Wednesday, November 10, 2010

The Fire Sweeping

Ross Douthat writes in The New York Times that Republicans are unprepared to confront the nation's three biggest problems, which he identifies as
the short-term challenge of a jobless recovery, the long-term crisis of entitlement spending and, in the medium term, an economy that wasn't delivering for the middle class even before the financial crisis struck.
Douthat is right about Republican unreadiness but misses the larger point: A fractured American political system will not allow us to meet the demands of a 21st Century global economy. Moreover, the underlying values of the American political tradition might well impede even an intact system from responding with the alacrity demanded by the modern world.

As China and India maneuver to take their place in the global economy, American politics looks inward to the banalities of partisan politics. Two billion people demand their slice of the pie -- and it's unimaginable that they won't get it -- and instead of turning its attention to expanding the pie, American politics has become engulfed by a wave of nativist know-nothings who vehemently oppose relatively modest legislation that at best will buy time while we deal with the issues Douthat outlines.

Douthat, though, is dead wrong about the nature of these problems. They don't divide neatly into short term, medium term, and long term. Each reflects a major challenge that if not addressed with urgency could undermine the economy for decades.

It is not at all clear that unemployment is a short-term crisis. In fact, the economy may well be impaled on a two-edged structural sword. Businesses have money but are not using it to hire, having discovered that they can get by requiring employees to work more while getting paid less. Meanwhile, the mortgage crisis has driven consumers into a fetal position.

Most homeowners regard their house as their long-term savings account. When the brokers of unsecured mortgages ravaged the economy, they did so in part by looting the life savings of longtime owners with secured mortgages. As home values plunged, billions of dollars transferred from the middle class to the Wall Street marauders.

Consumers are unlikely to consume when their life savings have been decimated. Since mortgage foreclosures continue unabated, home values won't be returning to their pre-recession levels any time soon. Between the lack of spending by business and the lack of consumption by everyday people, it's hard to see unemployment as a short-term crisis.

Regarding entitlements, the problems posed by Medicare are immediate, not long-term. As the country ages, the spending on Medicare has rapidly outstripped what little increase in income there has been. Unless something is done now, conditions will worsen until the point that Medicare threatens the entire economy. (Social Security, however, is on relatively sound footing and requires only minor adjustments.)

As for Douthat's last point, the economy hasn't delivered for the middle class in thirty years: Real wages have barely budged since 1980 after years of rapid increases. Today, the United States suffers from one of the broadest income disparities in the developed world.

This is not news to politicians or economists. And yet our political system lumbers futilely, like Cyclops blinded. Why? In large part, the blame falls on the legislative body called the United States Senate.

-Next: Stuck In The Muddle-

6 comments:

TAO said...

The reality is we have a predatory capitalistic economic system. It is not an economic system that is based up the free trade that is inherent in the concept of supply and demand where through the free exchange of labor, capital, or product everyone gains but rather involves living on or given to victimization of others for personal/corporate gain.

Theoretically, capitalism is a win-win game but nowadays it is a win-lose game.

mouse (aka kimy) said...

great.

am sure you read kristof's nov 6th piece in the nytimes entitled "our banana republic" - if not check it out some good factoids that go along nicely with your post....

paula said...

As you said, we are being led by "a wave of nativist know-nothings that vehemently oppose relatively modest legislation that at best will buy time while we deal with the issues." If the politicians and economists know what's ahead, then it's the general public that needs to be educated, and not encouraged to blame the furriners, as the GOP has taught them through their mouthpieces on Fox, etc. We need to embrace diversity at every level, in every part of the country as the first step toward becoming a global player, not a global stumbling block. Otherwise, we face the deluge, as you and Tom Friedman so eloquently predict.

Infidel753 said...

So what's the solution? The stimulus stemmed the job losses and returned us to at least modest job growth. A tax structure that rewarded job creation in the US while penalizing moving jobs overseas would surely help.

Of course, the Republicans will surely try to obstruct any such measures.

TaraDharma said...

Have you seen the movie "Inside Job?" I'd love to read your review of that.

I was puzzled when economists declared the recession over. WTF? I am disgusted that Wall St. has returned to business as usual. When it the public going to wake up?

Dave Miller said...

And yet our political class, in a response that can only be described as Alice in Wonderlandesque, continues to race after sound bites and political advantage rather than invest in the hard work of solving problems.

While there may indeed be American Exceptionalism, as posited by the right wing, sadly, there are few practitioners of it in Washington.