Mr. Obama, Please Tell Us Some Sweet Little Lies
Capitalism is a faith based system. We would like to think it wasn’t, we would all like to think it was scientific and perfectly responsive to supply and demand. But it isn’t so. It is based on faith, faith in the future. While capitalism is not as ambitious as its defeated foe, Marxism, we are equally mistaken to believe, as the Marxists did, that it is a scientific and perfect solution for our future. Capitalism needs faith as much as are dogmatic religions do. Without out faith in the future capitalism is doomed, and the current recession is a “dark night of the soul” for capitalism.
The world financial markets lost faith in our real estate markets, and the complex derivatives that it had invested so heavily in. Quickly the whole house of cards began to collapse, and now it is being held up with toothpicks, slowly stabilizing, but nonetheless, fragile. The current bull market on Wall Street, and the recuperation of the commodities markets? Do we believe them? If we don’t we are in trouble.
I think there are serious doubts about the core numbers. Compare it to a couple where one has had a wild affair and the other partner finds out, and after a very big crisis, they try and make it work again. We are in the “lets make it work period”, but serious doubts remain. Without trust, a couple is doomed, and without faith in the future, capitalism is doomed. How do we restore faith? How would a couple do it? With big gestures, flowers, jewelry, trips, lots of phone calls and messages. How does a world regain faith in an economy? Lots of good numbers…. GDP, inflation, unemployment, real estate prices, etc..
Wall Street has almost single handedly orchestrated a worldwide financial crisis. They created financial products that were backed up buy the real estate bubble. When the bubble burst, so did their math, and the whole deck of cards collapsed. But imagine if we had faked the numbers. If all public data providers just lied, and said the real estate market had flattened, reached its peak, but prices were holding firm at the top, I think the whole crisis could have been averted…temporarily.
This would have saved the world financial sector a big headache. If people were convinced that prices were holding, there would have been no financial crisis, and the recession would have been a light one at worst.
Kevin Phillips describes very well in his Harpers article from May of 2008 how the US Government has been cooking the numbers since the Kennedy administration. Kevin Phillips Harpers Article
From Phillip’s article
“Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.”
And the pre-crash inflation rate, without pre-Clinton adjustments would have been close to 10%, meaning real interest rates would have been in the mid teens. Not surprising to see now that we were living a real lie, it was all fake, interest rates, inflation, not to mention GDP.
“Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy.”
So what do we do now? Tell all, and hope we are forgiven? Or keep lying. I say we keep lying. If the other partner is really in love (and they are, who wants to give up 60 years of “good living”?) Mr. Obama, please, tell us the numbers are much better than they are, start us on one hell of a recovery. It worked very well, especially in the 90’s and post 9/11 period, no reason to think she won't believe this was our last fling with easy money. “It will never happen again, I promise babe!” But this time, when the going gets good, we must make the fundamental changes necessary to really put on us a steady course.
And what would those be? First, a single payer health care plan, reducing our health care costs by at least 25%. That will put some reality back into inflation and GDP. Second, we need to make massive investments in new energy before oil takes off again, as it will as we approach peak oil. Third, reduce substantially our military spending to reflect a new world order, and use those savings to reduce the budget.
Once these massive changes are implemented, maybe we can pull back the curtain and show the real economy behind curtain Number 1 and hope that with such massive restructuring, we will be able to dissolve the old lies into something fundamentally very different.
If world oil production remains flat, and demand recuperates to it pre-crash growth of almost 2% a year, we will soon have a major worldwide energy crisis on our hands that will make the subprime crisis seem like a little turbulence. Mr. Obama, tell us some lies, but than please do what you have to do in the meantime, and do it quickly.
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