance, etc. – were created to hide that fact by the financial wizards. It will be necessary going forward to come up with a new way of progressing, such as localizing production and distribution, governing and just about everything else. Otherwise, we will go on having these bubbles and busts until it all completely breaks down. Cheery, huh?
General Stuck
I think the austerity argument is overblown. I think the problem is more structural that the US has lead us and the world down the laissez-faire rabbit hole toward dystopian hell.
We now have a broken worldwide financial system that stimulus spending by governments, might buy us more time to fix the problem, before it all implodes, but that is about it. Until private enterprise assumes its responsible role in a capitalist system, that recognizes the balance of supply and demand as a matter of doing daily business, whether by choice or forced by governments, then we are all on a race to the bottom. You can pour all the gasoline you want in an engine with broken pistons and it might run bright for a short while, but not on any sustained level.
I’m not sure the greed genie CAN be put back in the bottle at this stage, without an enormous amount of pain for us and the world. And we are the leaders and by far the largest catalyst for the world economy, and our Supreme Court just afforded money the status of personhood in a democracy. That is not the kind of action that is needed at this time, to put it mildly. Nor an impetus to cause normally frightened politicians to see any safe harbor politically to make the needed changes, even if they wanted to.
Dave
One thing to add here: ceding all political power to financial actors has in most places taken quite a bit of force and/or political repression.
Here it’s been accomplished with basically no disruptions. America is such a piece of shit.
Paul M
And yet, all we heard on the Programs this morning was “cut, cut, cut, cut, no tax, no tax, no tax, no tax.” Pols and pundits. We are so doomed.
Zach
The growth of finance started well before Bush’s presidency as well. The real-estate bubble (as well as sovereign debt and other debt) was just a new version of the dot-com bubble with much worse consequences. Both were driven by the need for the financial industry to find new vehicles to enable absurd levels of growth. Internet IPOs in the absence of customers, assets, or a business plan were the 20th-century equivalent of NINJA (no-income/job/no-asset) loans.
Glass-Steagall was repealed in 1999.
marginalized for stating documented facts
Time for a basic tutorial.
Take a look at the following chart, buckaroo, and tell us what you see:
Manufacturing capacity, Federal Reserve index, vs. months from economic peak — 1948 to 2007
Now take a look at this chart, courtesy of J. Bradford deLong (an economic professor at Berkeley):
Percent job losses relative to peak employment month in post-WW-II recessions
Or, if you don’t like looking at a bulk statistic like total percentage of job losses, which lumps many types of employment together, consider instead the chart showing the overall employment-to-population ratio, which eliminates some of the minor problems with percent job losses (such as conflating U6 with U2 and U1, which are different kinds of measures of unemployment):
Employment to population ratio, July 2010.
Or, if you prefer a simple description in words:
“Fewer Americans Are Working Than Any Time Since 1983,” Business Insider website, Henry Blodgett, 8 July 2011.
Economist Tim Duy sums it up succinctly:
Source: “Anomalous capacity shrinkage,” Tim Duy, FedWatch blog, 23 July 2010.
Would you now like to amend or revise your claim that globalization is not central to the collapse of the U.S. middle class and the current quagmire of permanently low aggregate demand and record high long-term unemployment in which the U.S. economy finds itself stuck?
RossInDetroit
@General Stuck:
The growth problem has been going on for a long time. 5 years ago take home earnings were flat, worker productivity was leveled off and consumption should have cooled off, taking some steam out of the economy in a normal cyclical way. What happened instead was the housing bubble. Some people refinanced and spent the illusory profit on the appreciation of their asset. Many tried to sell and trade up. The construction sector was going great guns with lots of capital. Saving had basically stopped and consumer debt was rising fast. Consumers were supporting their end of the economy with borrowing instead of earning.
As usual, putting off a slowdown in the economy only turned it into a crash when the conditions could not be sustained. Some economists saw this coming but basically nobody heeded them.
Chuck Butcher
Today I deigned to pay attention to (relapse) politics and this is pretty much it. Fuck’s sake, there are solutions but they’re so far “left” (ie left of St Ronnie Raygun) that all of 5 people (ok I exaggerate – slightly) in the country would pay attention to them.
Never mind – rants of a relapse. I can see that me givingadamn amounts to masochism. Think on this, every OR US House member voted for the debt deal and that includes my clueless Greg Walden (OR2-R) and that should have been a serious hint that it was fucked up, but nooooo.
The Democratic Party (by outcomes) is now to the right of St RR and that’s my so-called alternative? I’m to take a slow route to hell in favor of the shortcut? OK, I won’t bother y’all…
BTW, in the Democratic Party the Democratic President is the HEAD of the Party…
Professor
The one disadvantage we have as opposed to China is the Political decision making process. China can decide to build a High Speed Train system in a matter of months whereas it can take ages(years) for a similar process to occur in the US.
Zach
I should say that I don’t think globalization is a problem at all. I think it’s vital for continued growth in America. On a moral level, I’d prefer free trade agreements have strong labor regulations, but the opportunities for rapid economic growth aren’t in the United States right now. Absent some huge technological shift, opportunities for growth are in developing countries and globalization is required for the United States to benefit from development (well, that or imperialism).
I’ve never understood why we don’t decouple free trade agreements from the labor conditions issue. A law banning companies operating within the United States from operating subsidiaries or purchasing products from companies that don’t adhere to American labor regulations (aside from the minimum wage) could possibly work.
RossInDetroit
China’s got their own problems. They’ve been lending so aggressively to support growth that the bank rates are too low to make saving worthwhile for individuals. They’ve had to eat a lot of bad debt on failed investments. Their economy will have to step back its torrid growth rate soon or inflation will result.
marginalized for stating documented facts
@Zach:
An admirable statement of the fallacy.
Globalization is indeed vital for continued growth in America–of elite incomes. Problem is, as the U.S. economy grows, globalization shrinks middle class incomes and forces an ever-increasing percentage of the American population into unemployment. (See the chart of employment to overall population ratio cited in my previous post, or just visit Brad DeLong’s website where the chart is permanently posted on the upper right-hand corner of his site.)
To put it simply, globalization means that the overall economic tide rises in America, but most of the boats sink.
Derf
@aisce: How sweet of you to comment my little groupie. You are obviously obsessed with everything I do.
srv
Milton Friedman’s experiment has been going on for near 30 years, and while we used words like “hollowed out” back in the day, we have long passed the point where there is no there there anymore. We are luckily propped up for a period because the rest of the world drank from the same Univ. Chicago and Harvard MBA Kook-aide, but with economic policy being driven by such experts as Plouffe and Daley (architect of NAFTA), I’m sure it is all going to turn out well.
Well, so just stick a fork in it then. We are going to austerity ourselves to prosperity. Enjoy your catfood.
Zach
@marginalized for stating documented facts: I’m OK with wage depression from folks doing jobs overseas that we could do here if the conditions of labor are the same. Obviously, in practice you’ve seen things like auto manufacturing jobs shipped to Mexico just to get away from OSHA and unions. If the incentives for outsourcing were limited to lower wages and more friendly tax policies, I’d be OK with it.
JGabriel
@Zach:
No, that’s not really accurate. The dot-com bubble, for all its hype, was a response to a new, real, and successful technology that people didn’t quite know how to price. Combined with a strong economy and lot of money in the system that had to go somewhere, it went into inflating tech stocks beyond reasonable expectations of profitable returns.
The real-estate bubble, on the other hand, was pretty much just a repeat of the real-estate bubbles of the 1920’s and the 1980’s.
.
marginalized for stating documented facts
@JGabriel:
Good point. There’s another difference, though, arguably even more important: the real-estate bubble required massive amounts of outright criminal fraud. Banks and mortgage companies had to lie about the quality of the mortgages they were repackaging. Subprime crap mortgages that anyone knew could never be repaid were repackaged in CDAs and labeled AAA rated investments.
The dot-com bubble was driven by new technologies that worked. Google actually works. amazon.com actually works. Bezos and Page and Brin didn’t need to resort to massive fraud. The dot-com bubble wasn’t driven by widespready criminal con game scams. It was driven by new technologies that mostly did what they were supposed to (just not quite as much as stock market investors thought at the time).
eemom
damn. You SO could’ve gone with Second Verse, Same As the First.
Odie Hugh Manatee
@Carol:
The problem with shipping production jobs overseas is that our pols thought that people would retrain for better jobs outside of production. I used to work in a boat factory and I can tell you that there are many Americans who absolutely love to work with their hands to produce something. Pull these people out of those jobs and it’s like a fish out of water.
I loved working there and it was a good job until the Bush I “luxury tax” decimated the boat manufacturing industry. We made our big money on big boats/small yachts and the tax killed sales of those models.
Working and actually producing something of quality and value is all that some people want to do. Everyone does not want an office job or the like. Some people NEED to work with their hands, they want to put their talents to work but they also want to be paid fairly for it. Shipping our production overseas killed good jobs for good people who only want to work at something they love and to provide for their families and themselves. Manufacturing work is hard yet it’s rewarding in that you are actually being productive and making something of value.
Free trade isn’t free. Blue collar workers are sick and tired of the white collar workers doing everything they can to eliminate their jobs in the drive to increase profits. They push paper to make money while we produce goods to sell to make money.
I’m with the blue collar workers in this fight. They are people who make stuff that makes money and they keep things running for everyone, even the white collar MBAs and politicians who are destroying their jobs and livelihoods in the name of money/profit.
chrismealy
It’s the politics of the exchange rate. Wall Street (and Geithner and Obama apparently) wants a strong dollar. The trade deficit is the inevitable outcome.
marginalized for stating documented facts
@Zach:
The first part of your sentence reveals that you’re not living in the real world. Here on planet earth, Americans will not be “OK with wage depression” in the United States, regardless of the reason. That’s just the political reality.
Telling people in America they’re going to have to live on continually declining wages with flat or rising costs, and you’ll get mass violence at some point. If that goes on, the U.S. political and social system will break down.
But more to the point, you keep chirping about signing agreements or passing laws that prevent American companies or their subsidiaries from operating in America if most of their business consists of slave labor overseas. Well, buckaroo, passing such a law would shut down essentially every big corporation in America. Because all the large corportations in America (and an ever-increasing number of medium and small sized businesses) operate by offshoring their critical labor overseas to people who get paid 1/10 or 1/50 of what an American worker makes.
Source: “Logan’s Run,” Robert X. Cringely, 2009.
Source: 30 May 2010 Newsweek international edition article “Europe: The Big Squeeze.”
Source: “The only things that matter…and no one talks about,” Graham Summer, 12 August 2010, zerohedge.com.
Source: “State of the Ponziconomy,” Harvard economist Umair Haque, 2010.
You just don’t get it. You can’t counteract structural economic forces like these by passing a law. They’re baked into capitalism when it goes global and uses computers + robots + databases + the internet. That’s like trying to eliminate inflation by passing a law against raising prices. (Nixon’s failed and foolish wage-price freeze. Been there, done that, didn’t work.)
To put it bluntly, capitalism stops working under those conditions of internet + computers + databases + robots. We wind up with an economy where aggregate demand collapses, the middle class disappears, and American wages and living standards head down to the wages and living standard of the average worker in Mumbai, India, who lives in a hut with a dirt floor that has no running water and no electricity.
Pass the kinds of laws you’re talking about, and every corporation will simply pick up stakes and leave America. Corporations no longer have any special need to be physically located in America: they can hire people from an HQ located anywhere on earth and they can build factories and organize brainpower anywhere on earth.
See “Are the American people obsolete?” at salon.com.
Also see articles like Martin Ford’s “The coming structural unemployment crisis,” Huffington Post, 24 May, 2010.
PeakVT
@chrismealy: And Clinton before them.
PurpleGirl
@eemom: LOL. You are so right about that. DougJ — Why didn’t you, a master of musical cultural references not see/think of that line as a title?
Big Baby DougJ
@PurpleGirl:
I didn’t think it was quite appropriate here.
Nylund
I am a very calm, rational, and reasonable man. That being said, Tom Friedman and David Brooks really make me want to do bad things.
Be it economics, politics, science, or sociology, these two never get anything right, yet they are rewarded. And even more strangely, highly regarded, even in the NPR demographic. My parents are literally rocket scientists and nothing saddens me more than hearing them talk about what reasonable and insightful guys these two clowns are.
They are both dilettantes. I don’t think I have ever read anything by either for which they have the proper education and background to discuss.
John X.
The danger is not, and never has been, that the American standard of living will descend to the level of a Mumbai street vendor. It won’t.
The danger is that the American people will decide that, instead of living in a dirt-floor hut, they’re going to elect someone who promises to use our huge, expensive military to make the world burn.
John X.
“I am a very calm, rational, and reasonable man. That being said, Tom Friedman and David Brooks really make me want to do bad things.”
Those two are from the age when things were peaceful and people batted around ideas like they were playing badminton. People forget that, in what the Chinese call “interesting times”, ideas are not cute and harmless.
They can get people killed.
jake the snake
I have read a lot of dystopian literature, and Pohl and Kornbluth’s “The Space Merchants” seems to be the most prophetic i have read. In some ways they were overly optimistic.
Neo-feudalism may be the best result we can get.