Banking should be rather like an old-style utility—something so essential to all of us that it should be regulated like electricity used to be before the preposterous experiment with utility deregulation. And if the government is bailing out and nationalizing banks and other financial intermediaries, why not keep some of them in the public sector? Why not use them to fund real economic development in neighborhoods starved for capital? Why not extend low-cost financial services to poor people who are now fleeced by check-cashing services and payday lenders?
What we’re likely to get is a rejiggered Troubled Assets Relief Program, with maybe some voting stock, more pressure on the banks to lend (though is that what an over-indebted economy really needs?), and foreclosure relief along with a giant stimulus program.
As you’ve probably heard, a new regime took over on January 20. And however much appointments like Larry Summers and Robert Gates contradict the Obama brand’s principal selling point, “Change!” it must be admitted that the likely stimulus program looks half decent in both size and content. It’d be nice to see some social spending and redistribution, too, but it’s no surprise that this gang isn’t proposing that. Infrastructure spending, green energy, and aid to state and local governments are all good things and will have a salutary economic effect, too.
But there are some contradictions to consider, aside from personnel vs. campaign slogans. One is financing. Almost everyone assumes that the United States will have little trouble raising hundreds of billions for its bailout and stimulus schemes. What if it finds selling all those bonds a little rough? Could the United States someday be perceived as a credit risk like Italy, only much bigger? Say this forces interest rates up—what would this do to the private economy, financial and real? This is not likely to happen, but it’s not at all impossible.
And then there are the contradictions that credit resolved for a while. Much of the restoration in corporate profitability from the early 1980s through the late 1990s—a trend that sagged in the early 2000s, then returned, though not as magnificently as before—came from squeezing labor harder—wage cutting, union busting, outsourcing, and the rest of the familiar story. All this constrained purchasing power in an economy that thrives on mass consumption. What wage incomes couldn’t support got a lift from borrowing—credit cards first, then mortgages. The credit outlet is now shut and will be for quite a while, forcing consumption to depend on wage income, which is shrinking. Capital will want to squeeze labor harder to restore profitability, but consumption won’t have credit to help it out.
You could argue that this is exactly what the United States needs in orthodox terms: to invest more and consume less. Investing more means directing more cash into things and certain kinds of people (engineers rather than brand consultants) and less into Wall Street’s pockets (which ultimately means the American rich). This is a very different economic model from what we’ve been used to. It’s probably not what a working class that has experienced 35 years of flat-to-declining real wages wants to hear. A more humane way to reduce consumption would be taxing rich people, who still have lots of money; some of it could be given to the less rich, and other of it to funding the bailout and stimulus programs. That’s not in our present politics, but politics could change. But, to return to the first of the contradictions listed above, many people who voted for “Change!” are instead getting a slicked-up version of the status quo. That’s likely to lead to some disappointment—a potentially productive disappointment. The sense of possibility that Barack Obama has awakened is a very dangerous thing.
It’s going to get easier to win recruits as the ranks of the disappointed swell.
