[A-List] Debt Circus

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

The Coming Liquidation of the Commons Realm

by Jonathan Rowe

http://onthecommons.org (September 17 2007)


When a debt circus starts to fold there is a desperate resort to hard
assets. The banker seizes the real estate; investors head to precious
metals. America's biggest debtor is the federal government itself. As
the hyper-leveraged economy contracts; and as China and other countries
balk at financing the deficit that the Bush Administration deliberately
has created; there will be demands to liquidate the common pool to keep
the operation going. It won't be entirely an accident.

We'll be told we have to ease restrictions on poisons in the water and
air, to get the "economy" going. We'll be told the public domain has to
go as well. Offshore oil? National forests? Resort developments in the
national parks? There will be a replay of the contractor honey pot that
the occupation of Iraq became, only this time on the privatizing front.
There have been previews around the country. Local governments, starved
of tax revenue, have had to sell access to a captive audience of school
children to corporate advertisers, just to raise money. We've tossed the
kids into the liquidation fire. Why not trees?

I'm not saying that Grover Norquist and Karl Rove plotted out the whole
scenario step by step. But I do think they are smart enough to know
where their policies ultimately tend. Recall the admission of David
Stockman, President Reagan's budget wizard, that "supply side" economics
was a hoax from the start. The intent never was to increase revenue by
cutting taxes, the way they said. (Though the well-meaning Jack Kemp
probably believed it.)

Instead it was to starve the federal government of revenue, so that Tip
O'Neill and his fellow liberals in Congress would have no choice but to
slash programs and regulations. That has been the aim of the Bush people
all along; and they hardly bothered to dress it in supply side
apologetics. The government is bad, so just cut the hell out of the
thing. This is why deficits are good: they tie the hands of Democrats
even if they get back into power.

The corollary is to expand the military budget and lock in that
expansion with commitments abroad. Reagan did this, and Bush/Cheney is
doing it in spades. So long as the Pentagon gets the money the
regulators and Weeping Winnies can't. That much of the defense money
goes to contractors makes it win-win. This is not the only reason Bush
et al were so eager to invade Iraq. But I do suspect it crossed their
minds, in a pre-dispositional way at least. (As for the other reasons,
isn't it strange it took Alan Greenspan to utter the "o" word last week,
as opposed to a Democrat in Congress?)

As with Iraq, when the Bush team re-grew the deficit they fed a larger
fire they didn't understand. The entire US economy - a euphemism if
there ever was one - is built on debt. The so-called sub-prime mortgage
crash is really just the scraping of the sub-bottom of a barrel that had
to somehow yield more to keep the machinery going. The government
deficit is just one part of a cultural proclivity to rob the future and
leave our grandkids with the bag.

Debt is more than an instrument of policy in the US. It is leitmotif,
the game itself and not just a way of playing it. It starts with money.
Every dollar that enters the "economy" comes with a prior claim attached
in the form of interest. That is the way the money system is
constructed. Banks create money, under auspices of the Federal Reserve.
This means the machinery of buying and selling must churn ever faster
just to meet the obligations that are built into the medium that drives
it. The claims of shareholders and Wall Street are on top of that.

The late Henry Ford is reputed to have said, "If the people knew the
truth about money there would be a revolution before morning". I have
not been able to track that down. But it sounds like him, given his view
of bankers; and the way banks get to tack their vig onto every dollar is
a major reason why. An economic machine that runs on this kind of fuel
is unsustainable even before you add get to natural resources. The money
fuel makes it inevitable that the machinery will get to the kind that's
in the ground.

Life requires stability and rest; but the economic machine can never
stop, unless it hits the wall. The particular pathologies of the US
economy today are on top of this basic one, and in some ways are an
outgrowth of it. Paul Craig Roberts, the former Reagan Treasury
official, nailed them in a recent column {1}. The notion, widely
believed in Washington and in the media, that you can export jobs and
then borrow your way to prosperity is a crock, Roberts observes. The US
now has a trade deficit of $800 billion a year. The continued hemorrhage
of jobs, and the depression of wages, mean we are making less money from
the production that remains.

"How long can Americans consume more than they produce?" Roberts asks.
"American over-consumption can continue for as long as Americans can
find ways to go deeper in personal debt in order to finance their
consumption and for as long as the US dollar can remain the world
reserve currency".

I don't pretend to understand all the implications of losing the reserve
currency status. But I know they aren't good, for the US at least.
Roberts points out that government statistics actually have been
understating the problem. When corporations export jobs and thereby
reduce their labor costs, for example, the government counts that as a
boost to US productivity. Somehow that isn't surprising given the view
of the current White House towards reality in general.

The Right used to admonish us to run the government like a household.
Now that's happening and it's part of the problem. There is an even more
basic one. It is something the conventional economic mind doesn't know
even how to cognize let alone deal with. The assumption always is that
more stuff and output mean more well-being. The only challenge then is
to keep the financial hydraulics in balance and the "incentive"
structure in place. Questions of distribution do arise; but the worth of
that which is to be distributed is not questioned.

What happens when people get tapped out not just in their ability to
buy, but in their role as "consumers" to begin with. What happens when
"consumption" becomes evidence not of greater happiness but rather of
breakdown and distress?

I'm not talking about the way the third Jacuzzi doesn't provide the same
kick that the first two did, nor about frivolous expenditure generally.
I'm talking about actual pathology that appears as "consumption" in the
official reckonings of economic health. For example, the escalating
medical costs that have become a central part of economic "growth": in
the US these are prompted not by lack but increasingly by other growth,
in the form of junk food, environmental toxins, too much driving and
television, and the rest.

This phenomenon takes a multitude of forms. Barrage the kids with junk
food ads and then treat them for obesity. Pour toxins into the water and
then treat the cancers that result. Construct sprawling suburbs and then
sell lots of gas. It is an iatrogenic spiral in which "growth" creates
the very problems that more growth is supposed to solve. Nothing in the
arsenal of economic policy can begin to handle it, because it suggests
the end of economic reasoning itself, at least the dominant mode of the
last two hundred and so years.

Tab that for future reference. It's a qualifier that needs to be added
to any discussion of the economy but rarely is. The point here is that
the debt game has run its string. These warnings have been coming for a
number of years now; but that doesn't make them any less valid. You jump
from a tall building with your eyes closed and you think you are flying.
Then ... splatttt.

When that occurs, it will do for right wing fantasies of public
divestment what 9-11 did for Neo-con fantasies of invading Iraq.
Bondholders will be clamoring. The military will have to be paid. Does
anyone really think that offshore oil leases, the national forests,
development rights in the national parks, the ANWAR oil, won't suddenly
be in play?

And not just those. The financial crisis that appears in prospect will
present opportunities on many fronts, and not all of them benign. Yes,
the Great Depression made possible the New Deal. But Germany got Hitler,
after the staged Reichstag fire, as Mr Roberts points out.

It came out last week that General David H Petraeus, chief of the Iraq
"surge", harbors presidential ambitions. This is as not far fetched as
it might seem. When events seem to be spinning out of control there is
an instinctive grasping at symbols of authority and order. It's happened
before, is all I'm saying.


{1} http://www.dailyscare.com/2065/american-economy-r-i-p

_____

Jonathan Rowe's blog is at http://onthecommons.org/blog/6 .


http://onthecommons.org/node/1210


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