Category: Financial Crisis

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Economics Financial Crisis Foreign Policy Politics

Stimulus and Stability (cont.)

Nicholas Kulish in The New York Times explains how “Europe, Aided by Safety Nets, Resists U.S. Stimulus Push.” 

I wrote a few weeks ago that:

…there seems to be some sort of inverse relationship between a society’s social safety net and the amount of stimulus spending they are proposing. 

This makes sense on a number of levels. Automatic stabilizers which should take some of the pressure off a need for a stimulus are not included here. On another level, these nations without a strong safety net must rely more heavily on economic growth for societal stability. 

If this is true, China and America would be more reliant on constant economic growth to relieve social and political pressure and would be more likely to have larger stimulus packages. France and Germany with stronger safety nets would feel more insulated and be less likely to push for large stimulus packages. This is exactly how this matter is playing out on the world stage today – with some exceptions due to political leadership. 

But both states with strong social safety nets and those without them are dependent on growth over time. But those states without strong safety nets feel the economic bumps more strongly – and downturns end up being more disruptive.

Kulish writes now that:

The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate…

Mr. Posen and others argue that while Germany may be doing more stimulus spending than others in Europe, it is counseling other European countries — many of which share the euro as their common currency — not to spend their way out of recession either, but to count on their safety nets to do much of the job.

Nothing groundbreaking on either of our parts – but it’s an example of how fundamental societal agreements – the social bargains underpinning the state – affect everyday policy.

Categories
Conservativism Economics Financial Crisis Political Philosophy Politics The Opinionsphere

The Only Credible Response to Globalization

Niall Ferguson in The Telegraph:

Underlying this tremendous growth in financial markets was a fourfold liberalisation of international markets for goods, services, capital and labour. This was not, of course, peculiar to the English-speaking world: globalisation, as its name suggests, is ubiquitous. But its implications for those on the Anglophone Right were distinctive. Unremarked by conservatives in Britain, America and even Australia, these great shifts created a new and much greater trilemma.

Suppose that a government can have any two of the following things, but not all three: globalisation, in the sense of openness to international flows of goods, services, capital and labour; social stability; and a small state. Or, to put it differently, conservatives can pick any two from an open economy, a stable society and political power – but not all three.

Ferguson is extremely articulate (and credible) in his explanation of why conservatives have no “articulate” answers to globalization. He believes that conservatism will be able to once again thrive once it chooses to sacrifice social stability, which he links to social mobility. Although the two concepts certainly are related, it’s hard for me to accept the re-branding of one as the other – and it seems a bit too pat on Ferguson’s part. On the other hand, Ferguson describes the other side of the argument:

Only the Left appears to have a credible response [so far]: globalisation, plus social stability, plus a strong, interventionist state.

The set-up Ferguson proposes then would be:

The Left

In favor of:

  • Globalization
  • Social stability
  • Strong, interventionist state

Accepting as necessary evils:

  • Government interference
  • Less social mobility

Conservatives

In favor of:

  • Globalization
  • Social mobility
  • Small (but “smart”) state

Accepting as necessary evils:

  • Inequality
  • Booms and busts of the financial cycle
  • Social disorder

Ferguson avoids all the tough questions – such as what “smart” means – and how this would relate to regulation – and just presumes that governmental actions, inequality and social mobility are directly related – and that somehow, more inequality leads to more social mobility. I think perhaps Ferguson is attempting to create a scenario when he can plausibly oppose the man he describes as “the most Left-wing Democrat ever elected to be President of the United States.” This seems to me to be a rather implausible description of the pragmatist that Obama is. But this points to what is distorting Ferguson’s extremely interesting and insightful view of political ideologies and the current world trends. 

Let me propose an alternate party – one that it seems Barack Obama is already leading:

Liberals

In favor of:

  • Globalization
  • A strong, interventionist state to aid in the creation of and to police the market
  • A state that balances the need for a social safety net and individual incentives
  • A balance between social stability and social mobility

Accepting as necessary evils:

  • Inequality (but not extreme inequality)
  • Government interference
  • A level of social disorder
  • The boom-and-bust financial cycle (but mitigated)

The idea is to maximize certain goods while balancing against the evils that are their side effects. Extreme inequality can decrease social mobility at least as much as government distortions. A social safety net of the right type can act both a great equalizer and as an incentive for individuals to pursue their entrepreneurial ambitions. 

My problem with Ferguson’s critique is that he seems to view the debate between the Left and conservatives as an either/or proposition – which it often is – but given the situation he describes, it’s more an argument of degree rather than kind. The Left that Ferguson is arguing against may favor social equality over social mobility but both sides agree that both goals are worthy. It’s a question of what the right balance is.

Categories
Financial Crisis Politics Scandal-mongering

Eliot Spitzer’s Comeback

In the past few weeks, Eliot Spitzer has been all around us. His Slate columns have become a must-read. He was against AIG before it was cool. He was railing against the excesses of Wall Street while everyone else was enjoying the fake boom. 

If it were not for the scandal that forced him to resign, this would have been Eliot Spitzer’s time. Vice Presidential buzz would be growing; he would be one of the go-to guys that Obama would call to give him cover as he dealt with Wall Street. It is based on this that David Rothkopf at Foreign Policy listed Spitzer as one of the “losers of the week” saying that:

[T]he A.I.G. scandal and the collapse of Wall Street could have been [Spitzer’s] apotheosis, the moment the howling dogs of ambition in his breast might have finally gotten enough red meat of press exposure.

But despite his current disgraced status – and no doubt in part because of it – he has been able to talk more candidly about the “real scandal” of the AIG bailout: that it “has been a way to hide an enormous second round of cash to the same group that had received TARP money already.”

This sets up Spitzer to now say, “sunlight is the best disinfectant“! Ironic for a man brought down by too much sunlight.

I’m going to repeat what I said before – as the conventional wisdom states that the only things that can truly destroy a political career are “a dead woman or a live boy,” Spitzer will be back. Given the magnitude of this scandal, he may be back sooner than we expect. Interviewed on The Brian Lehrer Show last week, his politic answer on whether he is planning to make a comeback as a media person made it clear he is still intent on winning back the public’s good graces.

His understated and calculated public appearances are not consistent with a man looking to become a media personality – he would want more appearances and try to adopt a more strident tone if this was his goal; they are not consistent with a man who is done with politics – as he does not have the gravitas and devil-may-care honestly and looseness that comes with this life decision; instead, he seems to be staging a comeback. He waited just over a year from his resignation before giving his first interview – despite the increasingly clear Wall Street scandal that he had been brewing. He’s focusing on policy, substance, and seriousness to avoid as much as possible talking about his past scandals. But his answer still have the slipperiness of a pol.

It’s only a matter of time before he runs for office again.

Categories
Economics Financial Crisis History Politics

The Reagan Revolution (cont.)

[digg-reddit-me]Some objections have been raised to my two posts on the Reagan Revolution earlier this week (here and here) that stem from a misunderstanding of what I was trying to say – a misunderstanding perhaps based on what I chose to emphasize when telling the story of the 1980s revolutions.

So let me re-tell the story briefly.

Ronald Reagan in 1980 was a man who met his moment. The nation was reacting to the excesses of the New Deal and Great Society liberalism and the 1960s revolutions – and they wanted a return to an older time. The country was in a reactionary mood, but still looking for optimism after the glum and depressing honesty of Jimmy Carter. Reagan blended the two in his own distinctive way. At the same time, the conservative movement that had been launched with Senator Barry Goldwater’s 1964 campaign was finally reaching maturity. The infrastructure of think tanks, foundations, magazines, and other organizations that the Scaife family and the Coors family and the Koch family and later the Walton family and others had started to build in 1964 was generating new and innovative right-leaning ideas. The neoliberal philosophy that Reagan was sympathetic to still only had a small number of adherents, but thanks to the conservative infrastructure it had reach and with marketing savvy was sold. At the same time, wealth was already becoming more heavily concentrated in the hands of fewer and fewer people, giving the rich benefactors of the conservative movement more power.

In this moment, Reagan became president – with liberalism tired and worn out, with a reaction against it’s excesses and the excesses of the revolutions of the 1960s reaching a boiling point, and a conservative movement heavily influenced at the top levels by neoliberalism finally maturing. Thus was launched the Reagan Revolution. 

This revolution wasn’t really about Reagan – but he was the figurehead at the top. A lot of the revolutionary changes had to do with society’s changing mores that allowed, “Greed is good” to became a positive mantra echoing the neoliberal Ayn Rand’s talk of the “virtue of selfishness.” Some of it had to do with the growing influence of the extremely wealthy. Some of it was a reaction against the silliness of the anti-materialism of the hippie generation. But like the 1960s revolutions, which were enabled though not created by the government, likewise for the 1980s revolutions. Reagan’s constant stimulus spending supercharged the economy; his trimming back the social safety net, his tax cuts for the wealthy, and his spending increases accelerated the concentration of wealth and power in the hands of fewer and fewer. His acquiescence to the informal Bretton Woods II arrangement created an economy that “favored finance over domestic manufacturing.” His trimming back of regulations also accelerated this trend. To some degree, these changes had positive effects – as the market was freer, as the economy grew, as corporations thrived, as the overall wealth of America grew. 

But they spelled trouble down the road. The stimulus spending and tax cutting, the informal Bretton Woods II agreement, and concentration of wealth created an unstable system. Internally, the society was imbalanced as extremes of wealth and power were accumulated by a small minority. This eventually undermined the very free market and democratic discourse that is essential to the American tradition. A course correction later might have saved the Reagan vision – and for a time it seemed as if Bill Clinton’s moderate presidency had, as middle class wages finally began to grow again – but Bush doubled down on Reaganism when he should have pared back, and we are left with this mess.

Is this collapse Reagan’s fault? I wouldn’t say so. But he set the initial course towards this iceberg, even if the iceberg was out of sight at the time he set the course. He – and the 1980s revolutions in finance, economics, and government that his administration supported and enabled – are the true authors of this economic collapse, even if they cannot be blamed for not forseeing it.

Categories
Economics Financial Crisis Humor Politics Videos

The Real Scandal of AIG

[digg-reddit-me]Eliot Spitzer, in what is becoming a must-read column for Slate, gets to the nub of the real scandal of AIG:

The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

As I’ve quoted former Governor William Weld before:

There’s no one so brave and wise as the politician who’s not running for office and who’s not going to be…

Yet it is almost as likely that former Governor Eliot Spitzer is following an alternate path that seems similar but has a different conclusion. Let me propose a corollary to Weld’s statement:

A bit braver and a little less wise than the politician who’s not running for office and who’s not going to be is the chastened politician who seeks redemption in the form of speaking truth to power from his exile until he has established his moral bona fides enough to be allowed back in.

A bit less snappy though. Meanwhile, Jay Leno has his own suggestion for how to deal with the AIG bonus issue (the one that Spitzer points out is a side issue):

You have to appreciate the subtle balance Jay manages here – and the craft and delicate political sensibility that goes into a joke like this. Aiming for a mass audience, he can’t offend either Democrats or Republicans. Yet a political joke that is offensive to no one just isn’t funny. So Jay manages to cram two alternate jokes into one – with one interpretation for Democrats and the other for Republicans, and a certain cognitive dissonance allowing both interpretations.

On a superficial level, Leno is chastising the Obama administration and saying that it should emulate the Bush administration. 

But he undermines this suggestion by invoking as a fact – which it is, even if the mainstream media does not often acknowledge it – the lawlessness of the Bush administration – and perhaps even mocking their oft-used Jack Bauer defense.

Yet on another level, what he is proposing – that Obama just forget the law and go after AIG – has a certain elemental satisfaction to it – and would probably be a popular move. There would be a catharsis there, instead of the interminable responsibility of the Obama administration. 

As I mentioned above – there is a certain craft to this. Often, Leno’s monologues are seen as without edge but when they work, they allow multiple edges such as this joke does. 

As a side note to all of this – once something becomes the premise of a joke by Jay Leno, you know it has been popularly accepted as true – or true enough. The fact that the premise of this joke was Bush administration lawlessness is pretty significant in that regard.

Categories
China Economics Financial Crisis History

The Reagan Revolution (cont.)

[digg-reddit-me]I’ve gotten a bit of feedback/blowback about having simplified what went on the in 1980s that led to the indisputable higher levels of income disparity, the concentration of wealth, the decimation of manufacturing, and the rise of finance. This wasn’t about Ronald Reagan and his neoliberal policies – it is claimed – but about basic economic forces. I tried to take that into account by pointing out that Reagan was only accelerating the trends that started in the 1970s – but let me go further now.

Another major factor that aided these trends was not entirely within Reagan’s control. As John Judis explained in The New Republic, in the 1980s:

…Japan was threatened by a cheaper dollar. To keep exports high, Japan intentionally held down the yen’s value by carefully controlling the disposition of the dollars it reaped from its trade surplus with the United States. Instead of using these to purchase goods or to invest in the Japanese economy or to exchange for yen, it began to recycle them back to the United States by purchasing companies, real estate, and, above all, Treasury debt…

With Japan’s purchases, the United States would not have to keep interest rates high in order to attract buyers to Treasury securities, and it wouldn’t have to raise taxes in order to reduce the deficit…[That] informal bargain…became the cornerstone of a new international economic arrangement…

Judis goes on to explain how this arrangement evolved through the 1990s:

Asian countries, led by China, adopted a version of Japan’s strategy for export-led growth… They maintained trade surpluses with the United States; and, instead of exchanging their dollars for their own currencies or investing them internally, they, like the Japanese, recycled them into T-bills and other dollar-denominated assets. This kept the value of their currencies low in relation to the dollar and perpetuated the trade surplus by which they acquired the dollars in the first place…

Until recently, there have been clear upsides to this bargain for the United States: the avoidance of tax increases, growing wealth at the top of the income ladder, and preservation of the dollar as the international currency…

[The current financial system] is sustained by specific national policies. The United States has acquiesced in large trade deficits – and their effect on the U.S. workforce – in exchange for foreign funding of our budget deficits. And Asia has accepted a lower standard of living in exchange for export-led growth and a lower risk of currency crises.

This financial arrangment was not created by Ronald Reagan – but he did acquiese to it – and spent America into a level of indebtedness it had not been in since World War II. This arrangment would not be consistent with a ideological neoliberalism that was discussed before – but this arrangment, most importantly, did benefit many of those who were vocal proponents of neoliberalism. 

The revolutions of the 1980s then, was not merely the result of a political movement within America – not anymore than the revolutions of the 1960s were. There were international factors that helped along both domestic movements. The combination of this special relationship with Japan – and later China and other Asian countries – with the neoliberal revolution of Ronald Reagan – led to a concentration of wealth and power within a small class of people rarely seen in a developed country. As Paul Krugman observed:

It’s important to know that no other advanced economy has seen a comparable surge in inequality – even the rising inequality of Thatcherite Britain was a faint echo of trends here.

Combined with the neoliberal principle, as described by Stanley Fish, that “Short-term transactions-for-profit [are better than] long-term planning designed to produce a more just and equitable society,” it becomes more clear how we ended up in this enormous financial mess. 

Take away the regulations; encourage short-term profits; reduce taxes; trim the social safety net; “starve the beast” by spending without taxing; and then supercharge the economy with constant stimulus spending (which is what “starve the beast” is) and easy debt from China and Japan. What you get from this is not only a revolution that undermines the American way of life in the mid-term – as wealth is concentrated and middle class and manufacturing jobs dry up – but an unsustainable economy that is going to collapse, and collapse hard. 

In other words, you get what we have now.

Today, we are reaping the effects of the generational bargain at the heart of the Reagan presidency.

Categories
Economics Financial Crisis History Political Philosophy Politics

The Reagan Revolution

[digg-reddit-me]In which I discuss a repeated theme of this blog – the two domestic revolutions of the past 50 years that undermined the ever-evolving “American way of life” and caused profound social, economic, and political anxieties. The Reagan Revolution did for money what the ’60s did for sex – and today we are paying the price. 

The 1960s are remembered today – for better or worse – for the social, cultural, and sexual revolutions which roiled the nation between 1960 and 1972. The iconic images and movements of the later, more radical years of the time period primarily involve forces that undermined American mores and traditions. Flower children, the Summer of Love, LSD, marijuana, rock and roll, SDS, teach-ins, Black Panthers – the cumulative force of these challenges to the American way of life led to a backlash, which Richard Nixon and his counterparts rode to power. By 1968, many Americans felt as if their way of life were under siege from radical forces – oftentimes, a radicalism embraced even by their children. Riots broke out in major American cities; illegal drugs were consumed conspicuously and without shame; sex was given freely and openly; the legitimacy of the military, of the government, and of the academy were all questioned and often attacked – all of this in the name of freedom and in protest against the societal structures and rules that had heretofore defined the American experience. By the end of the 1960s, the “silent majority” felt their way of life under attack by these sixties revolutions, as Richard Nixon explained in a speech connecting major societal problems to the “sixties” experience:

We are reaping the whirlwind for a decade of growing disrespect for law, decency and principle in America.

Aside from Richard Nixon, the most prominent beneficiary of this counter-revolution, this reaction against the sixties revolution, was a second-rate actor turned politician, Ronald Reagan. He ran for governor on a law and order platform – pledging to beat back the forces of chaos and freedom to protect the compromises that were the basis for the American way of life. Reagan made a national name for himself by taking aggressive measures to quash the college demonstrations of the “communist sympathizers, protesters and sex deviants” at the University of California, Berkley campus.

In defending his extreme measures that resulted in the death of a student in the aftermath of a police riot, Reagan drew a line in the sand:

If it takes a bloodbath, let’s get it over with. No more appeasement.

Reagan’s popularity stemmed in a large measure from how he was able to harness his populist law-and-order stands with a sunny optimism about America. But when Reagan finally took power in 1980, he did not merely attempt to reverse the 1960s revolutions. He unleashed a new revolution, undermining American values and traditions just as radically as the 1960s revolutions had. As Stephen Metcalf explained in Slate:

The ’80s did for money what the ’60s did for sex.

Metcalf goes on:

They told a miraculously tempting lie about the curative powers of disinhibition. It took AIDS, feminism, and sociobiology a while to catch up to our illusions about free love. It has taken cronyism, speculation, and manic overleveraging a while to catch up to our illusions about free money.

Reagan himself revered Franklin Delano Roosevelt and the New Deal but the forces he unleashed were determined to overthrow not just the Great Society programs of the 1960s and the social, cultural, and sexual revolutions of that decade, but the New Deal of the 1930s and the social and economic structure that sprang from the Depression and the government involvement in its aftermath. The Reagan administration unleashed a neoliberal revolution. While Reagan’s support and popularity was to a large degree a result of his stands against the social, cultural, and sexual revolutions of the 1960s against the commonly accepted American values and traditions, his administration unleashed its own revolution which likewise attacked and undermined commonly accepted American values and traditions.

As Stanley Fish recently described neoliberalism in the New York Times:

Whereas in other theories, the achieving of a better life for all requires a measure of state intervention, in the polemics of neoliberalism (elaborated by Milton Friedman and Friedrich von Hayek and put into practice by Ronald Reagan and Margaret Thatcher), state interventions — governmental policies of social engineering — are “presented as the problem rather than the solution” (Chris Harman, “Theorising Neoliberalism,” International Socialism Journal, December 2007).

The free market was seen by these neoliberals as a natural phenomenon that was destroyed by government involvement rather than the government- and society-tended creation that it actually is, as has commonly been understood by Americans from Alexander Hamilton to Theodore Roosevelt. This neoliberal revolution began with much less fanfare and demonstration and less popular support and revolt than the sixties revolutions, but its effects were at least as profound. There were not the same iconic or disturbing images of radicalism and culture war, or catalyzing events like Woodstock, in this second domestic revolution, but the impact on the fabric that bound and organized the nation was just as profound. By explicitly seeking to undermine the “American system” of capitalism and especially the changes to the social contract since the New Deal (which involved the government regulation of businesses, a focus on local and small corporations rather than consolidation, a focus on labor and manufacturing instead of high finance, and a strong, robust middle class that was the focus of a growing economic prosperity) the Reagan revolution accelerated the trends that had begun to appear in the 1970s. Income inequality soared, middle and lower income stagnated while the wealthiest rose, businesses combined and became ever larger, and regulations were relaxed. In what became known as the Great Divergence, the wealth produced by American society stopped being spread out to the middle class and became concentrated in an ever smaller percentage of the population. The very shape of our society changed as a result of Reagan’s revolutions – and American families began to feel squeezed, until the effects of this revolution became more pronounced. By the 2000s, this “silent majority” again felt under seige – though without the same sense of focus as neoliberals actively sought to shift the blame for these economic attacks on the middle class to the 1960s revolutions in a manner that was still resonant for older Americans.

And while the effects of the sixties revolutions have been widely discussed, the effects of the revolution of the 1980s have been largely unspoken. The concentration of wealth in ever smaller percentages of the population, the economic focus on finance over labor, manufacturing, or industry, the slashing of the social safety net, the push for ever bigger corporations, and the relaxation of any type of regulation. 

Thus Reagan, opposing the cultural, social, and sexual revolutions of the 1960s overthrowing conventions that held together American society, unleashed a new economic, financial, and governmental revolution that overthrew the social contract of Franklin Delano Roosevelt, and the economic and governmental conventions that held American society together.

Categories
Economics Financial Crisis The Opinionsphere

AIG Explains Why It Is Too Big To Fail

The short answer: Yes.

The longer answer: This “Strictly Confidential” document that appeared on Scribd appears to be the same one that Andrew Ross Sorkin described last week in the New York Times as “getting a lot of attention” “inside the corridors of power in Washington.” The presentation is not addressed to anyone explicitly, but it appears to be meant as a kind of briefing on the importance of bailing out AIG for Congressmen and other second-level decision-makers unfamiliar with finance. As is my occasional practice, I’m excerpting some of the more important/interesting points raised in the document for convenient citation later.

This first point is obvious, but still bracing to hear from the source:

Without additional federal tools being deployed in the AIG situation, AIG will not be able to repay its obligations. Despite adequate current security against the U.S. government’s investment, that investment may not be recovered. 

Although some critics of the current approach have begun to question whether the collapse of Lehman led to the fallout that immediately began, it seems pretty clear to me as well as to most who were in the loop at the time that the fallout was the result of Lehman’s collapse. AIG wants to point out that the government did not adequately understand what would happen with the fall of Lehman Brothers – and that AIG is far bigger, more complex and interconnected than Lehman ever was:

Just as the government was unable to predict that the failure of Lehman would lead to the collapse of the Reserve Fund, followed by much of the money market industry, the government would be even less capable of predicting the fallout from the collapse of a much larger, more global and more consumer-oriented institution such as AIG.

Then of course, AIG begins to explain how it’s subsidiaries are essential to the running of the government in general:
AIU insures the U.S. military, the U.N., U.S. and foreign embassies, and important commercial and other organizations worldwide, including the Panama Canal, oil rigs, trucking, marine cargo and Doctors without Borders.
 
AIU’s Defense Base Act program provides coverage to contractors in support of the rebuilding of the infrastructure in Iraq and Afghanistan.
Also, another subsidiary could take down many cities as:
AIGCI is the second largest U.S. investor in municipal bonds.
The report comes to the following conclusions:
  • Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.
  • The failure of the world’s largest insurer at a time of major global financial and economic instability will exacerbate the challenge of reigniting consumer confidence. 
  • Since life insurance has changed greatly in character over the last two decades – from just a basic provision of death and disability benefits to a vehicle for retirement savings and wealth accumulation – the effects of disrupting the industry are wideranging and significant. 
  •  There is a legitimate public policy rationale for regulatory reform of the industry, and the federal government continuing role in AIG’s destiny would be consistent with such a policy direction.

In other words, AIG is too big and too important to fail. It’s probably true – but it’s a big galling to hear a company asking to be bailed out – again and again and again and again – making it. Especially after that company just announced the largest ever quarterly loss in the history of capitalism.

Categories
Economics Financial Crisis Politics

The Battle of the Rich

Newsweek Finance editor and Slate contributor Daniel Gross and I seem to be thinking along the same lines, as we independently came to a similar response to his column of last week:

Last week, I wrote that the Republican claim that Obama is fighting a war against the rich was bogus. Over the weekend, I thought better of it. It turns out there is a war on the rich. Only it’s not being waged by vicious overlords in Washington intent on depriving honest, hardworking stiffs of their livelihoods. Rather, it’s a civil war, a war between the rich. It’s Park Avenue marauding through SoHo, Buckhead rampaging through Hilton Head, Palm Beach shelling Bal Harbour with the big cannons.

Call it the War Between the Estates.

While we both came to the conclusion that there is a battle going on amongst the rich, I came to a somewhat different conclusion about where to draw the lines in, as I wrote:

I realize that we are now observing a “Culture War” between the haves and the have mores, between the elites and the financial elites, between two opposing sides in the “overclass.”

Categories
Financial Crisis Politics The Opinionsphere

Culture War: Overclass Edition

[digg-reddit-me]In which I realize that we are now observing a “Culture War” between the haves and the have mores, between the elites and the financial elites, between two opposing sides in the “overclass.”

I’ve been a bit flummoxed by the class warfare rhetoric coming from certain quarters recently – and I don’t mean from the populists. As Daniel Gross observed in Slate:

To hear conservatives tell it, you’d think mobs of shiftless welfare moms were marauding through the streets of Greenwich and Palm Springs, lynching bankers and hedge-fund managers…

All of this overheated rhetoric is about – as Gross points out – Obama proposing to undo some of the changes of the past eight years – the largest change resulting in the wealthiest few paying about $4.10 more per day to benefit the society which has enabled them to become so wealthy. But I suspect that what Gross has gotten wrong here is what I’ve been getting wrong as well – to identify those opponents of Obama’s “Great Wealth Destruction!” as conservatives. Many of them are – and many conservatives are jumping on this meme as it is the only one that seems to have gained any traction against Obama’s agenda. But the meme hasn’t gained traction because conservatives are big proponents of fiscal responsibility. Supporters of the Republican party ceased to be proponents of fiscal responsibility years ago – and the measures they are proposing now (which would create even larger deficits than the stimulus spending) prove that they truly are out-of-touch or are merely posturing for political purposes. At the same time, non-conservatives like Clive Crook, who supports both health care reform and a cap-and-trade system, have begun to join in much of the conservative criticism. The real source of energy behind this line of attack doesn’t come from conservatives – but from a culture war going on between the financial elites and the rest of the elite which has been supercharged by the financial crisis. Everyone is angry about the great destruction of wealth that has resulted from this crisis – and the question has become where to place the blame, where to direct the still largely inchoate anger.

Matt Yglesias has been suggesting something like this type of distinction over at his blog. At one point, commenting on Jon Stewart’s takedown of CNBC, he wrote:

Comedy Central vs CNBC nicely captures the cultural battle inside the American elite between “creative class” types and the business manager types. Both sides think the other side is composed of idiots…

Then yesterday, Yglesias made a related point about how “the growing overclass revolt [is] taking the American right by storm.” Yglesias critically quotes Lisa Schriffen at National Review‘s The Corner:

The doctors, lawyers, engineers, executives, serious small-business owners, top salespeople, and other professionals and entrepreneurs who make this country run work considerably harder than pretty much anyone else (including most of the chattering class, and all politicians). They are not robber barons, or trust-fund babies, or plutocrats, or even celebrities. They are mostly the meritocrats who worked hard in high school and got into the better colleges and grad schools, where they studied while others partied…

[Obama] is demonizing them… [and] is penalizing their success and giving them very clear incentives to ratchet back on productivity.

Yglesias’s response is to point out that not only is no one being demonized, and that:

Guys who move furniture are, of course, working extremely hard. And even your basic retail employee needs to be on her feet for hours and hours at a time while “executives” comfy chairs. And, again, I don’t think the Salvadoran guys who moved my bed found themselves in that line of work because they were too busy partying in college.

On one level, this is an argument about the fundamental fairness of the status quo – which conservatives tend to accept and liberals tend to reject. But on a more superficial level, we’re not talking so much about a “revolt of the overclass” as a culture war among the overclass – in which the argument is less about whether or not society and capitalism has been fair to “the Salvadoran guys” and more about whether or not society and capitalism have been fair to give the super-rich which so many riches. As this is a culture war, your side on it is not based on such petty facts as your income level or total net worth but by who you identify with. 

America has established something resembling a meritocracy among it’s upper and middle classes – as college education is accessible to most – and from there, any range of careers. This is the world Schriffen is referring to. But what Schriffen misses is the growing gap between the “haves” and the “have mores” – as the lawyers, doctors, and businessmen she lionizes realized that their college friends on Wall Street who were partying instead of studying in college were now making ten, twenty, a hundred times what they were – and still partying just as hard. This resentment has now been exacerbated as we realize that these Wall Street bankers – who have been working hard, partying hard, and making obscene amounts of money – lost all of our money but get to keep their bonuses.

In this culture war of the overclass, level of wealth doesn’t cause you necessarily to identify with either side. Warren Buffet for example would clearly be a member of the have mores, but he identifies with the haves and lives a lifestyle more suited to that group. There are those who identify as or who aspire to be “rich” and “wealthy” and who consider their good forture to be of their own making, who see the crisis as hurting them and their chances at achieving obscene wealth even if they do not have it yet. They tend to blame the crisis not on the bankers but on Obama – which is a bit odd considering the timing of his rise. But as early as September, Rush Limbaugh and Sean Hannity were talking about the Obama Recession and by January, the Wall Street Journal was opinining about it as a fact. Jim Cramer, along with some others at CNBC, decided to take on on the White House with “empirical facts”:

When I somewhat obviously and empirically judged that the populist Obama administration is exacerbating the crisis with its budget and policies, as evidenced by the incredible decline in the averages since his inauguration, I was met immediately with condescension and ridicule rather than constructive debate or even just benign dismissal. I said to myself, “What the heck? Are they really that blind to the Great Wealth Destruction they are causing with their decisions to demonize the bankers, raise taxes for the wealthy, advocate draconian cap-and-trade policies and upend the health care system? [my emphasis]

I think we can all understand why Jim Cramer is angry – he’s been telling people the system is fine and cheerleading the market – and now, he looks like a fool. You can see how people who listen to Cramer might be angry – as anyone listening to Cramer’s advice would be rather screwed. On the other hand, Cramer was merely a part of the system of the financial elites – and he wasn’t saying anything that different from what everyone else believe. The question for the financial elities is whether or not they are responsible for their woes as well as the world’s – or if they can lay the blame somewhere else.

On the other hand, there is the rest of the overclass – and much of the rest of America – who, so far, place the blame for this crisis squarely on the bankers, on the financial industry (whose purpose was to protect and make money), and on lax regulation often promoted by Limbaugh and Hannity and Cramer. The many for whom Wall Street is some half-mythical place to which they entrust their savings are certainly angry today – though the rage is still largely unformed and undirected. In spurts and starts, it is directed at lavish expenses indirectly subsidized by taxpayers – but largely, these people are just hoping things get better. The financial elites themselves see the anger – and know they are the logical target, and so seek to deflect it. For the non-financial members of the overclass who know many people on Wall Street – who are the haves to the Wall Street have mores – they know where to direct their anger – at those whose outsized success has made them look foolish for choosing anything other than a Wall Street career. It is part resentment and part righteous indignation.

Either way, this Culture War of the Overclass is more entertaining than that whole abortion/gay marriage culture war.

[Image licensed under Creative Commons courtesy of shyb.]