While President Obama may assert the existence of “fundamentally sound aspects” of the US economy, the problem is that even if these vaguely formulated fundamentals exist, they are fundamentally irrelevant to this depression in which we find ourselves. With more confidence than ever, we now know that the “sound fundamentals” sound-byte was misleading (and if you want to be less charitable: we now have many reasons to believe it was false) when Senator McCain said it; when President Bush said it; and when Larry Kudlow rephrased it into a “slightly” more triumphalistic phrase. Thus, it’s devastatingly hollow when President Obama or his advisors trot out the phrase today (though, to be honest, it is Obama who is tasked with confronting the three-decades-in-the-making disaster).
But if you disagree and want to believe that when the Fed made-it-rain another trillion dollars this week that they’re increasing the amount of “investment” in the US’s “strong fundamentals,” then you go right ahead and keep that belief. I’ll just be over here mumbling with the cynics.
Yet cynicism seems to be the only warranted axiom upon which to speak and/or act (regardless if the action is proactive by policy makers with actual power or reactive like the musings of someone, let’s say “me,” on a blog). The financial accelerants that produced the economic growth in the US economy were recipes High Finance prepared and upon which they gorged themselves. And now we find that what the self-styled gods of High Finance thought was their ambrosia was really a feast of Tantalus.
There are many sources to engage for basic explanations of what was responsible for economic growth and reasons why one must reject the absurd “sound fundamentals” jargon.
Clusterstock’s Joe Weisenthal frames our situation this way:
Think of it like a bridge that comes crumbling down when one key support beam comes out. Imagine someone saying, okay, the key to fix the bridge is to put that beam back up. No, it doesn’t work that way. The whole bridge has collapsed and putting the support beam back up does nothing.
This is what’s happened in the economy. The support beam was housing. As long as home values continued to rise, the whole bridge managed to hold up, cause that turned out to be the pillar of everything. It’s fallen, the bridge is collapsing everywhere and the attitude among our leaders — both in business and in politics — is that to repair the support beam, we just need to boost housing prices again. Like it was all a bad dream.
Unfortunately, our only choice is to rebuild the bridge, not try to fix the one part, which caused the collapse.
That’s the essential kernel of what’s going on. For in-depth arguments, start with Niall Ferguson’s overview of our present economic context from Vanity Fair. And last month Ferguson responded to the West’s response to the crisis with this curt missive.
Michael Lewis explains the corporate culture, strategies, and tactics that were developed and implemented and led to the post-industrial-economic complex, High Finance.
Felix Salmon’s sharp essay in Wired offers some very clear prose to translate into plain English some of the very dense math that was used to create the tools that Ferguson mentions.
John Cassidy’s New Yorker piece describes how now that the system is collapsing those with power continue to lack the imagination or initiative to euthanize High Finance. Instead we reacted (and continue to react) as if we can and must reestablish that prior conception of normality.
And while we wait for people to figure out that the age of High Finance is over, economists George Akerlof and Paul Romer classify the cold, brutal, and completely rational behavior of the remnant meat puppets of High Finance who forage in the rubble. It’s called looting.
In order to not be too broad when dismissing Presidents Bush and Obama’s faith in “sound fundamentals” I should qualify: indeed, those “sound fundamentals” could build and sustain an economy, in theory. But those “sound fundamentals” were not the cause of the global economic growth that existed (and are now growing at a steep, negative rate) “on paper” for nation-states like the US or China or the UK or those in the Eurozone. We certainly didn’t oppose what was driving that growth. And to refer to that engine of growth (at any point in the past or present) as “strong fundamentals” such as the American worker or entrepreneurship is deception. Furthermore, both parties in our political sector were complicit in how the growth occurred.
In the US, the economic expansion provided the American Right with “proof” that the “free-markets” that they oversaw (while holding the Presidency for 20 out of the last 28 years) entitled the US population to extravagant standards of living (the “ownership society”). Additionally, as long as the market more-or-less structured levels of class disparity, then there was nothing to worry about. Why? Well, the poor would always want to work to enter the middle class and the middle class would march steadily into the upper class. Meanwhile, the American Left looked at trillion-dollar-growth and argued that the paper trail from High Finance would enable the subsidization of new social projects in the realms of health care and fighting global warming. Ideologically, they both were glad to have the books cooked by High Finance. And High Finance was glad to have the tacit backing of the US government in case of emergency.
If fundamentalists on either side still remain, then they should be ashamed of this equivocation of “strong fundamentals” with what were the fundamentals for the economic growth we experienced in the age of High Finance. And when politicians speak in terms of “strong fundamentals” in regard to the US economy, I invite you to keep-in-mind a (slightly altered) phrase from Campaign 2008: they’re smearing lipstick on the snout of a pig corpse.
P.S. Just a FYI: if I’m sounding too simple and moralistic (say, like, this guy) let me at least plead to being quite persuaded that the world works the way this guy explains it: “The world is a business, Mr. Beal. It has been since man crawled out of the slime.” But with this caveat: we also have a robust history of business sectors that compete with other businesses by manufacturing a fiat currency called “ethics” or “morality” instead of “cash.” So every once in a while, one business might develop a better vocabulary that can explain the deficiencies of another business.