Monday, June 07, 2010

John Médaille on our debt

Doing God’s Work at Goldman’s

Johnson points to the obvious (which is always difficult to see), namely, that the country is formally an oligarchy, with a government of the rich, by the rich, for the rich. Partisan fights are beside the point. As Obama amply demonstrates, “change” means more of the same, for the same people fund both sides. As entertaining as our political process is, it is meaningless, full of the sound and the fury, no doubt, but signifying nothing. The real power lay elsewhere. The president and the congress seek office to run the country, only to find that the country runs them. Or rather that part of the country in and around Wall Street.

We are now in a trap from which we cannot escape. As Nouriel Roubini notes, the transferring of private liabilities to the public balance sheet has meant high government debts. To pay the debts, there will have to be higher taxes and/or lower government expenditures. But the government has been, for that last 60 years, since a large part of the economy that lower expenditures (or higher taxes) would lower output and make it impossible to pay off the debt. There is no way out, this side of collapse. The situation is worse in countries like the United States that have dismantled so much of their productive capabilities. Because in the end, countries get prosperous by making things. It is in the fields, farms, factories, fisheries, and mines that wealth is first created, and the rest of us must eat what they produce, must wear what they make. This is where our efforts to rebuild the economy must focus, and hence this is what finance must support, and if it doesn’t support these things, then it can only be a destroyer of the economy, however much it may benefit the bankers and politicians. We can get along without synthetic CDOs, but we do need to eat.

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