Monday, July 21, 2008

Earth to Gramm: W.T.F.Were You Thinking??!??!

In the solitude of the high Alta Badia amidst the Malga's (working summer farms), the world's happiest cows gorge themselves upon verdant clover, wildflowers and grasses, clinking bells carried by the wind from seemingly all directions. From here, where the fossils in the Dolomite rock are Pleistocene, it is hard to imagine that the international monetary system is in severe and irreparable decline. The farmers cut and dry the grass for winter while the rest of the family including a now-short-and-stooped grandmother rake it on the steep slopes unreachable by conventional tractor. Marmots still squeal in the fog of morning, hawks hover high and time - excepting the encroachment of modern tourist construction built by the more enterprising of the Ladinisch - seemingly stands still.

Modernity intrudes nonetheless. Some of the enterprising have assumed large debts to construct - at a most dubious point in the cycle of both economic growth and changes wreaked by global warming - resorts that will inevitably be owned by the banks before the cycle is done. Restricted as comms were, a CNN-branchlet seemingly intended for Africa evidenced by ads for Nigerian banks and Ghanian port-services accompanied Berlusconi #1, 2 & 3 on the limited cable. It was the odious CNN that delivered to me the somewhat hilarious figure cut by Phil Gramm calling Americans a bunch of economic whiners, further suggesting that America's economic ills are both imagined by the Polity in general and a figment of the democrats' political strategists in particular. Now while it may be true that Americans are whiners - whether about taxes, gas prices, or one's liberalness, that is as far as Mr Gramm's worldview intersects with objective reality. Lore has it that everything is bigger in Texas - the cars, hats, steaks, the ego's, and if Mr Gramm and America's President are anything to go by, so to is the sheer ludicrousness of her politicians. $150bbl-oil has it would seem, has untethered any prior connection that such figures had with reality in the rest of the non-oil producing, home-owning, food-eating nation, a nation itself divorced from reality by the bubble of its own existence, as aptly summarized by Dr Roubini in his latest missive.

The problem with monumental political falsehood is that, like slander, it nonetheless tends to stick, remaining in the conscious mind long after it's been garroted by the facts. So let us contemplate for a moment the objectively sorry state of America's economy, and the likelihood of a yet-sorrier state in the imminent future. She [the USA] has seen steeply falling real wages for most workers for the last decade, impossibly large and persistent current-account and trade deficits on top of fiscal gaps that (all-in including SS) stretch the probable and exist only as a result of cynical piss-taking by foreign CBs mercantilist policies; persistently negative household savings rates that would make Edith Cresson's Grasshoppers blush; an energy-appetite woefully incongruous with the soaring energy prices, and future supply considerations, and energy-inefficient housing and transport infrastructure; an absurd healthcare infrastructure that consumes more per unit of GDP that any other nation YET leaves more than 20% of the population uninsured and uncovered, and fails to measure-up to peers spending half-as-much when it comes to basic measures of achievement such as infant mortality, and longevity; a financial system (including brokers, mono-line insurers, GSEs, and regional banks) that is in tatters due to excessive short-termism, greed, and flawed monetary policy; unprecedented income inequality that continues to widen through all-manner of rent-seeking and flawed political process, a currency that is in near free-fall through not-so-benign neglect, and an unwillingness to impose austerity upon a people whose lifestyles are at odds with their ability to afford what they've been told and sold is their god-given right; homes prices that are also in free-fall, municipal and state-finances that are in shambles, infrastructure (particularly transport, education and electricity) that is decaying rapidly, on top of unprecedented real and nominal levels of household indebtedness - especially credit-card debt, and international diplomatic initiatives strait-jacketed by the nation's debt held by our potential military foes and both real and imagined economic rivals. This is in addition to the Rappaport short-termism and economic cronyism encouraged by asymmetrical risk/reward of executive compensation that rivals the very best the Russian kleptocrats can muster, leaving the nation's enterprises as perilously fertile as the midwestern soils ravaged by intensive monoculture.

So, while it is all well-and-good for Mr Gramm to conjure political invective accusing the opposition of false manufacture, the fact is that none of these major-league problems are imagined, most were encouraged by, and accelerated their emergence since the turn of the millennium under republican watch without any acknowledgment to mission-control in Houston that we've even got a problem. Whiners? Maybe. But rest assured this has nothing to do with with the issues we face. Hopefully, this will be a year that the liars will be called-out, and perhaps that people recognize their own culpability in the travails that the nation now must confront.


Anonymous said...

C- I think you missing the salient point with Gramm's speech. It's not about a DC elite sitting on K St aloof from every day America; rather, it's an experienced businessman and politician underscoring how low the pain threshold for Americans has become. We have not had a painful consumer-led recession (which we need) for 25 years and yet people act like this is the Worst Thing since the Depression, or whatever they call it now. Conditions can become much worse very quickly and I suspect will given that the ultimate problem (falling house prices) will be exacerbated by surging inventory, high mortgage rates & low availability, and the most toxic gifts from Countrywide yet to reset. But I think his point is well-taken, Americans need to learn that our living standards cannot be taken for granted and must be earned; you cannot consume all your income all the time while at the same time borrowing against it (even if the Chinese are throwing money at u to lend well below your return on assets), and that economic pain and dislocation are inevitable in a capitalist system. Younger generations have no idea how bad it can get (29-33, 73-74, 80-82) and we may be in for a rude awakening. However in the near term the pain threshold will unlikely increase because liberal bias in the media (MSNBC, CNN, BBC, NY Times, Wash Post, C Matthews, Brokaw, Rather, Olberman, Stewart, LA Times, Air America (wups) vs Fox News and WSJ) will only accentuate the ills from the Bush economy. It's hard to disagree with Gramm in this light.

"Cassandra" said...

As a prudent person, and as I stated in the post, I can agree Americans are whiners.

But I take a different, perhaps nannying view, mostly on the basis that most people are financially ignorant, and - en masse - incapable of assessing that rather complex probabilities that the floater with the teaser during times of great and increasing imbalance following a two-decade credit-boom is a patently worse bargain than the higher fixed. They are incapable of fathoming the nuances of international monetary monetary policy, let-alone the chain of dependencies of domestic interest rates. Thus, they presumably elect leaders who, are supposed to ummm errr ... lead! That means making (or attempting to make a-la Issing and other OECD nations ex-Italy, Spain & UK) the prudent and correct long-term choices, on the polity's behalf.

What's shameful is that the leaders of the nation - both executive and congressional - have been so spineless in the face of populist whinging, and corporate rent-seeking. Leaders indeed! Gramm's sentiments regarding the pain threshold of Americans may be correct, but his attempts to discount the magnitude of the basic issues we confront for political purpose, when they result rather precisely from his party's orientation of willful policy neglect, only prevents correction of past policy errors.

Anonymous said...

Yes, spineless would be an understatement. As a young taxpayer, I'm increasingly worried about the inability of our elected leaders to take the long view and do what is best and in the national interest. Action and reform occur only when the proverbial horses have left the barn and a crisis has forced authorities into a reactive posture and the speed of which outpaces all significant policy responses. While the lack of an energy policy stinks of Texan, Delayesque Republican backscratching, the housing debacle and GSE problems have the liberal cronyism of Dodd, Frank, and HUD written all over them in the name of homeownership for all Americans.

But perhaps the political inertia on difficult issues is an integral feature and not so much a result of the democratic process. People hear what they want to hear, and elect what they want to hear. And just as Plato became indelibly disillusioned with democracy after the masses called for Socrates' head, so too am I losing my faith in the democratic process to address significant long-term issues instead of just Terri Schiavo (gone) and the Social Security lockbox (also gone)

Mara said...

I take the "whiner" remark as the same tack Bush has used, which is when one points out something embarassingly obvious, dangerous or stupid that the administration has committed, the attack on the accusers patriotism, sanity and veracity will begin.
It is beyond belief that we even ask if we are in a recession. Duh! Living in America is like being Ingrid Bergman in "Gaslight", where her husband's trying to drive her crazy by changing stuff around and then looking at her like she's lost it. Yeesh!

rob low said...

This Sunday's NYT included an article on Home-4closures that was accompanied by a photo of a woman who was desperately trying to forestall her own.
Sitting at her credit-card purchased outdoor table with umbrella, she was pictured, while puffing away on a cigarette, with a bottle of unfinished $4 Starbucks, a can of coke, and two other hi-sugared drinks. All completely useless items that this woman would not even consider foregoing the pleasure of consuming, despite the fact that they are poisonous and will only increase her already advanced obesity. Instead she continues to guzzle sugar, which'll result in diabetes, the treatment of which, she'll expect the rest of us to pay for, as well as any form of cancer or other self-inflicted illess caused/exacerbated by her own blind desire for constant stimulation.

Rather than break the back of the on-going attitude Americans have of depending on the kindness of dangers, we continue to feed the Vampire Capitalism that sucks the lifeblood out of our communities and transfuses it into the already-bloated undead parasitic banking sector, and then stand aghast at the totally predictable results of our decisions.
So despite the fact that I found Gramm's statement ourtrageously callous, at the same time, why is he the only one making it? We've shredded all the social safety nets from our children's generation, even as we've molly-coddled them into thinking they're living in a European-style cradle-to-crave Welfare State. The inevitable head-on collission between these two starkly different realities is bound to leave many more whiners than diners.

David said...

Yves Smith's blog led me here.

For the young anon. above and others. Phil Gramm is one of the most reprehensible humans out there. (just this little nugget: "Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000[3]. One provision of the bill was referred to as the "Enron loophole" because Gramm drafted it in cooperation with lobbyists for Enron Corporation. Critics blame the provision for permitting the Enron scandal to occur."[4] At the time, Gramm's wife was on Enron's board of directors. from Wiki might suffice. The huge runup in oil futures is also a result of the 'enron loophole' btw..."

With Phil, I think of a class of vermin such as Bill O'Reilly or Grover Norquist who've led our nation down a ****hole of extreme income inequality that rivals what was before the Great Depression. It remains to be seen it the same results are in store for us.

jack said...

Even though I am a conservative on at least two legs of the proverbial stool (economics and national defense), I enjoy reading your posts from time to time. As a person who is "wired" more toward logic rather than emotion, I seek out liberal points of view that have some sort of basis to them rather than the stupidity and ad hominem attacks that seem to permeate much of what passes for liberal discourse. Other than your column and Atlantic, there aren't many sources that meet my criteria.
As a leading edge boomer (6 days older than Bill Clinton, for what that's worth) with a father who graduated from college during the Great Depression, I have pretty much adhered to old-time values of living within one's means, paying my taxes, and conducting business in an honorable manner. Frankly, I resent my $$ being used to bail out institutions that behaved wrecklessly and individuals that behaved in either a greedy or stupid manner. And I agree with Gramm--yes, we have some problems, but instead of whining, lets do what we need to do to work through them!
I agree that Washington is devoid of good leadership and attribute that to what deToqueville (spelling?) said about a Democracy being doomed when the people figure out that they can vote themselves a largesse!

Jack in Dallas
(PS--only about 8% of the Texas GDP is from oil and we have to drive cars, air condition our homes, etc. like everybody else.)

"Cassandra" said...

I concur with David that whatever the veracity his observation about Americans as whiners, he IS rather odious as odious goes, and not your model representative nor weberian bureaucrat.

TO Rob Low,

People see it as either a parochial emergency, OR a national emergency. Irrespective of how much (or little) one parochially has contributed, I see it (and think everyone should too) as a national emergency, since the problems (of excess energy use, aggregate demand, healthcare, intl monetary & trade acct affairs) are aggregated. But this shared peril, it has been near impossible to politically aggregate the solutions. My postion has always been that the market will eventually impose the solutions upon America, but it will unnecessarily be more severe and disruptive and carry a higher toll in terms of national image, and international diplomatic stature (when they finally do) than if Issing-esque (i.e. more sober and restrained) fiscal, monetary, and energy policies incrementally were imposed (as in continental Europe, and Japan, for example).

But IF it is a national emergency (and again, I think it is), then austerity IS an order, but the political problem with this tack is that despite the ballooning inequality, it has well-nigh impossible to get the ordinary voter to buy-in.

Unrealistic GINIs, no management restraint (in fact quite the opposite!), and unimaginably large remuneration gaps between senior execs and line workers, and no safety net should make the voters impose austerity (with future prevention solutions) that are truly sharing the adjustment burden, yet that has not, and is not happening.

So you ask why is Phil Gramm the only one asking the question? First thing, he's not. All manner of bipartisan leaders have gone on record in opposition to the unsustainability of American way-of-life "bubble", beginning with Carter in 1979. The republicans - in the manner of conservative agrarian landowners inherently should be the party of economic sobriety and should be ones leading this charge. Yet the last thirty years of Republicanism beginning the Gipper has - quite sadly for America - been one giant orgy of business rent-seeking, fiscal profligacy, corporate cronyism, and unmitigated credit-induced faux-prosperity that has borrowed so much from future generatons obligations and consumption that credit revulsion and at a minimum deep recession are now deterministic. This makes Gramm nothing but a big f*cking hypocrite for pointing the finger at parochial responsibility at THIS point in time, whilst downplaying the shared problems and their associated shared responsibilities, and at the same time completely ignoring the shared solutions that might the purses and rarefied lifestyles of his party's cronies.

Freude Bud said...

I think you left out one key point in your argument.

Yes, leaders are supposed to lead. This is partially because very few people can really follow all the consequence of monetary policy so as to determine their own interests. (This is also true, say, of oil--an extremely complex, opaque, and politically distorted market.)

But, if you believe that the politicians (said leaders) are liars, then you have little choice but to trust the politician who seems, well, most like you. You gotta go with your gut.

This will lead to some voting for those who promise their wishes for themselves. That is, they will vote for those who say what they already believe, because they cannot--in all fairness--trust what the politicians say. And, given that there is no point in listening to the rhetoric not only because it is impossible for everyone, really, to follow all the consequences of all important policy decisions given that it would require being specialized in everything and the rhetorical well is poisoned by widespread fibbing, people will believe what they want to believe.

When it becomes plain that someone is going to face a hard time and it is likely due to the choices of the political leadership, it is probably best for all concerned that no one really thinks that it is their own wish fulfillment fantasies which are being undermined.

Jack said...

Since the topic of income inequality has been raised I'll throw in my inflation-adjusted two cents worth. The spin that I keep seeing from the right is that the richest few % of the population is paying a greater percentage of the total tax bill than they did in years past. This is true and it is also true that, under a progressive tax system, the "rich" pay a much higher percentage of their income than the "poor." What is missing from this snapshot is the share of all income earned that enures to the highest earners. In 1990, the richest 5% of Americans earned 27% of the total; by 2005, that share grew to 36%. So we are moving in a direction of greater inequality. The questions are: 1) why? 2) is this necessarily bad? 3) what should be done about it?
One could devote an entire book to these three questions!