Nobel Prize-winning economist Joseph Stiglitz tells CNBC’s Trish Regan that having one-third of the U.S. economy based in the financial sector should not have been bragged about, but flagged as a sign of a sick economy.
Tim Rutten of the Los Angeles Times provides this fascinating and insightful overview of the history of privatized retirement accounts, and the devastating impact that their implosion is having, and will continue to have, on the fundamental foundations of the American economy.
As a consequence, there’s been little discussion of the way in which this economic implosion has exposed the utter failure of the now-ubiquitous 401(k) retirement accounts. In fact, the entire 401(k) system looks increasingly like the sort of bait-and-switch con relished by the Bernie Madoff’s of the world.
—————-
…More and more employers began to look for ways to get out of funding the pension and health plans that, up to then, had been regarded as part of the responsible capitalist social contract. Two innovations in political ideology — one on the left and one on the right — provided superb cover for the companies’ greed.
For the Democrats, “choice” became a mantra, and the 401(k) suddenly became a mechanism through which working people could “choose” how to fund and manage their own retirement. On the Republican side, the notion of “an ownership society” came into vogue. There, the theory was that giving working people an ownership interest in the equities market would promote greater personal responsibility and make people better citizens.
Nobody bothered to ask employees whether they wanted to swap their pensions for choice or ownership, nor did anybody stop to notice that very few people are suited by background, ability or temperament to actively manage investments.
If there is such a thing as lethal social poison, it is avarice cloaked in political piety.
Companies seized the opportunity to abandon their defined-benefit pension plans. Today, more than 60% of all U.S. workers rely on 401(k)s as their primary retirement fund. They’re not eager to “choose” their own retirement program, nor are they enthusiastic “owners” of American business. They’re draftees. Essentially, millions of us have been conscripted into the equities markets, where we have helped fuel stock prices and provided a bonanza for the financial services companies that manage and sell investment funds.
The problem is that, since the markets’ peak in October 2007, our 401(k)s have lost a collective $1 trillion in value. That’s fully a third of the value of all 401(k)s. The picture is actually worse than that because another $1 trillion has been stripped from people who lost or changed jobs and rolled their 401(k)s into individual retirement accounts.
Or should this be the ’shocked doctrine’ of disbelief? Here is an excellent overview by UMass economics professor David M. Kotz on the background of Greenspan and the ideology which enabled this mess we are now experiencing. Amazing that even *I* (with no professional economics education at all) could see this coming a mile away, yet this man, this scion of institutional legitimacy, this atlas (of the shrugging type?) of political influence and supposed wellspring of economic wisdom is now scratching his head totally befuddled as to how our economy is in freefall.
Greenspan should be indicted, if not for direct criminal activity, for criminal negligence and inexcusably grotesque ignorance. But that is what ideology will do to you, particularly if it is of the virulent Ayn Rand-ite strain that he worshipped his entire life.
Former Chairman of the Federal Reserve Alan Greenspan found himself “in a state of shocked disbelief” at the failure of individual self-interest to protect our banking system. What really ought to provoke shocked disbelief is that a person who held such views was placed in charge of regulating the American financial system, a position he held from 1987 to 2006.
Greenspan’s long stewardship of the financial system reflected the revived intellectual dominance, since around 1980, of a free-market economic theory once thought to have been permanently laid to rest by the Great Depression of the 1930s. This theory holds that if individual actors, whether ordinary people or officials of large corporations, are free to pursue their own self-interest through market exchanges with other free individuals, the result will be optimal for society as a whole. Government has little role to play in the economy, beyond enforcing the law of contracts and protecting the rights of property owners. In such a world, everyone is supposed to succeed based on her or his own effort, skill, intelligence and other worthy attributes, or fail due to a lack of them. It is an appealing vision in which individual liberty meshes perfectly with the social good. No one has to depend on the good will of anyone else, but instead need only rely on oneself.
This theory, pushed to the fringes of respectable thought for several decades following the Great Depression, re-emerged and was vigorously, if not entirely consistently, applied to the US and global economies starting nearly three decades ago. This is a world in which the process of production and exchange takes the form of a global system of interconnected corporate institutions. Since 1980, this system has become increasingly interdependent, as virtually every corner of the globe was drawn into the new complex of economic networks.
—————-
As the American financial system was gradually deregulated during 1980-99, promoted by the resurgent free market ideology, one more experiment based on this theory was put into play. Alan Greenspan did his part by encouraging the experiment to proceed unhindered for his entire tenure at the Fed. Those who ran our banks, investment banks and other financial institutions participated with enthusiasm. They quickly found a much better way to make money than the old humdrum activity of taking deposits, making loans and holding those loans to maturity.
—————-
Everyone in this chain felt their super-high rates of return were safe, given the supposedly endless rise of home prices and the AAA ratings given to these securities by rating agencies hired by the security issuers. Free market theories of finance insisted that the markets price every security properly, so no one need worry about the spread of these derivative securities throughout the world financial system. Chairman Greenspan’s vision played out on a world stage.
No one who knew any history should have been shocked when this vast experiment collapsed.
—————-
Hopefully, the lesson will finally be learned. What former British Prime Minister Margaret Thatcher claimed at the start of the free market period - that there is no society, there are just individuals - is belied by what we are now witnessing. We are not disconnected individuals whose fate rests solely in our own hands. We are all dependent on one another. We must rebuild our economy on the principle that we are all in this together. If we are to solve the many real economic problems we face, we have to do so by cooperative effort, not by the pursuit of narrow self-interest.
Why don’t we see this kind of analysis on Wall Street Week or The News Hour with Jim Lehrer? Oh…yeah…that’s right. Never mind.
Most refreshing in this interview is the discussion of ‘externalities’, that pesky little aspect to ‘free market economics’ that most people not only don’t factor into the equation, but aren’t even aware of. I don’t know how many devotees who extol the virtues of ‘the market society’ whom I’ve run into who don’t even have a clue on how externalities affect every aspect of our society and what the true costs are to how our economy is run (and most importantly, who is really profiting from it).
The real deficit we are experiencing is not so much an economic deficit but rather a democratic deficit.
Watch the interview with Noam Chomsky from The Real News Network
This is an interesting article. I still find it disturbingly amusing to watch the high priests of our corporate capitalist religion continue to cling to their dogmatic faith, even in the face of overwhelming empirical evidence of disaster. But then, it has nothing to do with ‘rationality’ or any kind of economic logic. It is just the age old human spiritual and psychological sickness of clinging and grasping to greed and ego gratification at the expense of the ‘other’, and capitalism in it’s most virulent form seems to have attained the distinction of being the finest, most effective ideology in propagandizing the morality play of transforming the notion of private vice into a public virtue.
The foolishness which continues to preach the wonders of the ‘invisible hand’ of the market place, leaves people never bothering to notice that the ‘invisible hand’ has been busy picking our pockets.
When CNBC abandoned infomercials in favor of programming from its international affiliate on Sunday night, it merely confirmed that much of the world now holds Wall Street in about the same regard as a Nigerian email scam or an Albanian pyramid scheme. The anchors and guests with the funny accents were quick to note the dollar’s decline and the general instability of the American financial system.
So while it’s good that Washington has finally woken up to the historic financial crisis on its hands, it still hasn’t confronted the ideological emergency. There’s more at stake here than just next quarter’s write-offs or next year’s growth rate. Laissez-faire capitalism has run headlong into a massive credibility problem.
And it’s really as simple as the difference between $84 and $2 per share. Efficient markets are those that can tell what something is worth. Ours can no longer make that claim, whether in regard to financial stocks or, by extension, about the much larger pool of private debt. The numbers Bear Stearns posted last year, the numbers it clung to until the bubble finally burst, proved in the end not to be worth the recycled paper they were printed on. Just like the mortgage debt that had been rated AAA but ended up at the bottom of the junk pile. Invest in America, where the numbers can be anything you want.
————-
It’s also an attempt to obscure the connection between costly crises and bailouts and vast private profits that have flowed to those who never really shouldered proportional risk. If our dynamic global marketplace is going to require taxpayer bailouts every decade or so, perhaps that ought to be taken into account when dividing the spoils from its lucky streaks.
————-
Poor Chinese, who discarded Soviet-style central planning for the market mechanisms beloved by us all. Now they sit on a powder keg of a stock-market bubble while contemplating belatedly that incompetent central planners could at least be shot, while even incompetent investment bankers get to keep their Bentleys.
Good analysis on the whole cause, nature and recommended course of action regarding the present American economic meltdown, posted on The Oil Drum, a site dedicated to discussion about energy and our future.
I never tire of posting this graph of the “W economy”, because it summarizes in a nutshell what happened: growth happened, but was not shared widely. Thanks to wage stagnation, made possible by the threats of outsourcing and offshorization, and by consistent policies over the last 30 years to deregulate and liberalise markets, starting with labor markets), the fruits of growth have to a large extent been captured by a very few - but this has been hidden because consumption was propped up by readily available debt and the apparently growing virtual wealth of homeowners.
The problem is that, while a lot of that growth was illusory (and is now unraveling), the wealth re-allocation that took place thanks to it was very real, and, in particular, the mechanisms ensuring that an ever grower share of the pie get into a few privileged hands are still in place, and will bite even more harshly as the pie shrinks.
It’s getting to the point that even the business press can’t avoid the flood of financial disaster that is sweeping through our economy. This is from Igor Greenwald at SmartMoney, a publishing venture of Dow Jones.
We have nothing to fear but fear itself, unless it’s two more “house for rent” signs on the block and the sight of the fuel oil truck in the driveway. Any day now President Bush will declare that recession talk aids terrorists and ask the nation to troop down to the mall and charge it.
——–
But economic crises don’t just happen on a whim, and are not generally an indicator that everything is fine. We’re about to discover how much of our recent prosperity was an illusion built on too much cheap credit. And the market is telegraphing its thinking on the subject with a string of minus signs.
——–
So as we sit in our spacious and chilly houses this winter and crawl in traffic in those thirsty SUVs past the for-rent signs in strip mall after strip mall, we should let our minds wander a little from the narrow path our economic masters have laid out.
——–
Whole industries have been cosseted by anticompetitive deals intended to limit consumer choice and shut out outsiders. Telecommunications is one such field; utilities and health care also qualify.
The “war” on terror has predictably increased business transaction costs; Iraq and the whole shoes-off-at-airports comedy routine sap tax dollars and run up the GDP without increasing national wealth, as such.
When a political system is more proficient at generating corruption scandals and hereditary dynasties than it is at balancing the budget, it’s fair to call that system dysfunctional.
The shocker in the World Economic Forum’s recent Global Competitiveness Report wasn’t the fact that the U.S. ranked No. 1, thanks to investments laid down in happier times. The real shocker was that in health and primary education The Superpower came in 34th, in a virtual tie with Montenegro. In macroeconomic stability, a.k.a. balancing the books, we were No. 75, just behind Venezuela and Suriname.
Read the full text of this spot on article Here
For those of you who may not have heard of this production by Danny Schecter, I highly recommend it. A great film that goes to the heart of a highly uncomfortable and in the media world a pretty much ignored reality. It is one that is eating away at a foundational core of our society. It is a lucid look at the sheer untenable insolvency of our economic system, as it relates directly and personally to the debt levels citizens of America are carrying, and the true costs and complications this poses to the long term health and sustenance of our society.
Check out the film’s website at http://indebtwetrust.com for more details and how to acquire a copy.
What People Are Saying…
“Fascinating and absorbing”
- BuzzFlash.com
“Have we got the movie for you. “In Debt We Trust” is a sort of economics lesson meets Supersize Me…. …the facts Schechter sprinkles throughout are mind-boggling…Come to think of it, Schechter has created about as sexy a film as possible on the topic of consumer debt.”
- Orlando Weekly
“…should be viewed by every single American”
- Mike Killian, CardRatings.com
“Extraordinary and timely”
- Carolyn Baker of Speaking Truth to Power
“… Schechter’s film is a compelling chronicle of how we got in over our heads… it should be required viewing for all high school and college students…”
- Erica Freudenberger, WoodStock Times
” ‘In Debt We Trust’ takes hard look at debt casualties…”
- CNN Money
“Mr. Schechter is going after the financial services industry with guns blazing”
- InvestmentNews.Com
“I… ask you and your campus to discuss this issue with students and faculty members. We need to encourage programs [like this one] and encourage seminars or classes or resources about personal financial planning. I think it would be helpful if University Presidents and campus leaders take on this problem with educational initiatives, film screenings and panel discussions offering diverse views.”
(Click here to read the full letter)
- Rev. Theodore M. Hessburgh, C.S.P. President Emeritus, University of Notre Dame
Can’t say we didn’t see it coming. I’m unfortunately predicting depression, but then I really hope I’m wrong. I sense I may not be, though, what with the culmination of the economic policies of the thieves and looters in charge, particularly over the past 6 years.
As we approach the end of 2006, the economy’s prospects for next year appear more gloomy with each new piece of economic data. And, just like President Bush in his assessment of the situation in Iraq, the economic forecasters are gradually revising their forecasts downward, as it no longer appears credible to present the rosy pictures that they had been trying to sell.
The trouble began early in the year, when the housing boom that was supposed to continue forever turned into a housing bust. The rate of house price appreciation didn’t just slow, as most economists predicted, nor did prices simply flatten in accordance with their revised predictions. House prices began to fall. Nationwide, house prices are now down between 1 percent and 2 percent from their levels at the same point in 2005. (The decline is between 4 percent and 5 percent, if we adjust for inflation.) The price declines in some of the most over-valued areas, like Washington, DC, and parts of Florida and California, have been considerably sharper.
And here is where Dean Baker puts some of the blame squarely on target….
The picture would not have been so dire if economists had been better able to do their job. Unfortunately, economic forecasters seem more interested in happy talk than economic analysis. Not one of the “Blue-Chip 50″ forecasters saw the 2001 recession coming. The record seems no better this time around.
Unfortunately, no one ever holds the forecasters accountable. Even though they all missed the last recession, and just about all of them will have missed this recession, the same group will probably still be around to miss the next recession. Some workers, like dishwashers and custodians, teachers and truck drivers, have to meet performance standards. Economic forecasters apparently just have to show up to collect their paychecks.
Read The Full Article Here
This stuff better start being seriously addressed and soon or else…
Nobel Prize winner Stiglitz highlights agenda of predatory globalism now arriving in America under auspices of NAFTA Superhighway, North American Union
Former World Bank Vice President, Chief Economist and Nobel Prize winner Joseph Stiglitz has predicted a global economic crash within 24 months - unless the current downturn is successfully managed. Asked if the situation was being properly handled Stiglitz emphatically responded “no,” and also drew ominous parallels to the development of the NAFTA Superhighway and the North American Union.
Stiglitz caused controversy in October 2001 when he exposed rampant corruption within the IMF and blew the whistle on their nefarious methods of inducing countries to fall under their debt before stripping them of sovereignty and hollowing out their economies.
Of particular note in this is Stiglitz’s take on the cause of much of this, that being corporate globalism. It is much related to the issues raised by John Perkins in his book “Confessions of an Economic Hit Man.”
David Walker of the Government Accountability Office is also sounding the alarm over this same thing.
A dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.
David M. Walker sure talks like he’s running for office. “This is about the future of our country, our kids and grandkids,” the comptroller general of the United States warns a packed hall at Austin’s historic Driskill Hotel. “We the people have to rise up to make sure things get changed.”
But Walker doesn’t want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.
Basically, that makes Walker the nation’s accountant-in-chief. And the accountant-in-chief’s professional opinion is that the American public needs to tell Washington it’s time to steer the nation off the path to financial ruin.
Read The Complete AP Report Here
