31 January 2010

A neighborhood house in the winter wonderland following the ice-sleet-snow storm of 28-29 January 2010
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09 January 2010

Cause for Optimism

If you live in the US and have been paying any attention at all to what's going on around you lately, you've probably picked up on some disturbing trends. Let's note a few of them.

o Fewer and fewer people have access to health care. The apparent solution for this is to legislate that all of us will have to have health care insurance, purchased from private insurers who will be able to charge pretty much anything they wish for any set of services they wish to provide, with no insurer of last resort available. Oh, and we'll have to pay a $750 per year fine for not buying health insurance. Having been without major medical insurance for the past year because it was going to cost me $25,000-plus per year, I have great confidence that this is a fine solution to the health care access problem--or more likely it's health care reform turned into a corporate welfare program for medical insurers.

o Last year, the US and the rest of the world was very nearly plunged into another 1930s-style Great Depression. Wall Street financiers made mortgage loan packages, then made bets on the success of those packages, and then made bets on those bets (derivative instruments and mortgage risk swaps). The purpose of finance is to supply capitol and credit for businesses and credit for consumers. What on earth does making bets on bets on bets about how mortgage packages will perform have to do with that purpose? Surely in response to this economic near-death experience, we now have regulations to keep the banks out of the securities business and to create an exchange something like the commodity exchanges for derivatives and similar financial instruments. Wrong. We do have legislation to cut down on scams by credit card companies, with the implementation date placed so far in the future that the companies have had plenty of time to increase their rates and dream up new scams, though. But that's not really the problem. We have not and probably will not protect ourselves from another economic crisis like that of September 2008. When it happens again, we will not be able to afford bailouts. We will likely then experience another Great Depression.

o In the past three decades, median US income (in constant dollars) has remained flat--no increase at all. We're doing fine, though, aren't we? The Dow Jones Industrial Average is way, way up over those 30 years, isn't it? Yes, it is. The conclusion? US businesses are doing increasingly well, while US wage earners are no better off than they were in 1980.

The list could go on endlessly, but here's the problem. The US government, particularly the Congress of the United States is now owned lock, stock, and barrel by big business, including health insurers, pharmaceutical companies, Wall Street finance companies, even US automobile manufacturers. Their power and influence in Washington can now defeat any serious health care reform, financial institution regulation, taxation changes, or other legislation that might change their short-term profitability.

Why is there no outcry, no groundswell of righteous anger from the populace? It's Stockholm syndrome. Many of us, particularly those in the southern and western US states, have positive feelings for our captors. We've been taken to the brink of economic and perhaps political disaster by Wall Street financiers, medical products and services providers, and idiotic automobile manufacturers who can't make money on a car that costs less than $35,000. Having been delivered from stepping over that brink by providing our captors trillions of dollars in ransom, we are now--incredibly--beholden to them as those who will save us from Big Government.

So why is this blog entry titled "Cause for Optimism"? Here's the deal. As it's often been observed, you can fool all of the people some of the time, some of the people all the time, but NOT all the people all the time. Eventually we'll come to our senses and figure out that while bumbling, inefficient government is a BIG irritation, it's not nearly the enemy that well-financed, brilliantly-staffed, accountable-to-no-one corporations are.

But if the corporate world is in control, will we be able to take back the reins when we do finally awaken? It would seem that control so firmly established and financed would endure as long as it wished. In the short run, that very well may be the case. Over a somewhat longer term, however, the outcome is not as clear. Consider the following.

Example 1. This same situation existed in post-Civil War America from the 1870s to the early 1900s. There seemed to be no limit to the power and corruption of the corporate Robber Barrons who ruled that era. Then a pesky, troublesome Republican by the name of Teddy Roosevelt, kicked upstairs into the Vice Presidency to get him out of the way, was propelled into the Presidency by the assassination of President William McKinley. The Robber Barrons were soon ousted from their thrones by the feisty, shrewd, and action-oriented Roosevelt.

Example 2. By the 1920s though, Wall Street, unencumbered by government regulation, was in a frenzy of buying on margin (buying stocks with borrowed money) on the assumption the stocks would continuously increase in value forever. A financial collapse not unlike the one we just experienced resulted. The collapse was badly mishandled for three long years by Herbert Hoover before Franklin D. Roosevelt (cousin of Teddy) was elected President. Though FDR's programs eased the suffering of the Great Depression, no recovery could be sustained. (Once a deflationary economy is firmly established, it is virtually impossible to undo, given any action short of entry into a global war.) Eventually, the wild speculation on Wall Street was firmly regulated to prevent a recurrence of this exact type of collapse, and things went pretty well until the financial wizards of Wall Street, with the aid of Sen. Phill Gramm, planted another financial time bomb in 1999 (see
http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act ).

Example 3. The September 2008 financial collapse precipitated by Gramm's treachery is sill playing out, and will require a decade or more to "settle out" as the control systems folks say. It remains to be seen whether the world and the US, in particular, will successfully emerge from the crisis, brought on by the unfettered speculation that derivative "invesment" (gambling) instruments and mortgage risk swaps engendered.

What's the point of all this? The recurring theme is that big business, left to do its own laissez faire bidding, eventually destroys its own power (or produces its destroyer) and often plays havoc with our economic well-being in the process. In the current crisis, big business has very nearly destroyed our economic well-being, but has not yet destroyed its power to unduly influence and control the government for its own benefit.

We've been here before. The cause for optimism is that corporate political power will eventually ebb, if the past is, in fact, prologue. The worry is whether another economic depression, together with the seeds of political upheaval and war that depressions engender, will have to occur before We the People re-awaken and resume control of our democracy.

In the mean time, let's hope our current President is a Roosevelt, not a Hoover!