When a debt circus starts to fold there is a desperate resort to hard assets. The banker seizes the real estate; investors head to precious metals. America’s biggest debtor is the federal government itself. As the hyper-leveraged economy contracts; and as China and other countries balk at financing the deficit that the Bush Administration deliberately has created; there will be demands to liquidate the common pool to keep the operation going. It won’t be entirely an accident.
We’ll be told we have to ease restrictions on poisons in the water and air, to get the “economy” going. We’ll be told the public domain has to go as well. Offshore oil? National forests? Resort developments in the national parks? There will be a replay of the contractor honey pot that the occupation of Iraq became, only this time on the privatizing front. There have been previews around the country. Local governments, starved of tax revenue, have had to sell access to a captive audience of school children to corporate advertisers, just to raise money. We’ve tossed the kids into the liquidation fire. Why not trees?
I’m not saying that Grover Norquist and Karl Rove plotted out the whole scenario step by step. But I do think they are smart enough to know where their policies ultimately tend. Recall the admission of David Stockman, President Reagan’s budget wizard, that “supply side” economics was a hoax from the start. The intent never was to increase revenue by cutting taxes, the way they said. (Though the well-meaning Jack Kemp probably believed it.)
Instead it was to starve the federal government of revenue, so that Tip O’Neill and his fellow liberals in Congress would have no choice but to slash programs and regulations. That has been the aim of the Bush people all along; and they hardly bothered to dress it in supply side apologetics. The government is bad, so just cut the hell out of the thing. This is why deficits are good: they tie the hands of Democrats even if they get back into power.
The corollary is to expand the military budget and lock in that expansion with commitments abroad. Reagan did this, and Bush/Cheney is doing it in spades. So long as the Pentagon gets the money the regulators and Weeping Winnies can’t. That much of the defense money goes to contractors makes it win-win. This is not the only reason Bush et al were so eager to invade Iraq. But I do suspect it crossed their minds, in a pre-dispositional way at least. (As for the other reasons, isn’t it strange it took Alan Greenspan to utter the “o” word last week, as opposed to a Democrat in Congress?)
As with Iraq, when the Bush team re-grew the deficit they fed a larger fire they didn’t understand. The entire U.S. economy — a euphemism if there ever was one — is built on debt. The so-called sub-prime mortgage crash is really just the scraping of the sub-bottom of a barrel that had to somehow yield more to keep the machinery going. The government deficit is just one part of a cultural proclivity to rob the future and leave our grandkids with the bag.
Debt is more than an instrument of policy in the U.S. It is leitmotif, the game itself and not just a way of playing it. It starts with money. Every dollar that enters the “economy” comes with a prior claim attached in the form of interest. That is the way the money system is constructed. Banks create money, under auspices of the Federal Reserve. This means the machinery of buying and selling must churn ever faster just to meet the obligations that are built into the medium that drives it. The claims of shareholders and Wall Street are on top of that.
The late Henry Ford is reputed to have said, “If the people knew the truth about money there would be a revolution before morning.” I have not been able to track that down. But it sounds like him, given his view of bankers; and the way banks get to tack their vig onto every dollar is a major reason why. An economic machine that runs on this kind of fuel is unsustainable even before you add get to natural resources. The money fuel makes it inevitable that the machinery will get to the kind that’s in the ground.
Life requires stability and rest; but the economic machine can never stop, unless it hits the wall. The particular pathologies of the U.S. economy today are on top of this basic one, and in some ways are an outgrowth of it. Paul Craig Roberts, the former Reagan Treasury official, nailed them in a recent column. The notion, widely believed in Washington and in the media, that you can export jobs and then borrow your way to prosperity is a crock, Roberts observes. The U.S. now has a trade deficit of $800 billion a year. The continued hemorrhage of jobs, and the depression of wages, mean we are making less money from the production that remains.
“How long can Americans consume more than they produce?” Roberts asks. “American over-consumption can continue for as long as Americans can find ways to go deeper in personal debt in order to finance their consumption and for as long as the U.S. dollar can remain the world reserve currency.”
I don’t pretend to understand all the implications of losing the reserve currency status. But I know they aren’t good, for the U.S. at least. Roberts points out that government statistics actually have been understating the problem. When corporations export jobs and thereby reduce their labor costs, for example, the government counts that as a boost to U.S. productivity. Somehow that isn’t surprising given the view of the current White House towards reality in general.
The Right used to admonish us to run the government like a household. Now that’s happening and it’s part of the problem. There is an even more basic one. It is something the conventional economic mind doesn’t know even how to cognize let alone deal with. The assumption always is that more stuff and output mean more well-being. The only challenge then is to keep the financial hydraulics in balance and the “incentive” structure in place. Questions of distribution do arise; but the worth of that which is to be distributed is not questioned.
What happens when people get tapped out not just in their ability to buy, but in their role as “consumers” to begin with. What happens when “consumption” becomes evidence not of greater happiness but rather of breakdown and distress?
I’m not talking about the way the third Jacuzzi doesn’t provide the same kick that the first two did, nor about frivolous expenditure generally. I’m talking about actual pathology that appears as “consumption” in the official reckonings of economic health. For example, the escalating medical costs that have become a central part of economic “growth:” in the U.S. these are prompted not by lack but increasingly by other growth, in the form of junk food, environmental toxins, too much driving and television, and the rest.
This phenomenon takes a multitude of forms. Barrage the kids with junk food ads and then treat them for obesity. Pour toxins into the water and then treat the cancers that result. Construct sprawling suburbs and then sell lots of gas. It is an iatrogenic spiral in which “growth” creates the very problems that more growth is supposed to solve. Nothing in the arsenal of economic policy can begin to handle it, because it suggests the end of economic reasoning itself, at least the dominant mode of the last two hundred and so years.
Tab that for future reference. It’s a qualifier that needs to be added to any discussion of the economy but rarely is. The point here is that the debt game has run its string. These warnings have been coming for a number of years now; but that doesn’t make them any less valid. You jump from a tall building with your eyes closed and you think you are flying. Then….splatttt.
When that occurs, it will do for right wing fantasies of public divestment what 9-11 did for Neo-con fantasies of invading Iraq. Bondholders will be clamoring. The military will have to be paid. Does anyone really think that offshore oil leases, the national forests, development rights in the national parks, the ANWAR oil, won’t suddenly be in play?
And not just those. The financial crisis that appears in prospect will present opportunities on many fronts, and not all of them benign. Yes, the Great Depression made possible the New Deal. But Germany got Hitler, after the staged Reichstag fire, as Mr. Roberts points out.
It came out last week that General David H. Petraeus, chief of the Iraq “surge,” harbors presidential ambitions. This is as not far fetched as it might seem. When events seem to be spinning out of control there is an instinctive grasping at symbols of authority and order. It’s happened before, is all I’m saying.