As through this life you travel,
as through this life you roam,
you’ll never see an outlaw drag a family from their home …
—Woody Guthrie, “Pretty Boy Floyd”
Call it a bailout or a rescue, the plan to use up to $700 billion in tax dollars as a form of fiscal CPR for this country’s financial system makes a lot of people, including me, unhappy. Sure, sending all this dough Wall Street’s way may be necessary in order to provide businesses with credit and prevent the kind of meltdown that was previewed last week, when the stock market tumbled almost 800 points in a single day.
But many of us couldn’t escape feeling that we were being asked to make good not just the bad behavior of so-called “Fat Cats,” but a value system that’s proven to be as incompetent as it is corrupt.
Indeed, we saw a “system” being put ahead of the people that it supposedly exists to serve. And so an unthinkably huge amount of money that we have been told over and over again is simply not available for investments in public health care or transportation or education suddenly materialized to buy up the toxic assets created by the nation’s financial institutions.
Kevin Phillips saw this coming. In Bad Money, the book he published last spring, Phillips recounted what he has called “the greatest story never told” — how, that is, the United States government, under both Republican and Democratic administrations beginning with Reagan, running through Clinton and including Bush father and son, determined that our financial industry would be the one sector of the nation’s economy that would never, ever be permitted to fail. Phillips points out that when Reagan came into office, manufacturing and financial services accounted for roughly equal shares of the country’s GDP. But, over time, as manufacturing faltered, Phillips argues that no serious attempts were made to prop it up, or bail it out. Whereas the Federal Reserve and the Treasury were ever-ready to come to the rescue of their Wall Street brethren. The last regulatory barriers to a total financial free-for-all fell when New Deal legislation held over from the Great Depression designed to create a firewall between banks and investment institutions was repealed with the blessing of Robert Rubin, the Treasury secretary, during the Clinton Administration (and now, sad to say, one of Barack Obama’s principal economic advisors).
To those people who protest that this deregulation created unprecedented wealth, Phillips says sure: for about 2 percent of the population. Everybody else got unprecedented amounts of debt. And the basis of the country’s economy shifted from making things to trading paper.
Under these circumstances, it’s no wonder that elected officials have been talking about the country’s economy being on some kind of precipice. As far as they’re concerned, the financial services industry is all the economy we’ve got.
No one really knows if or how well Washington’s efforts to recover from the credit crunch will work. At the moment it seems that all anybody really wants is stability enough to reassure foreign investors that the dollar is still a going concern. If you think $700 billion is a high price to pay for stability, you’re right. According to the “experts,” though, that stability is far better than the alternative.
But if there was ever a time to think in terms of real alternatives, this is it. We have to begin by revisiting what we mean when we talk about economics. It’s hard not to find a connection between the determination to make the financial services industry the key to our economy in the 1980s and the simultaneous popularization of MBA degrees in American colleges and universities. As bottom-line thinking became an academic enterprise, it also became more abstract. And as numbers became the main measure of economic success, our economic understanding became increasingly cut off from the communities it is meant to describe and serve.
What we’re finding out to our cost is that an economics that doesn’t include peoples’ lives and the well-being of communities in its equations comes close to being a kind of fiction because it has no way to account for actual worth. It is glib to say that a commodity is worth whatever someone is willing to pay for it. This may be true for works of art or baseball cards, but when entire neighborhoods are put at risk, we should realize we have to find a better way.