It’s beginning to look like there’s an economic shipwreck dead ahead. That plunging stock market is the wealthy passengers, trampling the children as they rush headlong toward the lifeboats. The nation’s capital, the bridge of our ship of state, lies abandoned.
The officers have gone to their quarters, the wheel’s left unattended, and nobody’s trying to turn the ship around. If you’re not sounding the alarm, you aren’t paying attention. And it looks like a lot of people aren’t paying attention.
Sure, this month’s jobs report is slightly better than the last couple of months, but that just means the drowning passengers are a couple of inches closer to the surface. That’s not much comfort to them, since they’re still drowning, but it seems to cheer up the ship’s officers. Now that Congress has concluded its debt-ceiling deal they’ve all gone home.
The President’s economic advisor, Austan Goolsbee, is plaintively whispering the words “unemployment insurance” to their receding backs, but it wasn’t important enough to be included in the deal. And the “bipartisan” mantra forced Goolsbee to mention two free-trade deals in the same breath. That’s like throwing a brick to a drowning sailor, rather than a life preserver.
Of course, the jobs figures would be heartening if they meant that things were moving in the right direction. But there’s no reason to believe they are. Real unemployment, as opposed to the official number, is still devastating. Today’s improved numbers aren’t nearly enough to make up for increases in the work force, much less to make a dent in real unemployment. And the misguided debt deal is about to cost us millions more jobs.
The illusion of good news is actually a problem, since it relieves our leaders of the political pressure that’s needed before they stir themselves into anything resembling action.
Scrambling for the lifeboats
The rest of our little ship’s in equally lousy shape. We had the worst run of stock prices since the worst of the crisis in 2008. It has looked perilously like a new disaster several times during the course of the week. And we’re not in the clear yet. The market rebounded slightly, but it’s still way down. The waves are crashing over the stern, and European instability could bring on another crisis at any time.
Investors understand that the debt-ceiling deal makes new spending on jobs and growth more difficult, and yet doesn’t do much to stabilize the government’s finances, so they’re convinced things are going to be grim for the foreseeable future. In fact, it’s gotten so ugly that high-dollar corporate investors are hoarding cash rather than investing the money. That’s putting a strain on banks, who have to insure their deposits. One bank has already started charging its clients for keeping large amounts of cash in their bank accounts.
What’s next – a 2% surcharge for paying cash rather than using a credit card? (Ssshh. Don’t give them any ideas.)
Investors aren’t convinced that the government has solved its own deficit problems. And it hasn’t. The best way to stabilize the government’s finances is by taxing the wealthy at more normal levels, investing in growth, and then addressing spending issues once people are back at work and a) paying taxes and b) not in need of government help.
Down in the fo’c'sle
The real misery isn’t in the captain’s quarters, of course. It’s down in the fo’c'sle, that forward part of the ship where the ordinary sailors live and work. That’s also the part of the ship that hits an iceberg first. That’s where unemployment is deep and ongoing, where middle class families have lost most of their wealth, and where those in need are about to face devastating cuts.
What can be done? The Federal Reserve could step in right now and make more cash available. It could create a fund to be used for specific types of lending. The Fed did a lot of unconventional things in 2008, after all, including a quick legal maneuver that allowed Goldman Sachs to be treated as a bank. Where there’s a political will, there’s a way.
So why can’t the Fed do some new unconventional things in order to meet its other mandate — the one that says it needs to keep unemployment low? Or it could act more conventionally, as Dean Baker suggests, by raising inflation and easing some of the crushing debt faced by homeowners. Why doesn’t it do any of these things? Because the reverse is also true: Where there’s no political way, there’s no way. Remember that when the talking heads tell you that Ben Bernanke’s hands are tied. It’s not true.
Thar she blows!
Jamie Dimon, CEO of JPMorgan Chase, said it more plainly than anyone else. He patronizingly told the country that he explained to his tiny daughter that financial crises are something that happens every five to seven years - and, he no doubt added, “only to other people.’ Their lifeboat is secure and ready. How’s yours?
Five-to-seven year cycles are pretty much the norm in under-regulated banking economies like the one Dimon and others are successfully fighting to retain. On our economic ship, most of us are merely ballast. And since the last crisis was three years ago, wwe’re likely to be deep in the middle of this ongoing jobs and housing crisis when the next wave hits. And instability around the world is making it seem as if that next crisis could come earlier than expected – perhaps much earlier.
We should have all hands on deck right now, repairing this economic wreck and fortifying ourselves for the coming threat. But the government has turned the wheel into the storm, gone below decks for a drink, and decided to hope for the best. We’re headed into the teeth of a disaster, and the soft murmurs of the political class are nothing more than the sound of the orchestra playing “Nearer My God to Thee.”