Obamarama: Advent of trickle-up economics?
Obamarama: Advent of trickle-up economics?
The spectacle of Obama will soon begin to unfold as unprecedented popularity comes face to face with unprecedented difficulties. Another writer on these pages has already announced the potential for
The spectacle of Obama will soon begin to unfold as unprecedented popularity comes face to face with unprecedented difficulties. Another writer on these pages has already announced the potential for massive attacks of hero fatigue, a smashing of exuberant expectations against the hard wall of hard knocks. Indeed it will be very difficult for the Obama administration to fund health care reform, social security, education, environmental quality and all those nice big "D" democratic ideals while hosing trillions into the flames of our current financial conflagration and bleeding trillions more into the trumped up wars we easily started but are not in charge of ending. Oh boy, it's a mess.
And we haven't yet encountered the full force of our folly. So far, only a few nations, like Iceland, have collapsed. Many towns and cities, as far away as Norway, are ironically going broke due to the falling price of housing in Southern California. Many state governments are facing massive budget deficits as tax revenues fall while folks curtail consumption and companies slash payrolls. Many are still trying to understand this in terms of periodic economic upswings and downturns. The idea that credit is not coming back is difficult to accept.
Jim Lehrher, hosting Treasury Secretary Paulsen, asked when credit would again start to flow, following the multi-billion dollar bailout of Wall Street. Paulsen mumbled and stumbled, mincing words to finally express that the bailout was never intended as a guarantee that credit would be restored. Instead, it was merely meant to "stabilize the banking system". We got a good start on that, he said, though it may take more, but consumer credit is another matter altogether and we may well see things get worse before they get better. That's a fact.
Problem is, the money is gone. We spent it. Moody's and other rating agencies gave unregulated, unreserved derivative securities their highest possible ratings based upon risk assessments that used esoteric algorithms nobody really understood. They were wrong. Nevertheless, pinning their hopes on the long tradition of a strong US economy, investors - including lots of foreign bankers - bought tons of this questionable paper. They had good reasons. First, the ratings indicated that the risk was low. Second, they wanted to sell their exports into the US, a hotbed of global consumerism. Unfortunately, we were already broke, buried by trade imbalances while having steadfastly reduced domestic value-added production. By buying the now worthless paper, they supplied us with the funds to keep consuming their products. All would still be good if the net effect of those transactions had been to "spread the wealth". But it wasn't. Instead, the wealth concentrated into a very few hands.
So we still have large trade deficits. We still don't produce enough value to pay back our debt. Nobody is dumb enough to ship us any more money. Game over. It's definitely time for a change. But change costs money and we're broke. Go figure. Obama's got a big hill to climb before he can start conducting the vast orchestra of change his admirers expect. Hopefully their patience will withstand the trials and tribulations of a very problematic presidency.
There is reason for hope, still. The monetarist theories of "trickle-down" economics have proven themselves - false. The current crisis shows that trickle-down works really well with debt, but not at all for wealth. Already a near revolution is developing in Central and South America as people there stand up to defy two decades of trickle-down policies implemented through so-called free trade agreements and the workings of the World Bank. Having given it a whopping whirl, they saw only the same accumulation of wealth, and the prospect of having to work ever harder for less. Northerners, perhaps less inclined to face that fact, nevertheless endure much the same. Americans work longer, harder and more productively for less. Real income continues to fall. A very few have made vast fortunes off our current financial woes. But we, for whom no bailout portends, will struggle for untold years to pay off the debt - now figured to amount to more than $25,000 per man, woman and child, before interest.
Doesn't sound hopeful? Well, if trickle down economics hasn't worked, can't we expect Obama to try a trickle-up strategy for wealth? It may not be the fastest way, but the best way to restore our banking system is to make it possible for people to save money. Once deposits are up, credit will be restored. Dishing out free money to banks is not going to solve credit problems. They'll need to know another bailout is in the offing in case loans continue to default. However, individual savings will give banks at once both a sense of responsibility toward their customer's credit needs, and a sense of confidence that customers have the where-with-all to pay debts. In any case, saddling taxpayers with debt to pump money into the hands of those who engineered this financial debacle is a paradigm that will soon grow old to people on the street - if it hasn't already.
Trickle-up economic theory could find many useful expressions in our damaged economy:
A) Stimulate spending with efforts aimed at productive growth, not mere consumer spending.
1) Don't fund consumerism with money you have to print. Do it with money you don't yet have. Offer limited tax amnesty - including past liabilities - for folks earning less than the median income. They will be grateful and spend it more thoughtfully than a free check arriving in the mail. Plus, it's more efficient. Why send money from all fifty states through a withering array of federal bureaucracies only to expensively pass it back for people to spend at WalMart?
2) Target funds more strategically. Take advantage of existing small business assistance centers to identify and fund sound business plans stalled for lack of access to capital. Starting a small business spends money wisely in local economies. Even if they fail, currency was velocitized. If they succeed, bingo! That's productive. It creates jobs.
B) Provide a more equitable tax framework and better regulation of financial services.
1) Implement a progressive tax schedule that gives working poor a chance to shelter, feed, educate and buy health insurance for their children before funding a federal bureaucracy. Close tax loopholes, euphemistically known as tax preferences, except for those earning less than the median income and for dollars actively creating jobs in business start-ups.
2) Unravel mortgage backed securities. A relatively small percentage of bad loans should not ruin an entire portfolio. Individual deeds should be reconnected with their respective properties and harbored in local banks. Declare credit default swaps null and void unless reorganized through a central clearinghouse. Reevaluate them based upon their function and value. Outstanding liabilities based on pure speculation should become a low priority within the mix of gains and losses.
3) Break the banks. We need 3,000 banks, not three. As in the natural world, diversity provides stability and a better platform for innovation. Too big to fail is too big. Make banks smaller and more local with better community banking policies and oversight. Credit Unions provide a good example.
C) Localize our economies.
1) Break the Big Three. Bankruptcy may work better than a bailout. Hyundai, Honda and Toyota are doing fine with their plants in the southeast. As with the crooks on Wall Street, Detroit automakers kept their hand in the Big Oil glove to the detriment of our economy, the environment and national security. Subdividing the big three's production assets into more diverse holdings could result in better long term results.
Anyway, cars no longer make sense in cities, where most of us live. They are the biggest single source of pollution, contributing to global warming. They consume almost a third of our disposable income - before this crisis. We can no longer afford to build our way out of congestion problems. Local economies and the environment would greatly benefit from alternatives.
2) Redefine globalization. Let's revisit the debate between fair trade and so-called free trade. Nearly everyone wants a global community. But it is patently unfair to build fences to prevent workers from crossing borders with their toolboxes while allowing corporations to run roughshod over the world's customs and cultures. We need global trade, but we also need better measures of local economic health. Localities need better tools to prioritize and regulate their own vitality. A good start would be to unravel the false connection between democracy and capitalism that allows social good to be equated with communism. If we would accept that these systems of government and economy are abstractions that have never really been tried, we could be more open to new ideas that might actually work.
These are but a few quick examples. Taking a trickle-up approach to managing our country's wealth could offer possibly infinite opportunity for productive change in housing, renewable energy, local transit, health care, education, banking and local business. Try googling "Mondragon Experiment" or "Mondragon Cooperative". You can view YouTube videos, part one here and part two here.
So I do have hope. There are many things to try. Things that have worked in the past, things we haven't yet tried, things that have been actively suppressed. Anyway, we may have no choice. The money's gone. Waiting around for Wall Street doesn't sound too appealing. I'll pin my hopes on Obama's economic team and watch carefully to see what path they take.
And we haven't yet encountered the full force of our folly. So far, only a few nations, like Iceland, have collapsed. Many towns and cities, as far away as Norway, are ironically going broke due to the falling price of housing in Southern California. Many state governments are facing massive budget deficits as tax revenues fall while folks curtail consumption and companies slash payrolls. Many are still trying to understand this in terms of periodic economic upswings and downturns. The idea that credit is not coming back is difficult to accept.
Jim Lehrher, hosting Treasury Secretary Paulsen, asked when credit would again start to flow, following the multi-billion dollar bailout of Wall Street. Paulsen mumbled and stumbled, mincing words to finally express that the bailout was never intended as a guarantee that credit would be restored. Instead, it was merely meant to "stabilize the banking system". We got a good start on that, he said, though it may take more, but consumer credit is another matter altogether and we may well see things get worse before they get better. That's a fact.
Problem is, the money is gone. We spent it. Moody's and other rating agencies gave unregulated, unreserved derivative securities their highest possible ratings based upon risk assessments that used esoteric algorithms nobody really understood. They were wrong. Nevertheless, pinning their hopes on the long tradition of a strong US economy, investors - including lots of foreign bankers - bought tons of this questionable paper. They had good reasons. First, the ratings indicated that the risk was low. Second, they wanted to sell their exports into the US, a hotbed of global consumerism. Unfortunately, we were already broke, buried by trade imbalances while having steadfastly reduced domestic value-added production. By buying the now worthless paper, they supplied us with the funds to keep consuming their products. All would still be good if the net effect of those transactions had been to "spread the wealth". But it wasn't. Instead, the wealth concentrated into a very few hands.
So we still have large trade deficits. We still don't produce enough value to pay back our debt. Nobody is dumb enough to ship us any more money. Game over. It's definitely time for a change. But change costs money and we're broke. Go figure. Obama's got a big hill to climb before he can start conducting the vast orchestra of change his admirers expect. Hopefully their patience will withstand the trials and tribulations of a very problematic presidency.
There is reason for hope, still. The monetarist theories of "trickle-down" economics have proven themselves - false. The current crisis shows that trickle-down works really well with debt, but not at all for wealth. Already a near revolution is developing in Central and South America as people there stand up to defy two decades of trickle-down policies implemented through so-called free trade agreements and the workings of the World Bank. Having given it a whopping whirl, they saw only the same accumulation of wealth, and the prospect of having to work ever harder for less. Northerners, perhaps less inclined to face that fact, nevertheless endure much the same. Americans work longer, harder and more productively for less. Real income continues to fall. A very few have made vast fortunes off our current financial woes. But we, for whom no bailout portends, will struggle for untold years to pay off the debt - now figured to amount to more than $25,000 per man, woman and child, before interest.
Doesn't sound hopeful? Well, if trickle down economics hasn't worked, can't we expect Obama to try a trickle-up strategy for wealth? It may not be the fastest way, but the best way to restore our banking system is to make it possible for people to save money. Once deposits are up, credit will be restored. Dishing out free money to banks is not going to solve credit problems. They'll need to know another bailout is in the offing in case loans continue to default. However, individual savings will give banks at once both a sense of responsibility toward their customer's credit needs, and a sense of confidence that customers have the where-with-all to pay debts. In any case, saddling taxpayers with debt to pump money into the hands of those who engineered this financial debacle is a paradigm that will soon grow old to people on the street - if it hasn't already.
Trickle-up economic theory could find many useful expressions in our damaged economy:
A) Stimulate spending with efforts aimed at productive growth, not mere consumer spending.
1) Don't fund consumerism with money you have to print. Do it with money you don't yet have. Offer limited tax amnesty - including past liabilities - for folks earning less than the median income. They will be grateful and spend it more thoughtfully than a free check arriving in the mail. Plus, it's more efficient. Why send money from all fifty states through a withering array of federal bureaucracies only to expensively pass it back for people to spend at WalMart?
2) Target funds more strategically. Take advantage of existing small business assistance centers to identify and fund sound business plans stalled for lack of access to capital. Starting a small business spends money wisely in local economies. Even if they fail, currency was velocitized. If they succeed, bingo! That's productive. It creates jobs.
B) Provide a more equitable tax framework and better regulation of financial services.
1) Implement a progressive tax schedule that gives working poor a chance to shelter, feed, educate and buy health insurance for their children before funding a federal bureaucracy. Close tax loopholes, euphemistically known as tax preferences, except for those earning less than the median income and for dollars actively creating jobs in business start-ups.
2) Unravel mortgage backed securities. A relatively small percentage of bad loans should not ruin an entire portfolio. Individual deeds should be reconnected with their respective properties and harbored in local banks. Declare credit default swaps null and void unless reorganized through a central clearinghouse. Reevaluate them based upon their function and value. Outstanding liabilities based on pure speculation should become a low priority within the mix of gains and losses.
3) Break the banks. We need 3,000 banks, not three. As in the natural world, diversity provides stability and a better platform for innovation. Too big to fail is too big. Make banks smaller and more local with better community banking policies and oversight. Credit Unions provide a good example.
C) Localize our economies.
1) Break the Big Three. Bankruptcy may work better than a bailout. Hyundai, Honda and Toyota are doing fine with their plants in the southeast. As with the crooks on Wall Street, Detroit automakers kept their hand in the Big Oil glove to the detriment of our economy, the environment and national security. Subdividing the big three's production assets into more diverse holdings could result in better long term results.
Anyway, cars no longer make sense in cities, where most of us live. They are the biggest single source of pollution, contributing to global warming. They consume almost a third of our disposable income - before this crisis. We can no longer afford to build our way out of congestion problems. Local economies and the environment would greatly benefit from alternatives.
2) Redefine globalization. Let's revisit the debate between fair trade and so-called free trade. Nearly everyone wants a global community. But it is patently unfair to build fences to prevent workers from crossing borders with their toolboxes while allowing corporations to run roughshod over the world's customs and cultures. We need global trade, but we also need better measures of local economic health. Localities need better tools to prioritize and regulate their own vitality. A good start would be to unravel the false connection between democracy and capitalism that allows social good to be equated with communism. If we would accept that these systems of government and economy are abstractions that have never really been tried, we could be more open to new ideas that might actually work.
These are but a few quick examples. Taking a trickle-up approach to managing our country's wealth could offer possibly infinite opportunity for productive change in housing, renewable energy, local transit, health care, education, banking and local business. Try googling "Mondragon Experiment" or "Mondragon Cooperative". You can view YouTube videos, part one here and part two here.
So I do have hope. There are many things to try. Things that have worked in the past, things we haven't yet tried, things that have been actively suppressed. Anyway, we may have no choice. The money's gone. Waiting around for Wall Street doesn't sound too appealing. I'll pin my hopes on Obama's economic team and watch carefully to see what path they take.
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