The U.S. Congress is working “to finalize the language of an agreement,” reports the NYTimes this morning, concerning “the bailout” of what has been called “the financial crisis” and/or “the economic crisis” in the United States.
Overthinkingit.com imagines “put[ting] Bruce Wayne in charge of the SEC.” Surrealism of The Dark Knight aside (compliance or complicity?), critique and background information (listen to Jim Crotty’s interview) has been issuing from my University for weeks. I admitted to a friend,
“I don’t know enough about macro-economics to argue [against the opinion that the bailout is the only option], and certainly have no idea regarding the other consequences (intended and not) that will rain down upon us little people if they do not bail out the banks, but letting people keep their homes seems good to me. Let the major players take the hit and figure out new, better rules.”
Perhaps a naive stance, but I want to bridge the harder science of physics with this soft science of economics. I missed most of last Friday’s live broadcast from CERN about the next operational steps for the Large Hadron Collider. When I did tune in, one of the scientists was responding to a concern that iron might bend against the steel floor (or some such) because certain experimental results differed from simulated results in an earlier test.
The point the responding scientist emphasized, was that the data is the information, not the simulation: “We won’t fit the data to the simulation,” he said (quoted from memory), “We will believe the data, as we always should.” Someone else argued: “We must do a risk versus benefit analysis for every intervention we imagine we want to make…. according to the Alara Principle – you must do it now” (in this case, install a pre-shower). The question CERN scientists are debating is:
The CERN debate regards when to determine priorities – now, or after some weeks of data has been secured? In another email, I wrote:
I believe [the critique emerging from my University and others] engage[s] the matter of the government tending to bail out the large investors and major institutions (even if the premises for their business are shaky – such as financing purchases that people cannot afford) instead of, or without also bailing out the individuals who suffer the most direct and dire consequences.
I do not want a debate between conservatives (keep traditional, established systems in place) and progressives (change everything), rather, I’d like to figure out ways to change our basis of comparison to long-term sustainability with evidence of gradual improvement for everyone: this is my understanding of U.S. banking policy after the Great Depression, and especially after WWII. Indeed – up through the 1960s, ALL social classes improved their status. Of course markets are more complicated now, but that is just an excuse for a lack of creativity and policy innovation.
Of course, it always matters which data one chooses to pay attention to, and there is always information left out. So illustrates another article in today’s NYTimes, describing the participation of Goldman Sachs in negotiations to save American International Group. Gretchen Morgenson explains that the housing collapse is often cited – i.e., framed – as the “cause” of the problem, but argues that A.I.G. is a better exemplar, much closer to – and indicative of – the root of the problem:
the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models.
I am astonished at how easy it has been for the housing market as symptom to become the scapegoat for the problem.
“We have to commit [the bailout agreement] to paper so we can formally agree,” Nancy Pelosi is quoted in the NYTimes headline story quoted above. The language is the crux of the matter.
The BBC’s Newsnight reported (introduced with a dramatic actionflick score) on Friday’s imminent challenge to the U.S. Congress about dealing with the U.S. economy. This clip was shared with my academic department (Communication) with this intro:
“If you are interested in English humor, BBC-interview techniques and reporting, and want to learn a thing or two about the current ‘Wall Street’ crisis, which you may have missed in the [U.S.] mainstream media, watch [it].”
I learned a thing or three about the dynamic forces at play: financial interests, political imperatives, the role of the presidential campaign debate as a factor in Congress’ negotiations. Responses from Communication Department faculty included “Stephen Colbert’s razor sharp take on the financial crisis,” and a multilayered observation comparing British and U.S. modes of humor and reporting.
In addition to Colbert’s labeling of the (apparent) need for the U.S. to decide “in a panic” the largest financial overhaul in our lifetimes, is that while the BBC may have more of a history of engaging “troubling questions,” such difficult questions “are [being] posed of those proposing the bailout, questions that used to be hard to pose here [in the U.S.]. Now, though,” explains another faculty member, “they’re surfacing, e.g. on Rachel Maddow (weeknights, MSNBC, also mainstream).”
Maddow’s metaphor of kids in a candy store is excellent. Robert Reich also weighs in on the sugar high. Addiction. That is what this behavior reminds me of – junkies who will do anything in order to score the next hit. Addicts need treatment, and toxic substances (such as those emitting radiation) need careful, deliberate, and open handling. We need to weigh the financial and economic priorities at stake – those in potential as well as those at risk.
Watch the metaphors: soft economics? Only cuddly and kind for CEO’s… 😉
Grin, yes, I meant softer as a science in comparison to the science of physics, but your point is well-taken: the economic policies of our day range from the unkind to the violent.
The challenge of softer sciences is the fact of greater latitude for interpretation. In physics, the boundaries of an experiment are pretty well-fixed, and the definitions of the variables just about immutable. In economics, people draw the lines in all kinds of different ways, coming up with results and findings that do not apply across variation. If we’re going to have meaningful dialogue about priorities in economic policy, some agreements have to be made about which boundaries (particular fields of investment, for instance) are going to be used, and which factors (whose lifetime savings and/or profit, for instance) are going to be used as the standard of measurement.
Here’s another article with a broad yet specific historical sweep: A little problem with capitalism.
Thanks to a UMass Communication Department professor for sharing another scholarly article.
In “Old Wine in a New Bottle: Subprime Mortgage Crisis-Causes and Consequences,” Michael Mah-Hui Lim details that it is the “. . . financial strategies based on market innovations that have heightened, not reduced, systemic risks and financial instability [which] led to the crisis. In addition, the underlying structural causes of the crisis are located in the loose monetary policies of central banks, deregulation, and excess liquidity in financial markets . . .”
You’ve raised some great points. In reference to your comments on the Hadron Collector, I agree that US policy is often shaped by first describing what we want to do, then figuring out how to accomplish it, instead of looking at historical trends and choosing a solution, however ideologically inconvienent, that seems to fit the years of economic data we’ve accumulated. This is due to the polarizing of the US, something I partially attribute to symbols coming to BE the objects they denote. Hence why everyone loves “democracy,” and “freedom,” hates “terrorism” and “greed,” but can never seem to agree on how to define these abstract concepts. They’re just thinks that invoke rage or fuzzy warmth, but almost because of the words and what associations we mentally leap to, as opposed to concrete (or amorphous) definitions that lie behind them. The outcome of this is circular hilarity like “terrorism is bad because it’s terrorism” and “freedom is good because we all love to be free.” I think you know who I speak of, but in truth, it affects us all.
As for coming out of the Great Depression, I’m still confused what to think, but my marginal knowledge of economics tells me to make a comparison. There’s the idea that if workers make too little, an economy will stagnate, because they can’t afford to but the factory’s output in full, causing a recession. In the depression, as we know, people were maxed out on layaway and store credit; sound familiar? Like then, we have no more to borrow on; no more cash ready to sop up factory output and keep the economy expanding. At the same time, like in the years preceding the depression, massive fortunes were made by shuffling paper- paper that eventually because wildly divorced from the property that backed it. This is even more so today with head-spinning investment games run by companies like AIG. Eventually, the market corrects itself, and people lose money. Housing was just one part of this adjustment of paper to capital, and indeed came to signify the contraction of the economy as a whole.
As for long-term stability? You did note the fifties and sixties were years of booming economies, no? They were also years of quickly rising salaries; everyone did better, even the marginally employed. That means they had more money to buy things, further creating more jobs, expanding the economy, and hopefully, recieving even better compensation based upon expanding profits. In the seventies, stagflation set in because workers wages kept declining and thus less was consumed. I think it works as an anecdote for the belief that the wealth of the rich still depends upon the status of a Nation (or these days, world’s) poor. Something to think about; we love to extract the maximum value from every worker, ala China, but we also need worker as consumer to buy what they make.
I’m impressed by this statement from David Brooks as he continues Thinking About Obama:
“It’s not willpower or self-discipline he shows as much as an organized unconscious.”
We definitely need to organize our collective unconscious, and the more individuals operating from this basis the greater our chances of making wiser (more comprehensive) decisions than we have in the past.
My apologies for the break in solid dialogic turn-taking, I’ve been tossing a few quick comments in this discussion of economics so as not to lose these contributions. Here’s an op-ed that includes figures of the real incomes of plumbers in Ohio, and a bit of historical contextualization about forty years of Republican party strategy and income/inflation 2000-2007.
I am thinking that Obama’s economic proposals look better and better: a return, albeit under a changed macroeconomy, to some of the structural basics that enabled the steady household income increases of the fifties and sixties. Concurrently, as Manimal suggests, we have to figure out better ways of balancing our incomes/wealth with that of workers the world over. Is anyone already familiar with the international implications of Obama’s economic proposals?
A related blogpost includes thoughts on a discussion over lunch with the CEO of a major financial services company.
My apologies for the break in solid dialogic turn-taking, I’ve been tossing a few quick comments in this discussion of economics so as not to lose these contributions. Here’s an op-ed that includes figures of the real incomes of plumbers in Ohio, and a bit of historical contextualization about forty years of Republican party strategy and income/inflation 2000-2007.
I am thinking that Obama’s economic proposals look better and better: a return, albeit under a changed macroeconomy, to some of the structural basics that enabled the steady household income increases of the fifties and sixties. Concurrently, as Manimal suggests, we have to figure out better ways of balancing our incomes/wealth with that of workers the world over. Is anyone already familiar with the international implications of Obama’s economic proposals?
A related blogpost includes thoughts on a discussion over lunch with the CEO of a major financial services company.