Back in the seventies you used to get points for saying what a few big thinkers were saying about how things were going in the world – social and political and economic trends showed that the whole world was going to turn into either Los Angeles or Beijing, or more broadly, California or China. It was one or the other. You’d say that and others would nod wisely – it was hyper-consumerism and glitz, with street gangs and scolding evangelicals and crazed cults on the side, or a drab command economy with relative order and ugly clothes. That was the clash of civilizations, before the Muslim jihadists complicated matters.
As insights go, it held up for a bit – it sure beat talking about Marshall McLuhan and how the medium was the message or whatever, and having Woody Allen make fun of you. But the Berlin Wall fell and the Soviet Union folded up its tent and went away, and someone said it was the end of history (somehow Los Angeles won), and then it wasn’t the end of history after all and we all became experts in the political geography of the Middle East and the major branches of Islam, and then, of all things, people were buying Cadillac Escalades and big Mercedes sedans in Shanghai. Making major pronouncements about how things are trending, and what will surely happen next, is a tricky business. And who can explain Dubai?
But California had its allure. It used to be that people came to California to be where things were happening – the epicenter of worldwide popular culture – or to get rich, or famous, or somehow reinvent themselves, or just get a tan. It had that polar-center feel, as if there were two poles and this was one of them – better the Beach Boys than Chairman Mao. For good or evil, California felt like the center of the West, the font of shallow but satisfying affluence. People in Germany watched Bay Watch, and the rest of America saw the all-American home, which was actually over the hill in Sherman Oaks (the interiors were a sound stage down on Gower). This was how it was supposed to be – we supplied the visuals, and the perky cast, and the soundtrack. In fact, the actual house where Ozzie and Harriet lived, used for the exterior shots in the opening credits, is just down the street. For many, finally living here was coming home in an odd way – they’d seen all this day after day, after all. You breathe a sigh of relief – you get it, you know how things are supposed to fit together. Hell, you even know your lines.
And then, like all things where you know what’s what, and what to expect, it all turns sour:
California legislative leaders on Tuesday made what they hoped would be a last push for one more Republican to support their $42 billion budget fix, warning of fiscal disaster if none of the holdouts puts aside opposition to tax increases.
The leader of the state Senate said the chamber would remain in continuous session until the legislation is passed. Meanwhile, state officials were sending out layoff notices and ordered the shutdown of hundreds of public works projects employing nearly 92,000 construction workers.
The state is broke. We’re talking twenty-thousand layoff notices:
Tax revenues have plunged by billions of dollars as the recession clobbers California, leaving the state without sufficient cash to pay its bills. The remedy offered by the governor and lawmakers is to reopen the budget in the middle of the fiscal year, enact deep cuts and tax increases, and work out a fix that will cover the state’s spending through June 2010.
It seems we have a bit of a budget deficit – forty-two billion dollars – and a guy who played action heroes, and villains, in the movies as governor, and deadlock in the state senate – one vote shy of passing a bit over fourteen billion in tax increases. And that won’t happen – the Republicans are saying no new taxes, they’re too high now, so just cut everything:
“I think it’s time that we need to stop treating the taxpayers of this state of California as a personal ATM,” Sen. Tony Strickland, R-Thousand Oaks, said during a Senate floor debate on the tax increases. “Funds are overdrawn.”
In short, go find the money elsewhere. We have the lowest credit rating of any state – we just dropped below Louisiana – so we’re not going to selling bonds. Maybe we’ll have a bake sale.
But it’s not nice:
“It is clear there is going to be catastrophic consequences for Californians if we don’t get it done today,” Senate President Pro Tem Darrell Steinberg told reporters Tuesday. Asked by reporters if he had a backup plan if the lockdown fails to produce a compromise, Steinberg, D-Sacramento, said, “We’re going to get it done. That’s the plan.”
Its’ not going to happen:
At the same time, the Department of Finance ordered state agencies to shut down another 276 infrastructure projects, ranging from highway carpool lanes and interchanges to wastewater treatment plant improvements. The project freezes will start Thursday unless the state can find private, local or federal money to continue the work. The projects, totaling $3.7 billion, had been spared temporarily when the budget deficit prompted a state board in December to cut off money for 5,600 public works projects.
We’ve never had a whole state go bankrupt before – but what’s happing in Washington is happening here. A minority party, fueled by the notion that the only way to make the economy work is to cut taxes and spend as little as possible, and make sure businesses are not regulated and taxed, so they like doing business here and stay, has had their way, as here, any legislation that raises taxes requires a two-thirds vote. Three Republican had to cross over to do that, and only two did. So, Obama got three, and Arnold Schwarzenegger got two of three – and Schwarzenegger is a Republican. Things start shutting down now.
As for trends, see Paul Krugman here:
Everyone should be paying attention to the political/fiscal catastrophe now unfolding in California. Years of neglect, followed by economic disaster – and with all reasonable responses blocked by a fanatical, irrational minority.
This could be America next.
No, you don’t want your world turning into California. But maybe those trend-spotters from long ago were actually right, and the world really is going to turn into either Los Angeles or Beijing – and there’s not a damned thing you can do about it. And you don’t even get the nice weather.
President Obama is, of course, pressing his own plan, in three parts. There’s the stimulus – since so many are out of work and those still employed not buying much of anything, and business contracting because demand has shrunk to not much of anything, use government funds to fund work that people can do now, so, when they’re paid, demand returns and people start doing things to fill that demand, like increasing output and hiring. It’s just stopping a downward spiral of cutbacks and layoffs, because of decreased demand, that has people demanding fewer good and services, as they cannot purchase those, with a deflationary death-spiral attached – you have to lower your prices to move anything in such an environment, and when you do, you can’t survive as you are, so you shed more and more employees. Businesses, looking out for themselves, just trying to survive, cannot fix this. No one is spending anything. The government becomes the spender of last resort.
So, Tuesday, February 17 – Obama Signs $787 Billion Economic Stimulus Bill – and here we go. We’ll see how it works, but that same day, Stocks Slump Despite Stimulus – and that was more like a crash. It seems traders knew there were other issues, like what might be the plan for saving the housing market – part two, but unclear, as re-inflating the housing bubble by keeping folk in homes they cannot possibly afford leads nowhere. And there’s part three – saving the banks and fixing the credit markets.
And that has not been going well. It seems the new treasury director, Tim Geithner, decided, fairly late in the process of finalizing the big plan to fix everything, that the plan he’d been working on wasn’t going to work, so he scrapped it:
Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.
According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.
They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled.
Also, as they saw it, the Bush folks had a habit of presenting plans with details they had no intention of sticking to – stuff that sounded good, like buying up all the toxic assets and all that – and saying you’d do one thing and doing something else, didn’t exactly inspire confidence. Geithner preferred to “disappoint the markets with vagueness than lay out a lot of details they might have to change later.”
No wonder the markets are spooked. Stimulus or not, they see the writing on the wall. The Economist here compares the current recession to Japan in the nineties. It’s not pretty:
The rebuilding of American households’ balance-sheets is likely to force a reliance on government demand that is bigger and longer-lasting than many now imagine … With their assets worth less and credit tight, people will be forced to save much more than they used to. The household saving rate has risen to 3.6% of disposable income after being negative in 2007. For much of the post-war period it was around 8%, and in the short-term it could easily exceed that. But, whereas dis-saving by Japanese households countered the corporate balance-sheet adjustment, American firms are unlikely to invest more while consumers are in a funk. Propping up demand may therefore require more persistent, and sustained, budget deficits than in Japan.
Okay, don’t be Japan, or California, with one exception. Edward Glaeser here encourages well-off Americans to spend big:
Cracking open the Champagne does not exactly feel in tune with today’s spirit of national austerity, but recessions get worse when prosperous people do not spend. In fact, if you can afford it, then this is exactly the moment to redo your kitchen or buy a car. Not only will you be able to get a good deal, but your spending will help revive the economy. The economist John Maynard Keynes convincingly argued 70 years ago that thrift was no virtue during a recession.
Obama seems to postulate we don’t have enough filthy rich people for that to be an option – there’s just not enough of them, no matter what they buy, to fix this mess. Republicans usually take the other side of that argument.
In fact, over at The Baseline Scenario, a blog about “what happened to the global economy and what we can do about it” – well, they say that – a former chief economist of the International Monetary Fund and a professor at the MIT, say this:
The most likely outcome is not a V-shaped recovery (which is the current official consensus) or a U-shaped recovery (which is closer to the private sector consensus), but rather an L, in which there is a steep fall and then a struggle to recover. A “lost decade” for the world economy is quite possible. There will be some episodes of incipient recovery, as there were in Japan during the 1990s, but this will prove very hard to sustain.
We’re screwed. And in fact, in the Financial Times, Alan Greenspan, of all people, says let’s nationalize the banks;
The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman has told the Financial Times.
In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laissez-faire capitalism, said nationalisation could be the least bad option left for policymakers.
“It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
Yes, that’s UK spelling and punctuation – but you get the idea. And he is not the only laissez-faire fellow throwing in the towel:
“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”
Times must be tougher than anyone ever imagined.
And then there was the Greenspan talk later that evening:
Former U.S. Federal Reserve Chairman Alan Greenspan said on Tuesday the current global recession will “surely be the longest and deepest” since the 1930s and more government rescue funds are needed to stabilize the U.S. financial system.
“To stabilize the American banking system and restore normal lending, additional TARP funds will be required,” Greenspan said in a speech to the Economic Club of New York. The U.S. Treasury’s Troubled Asset Relief Program designed to help bail out banks has been partially successful, he said.
Okay, the high priest of laissez-faire capitalism is saying this is the real deal – as bad as you thought and not like any previous recession – and only the government can save our bacon this time.
And he added this bit of cheer:
He reiterated, however, that a housing recovery is a necessary condition for the end of the financial crisis, and said that “the prospect of stable home prices remains many months in the future.”
The stock market, meanwhile, is being suppressed by “a degree of fear not experienced since the early 20th century,” Greenspan said. “Certainly by any historical measure, world stock prices are cheap. But as history also counsels, they could get a lot cheaper before they turn.”
That’ll send the markets down.
Of course he disagrees with Obama a bit. Of the three things that need to be fixed, he’d have done the bank stuff first:
Citing the Japanese experience of the 1990s, Greenspan said U.S. authorities need to assure the repair of the financial system before major fiscal stimulus takes hold.
“Unless we are successful at that, in my judgment, the positive impact of a fiscal stimulus will peter out after its scheduled completion,” he said.
He said the real test of fiscal stimulus is whether it “primes the pump” for private demand.
But the high priest of laissez-faire capitalism is not opposed to the stimulus at all, or bank nationalization. Damn.
But there are people who sat they are far smarter about such things than Greenspan. One of them is blogger and sometime substitute host for Bill O’Reilly on Fox News, Michelle Malkin here:
On Nov. 4, after Barack Obama clinched the White House, the market closed at 9,625.28.
In mid-morning trading today, the day President Obama signs his massive Generational Theft Act into law and a day before he unveils a massive new mortgage entitlement, the Dow dropped to 7,606.53.
Now, imagine if President Bush had presided over a 2,000-point stock market tumble in the same time period — during the first few months of his presidency.
Great start, O.
Steve Benen comments:
It’s hard to even know where to start with such a silly argument. George W. Bush – who left the country a $10 trillion debt, enough to earn a “President Generational Theft” award from Malkin – saw the market go from around 14,000 to around 8,000 over 14 or so months. That’s a “tumble.”
Obama, meanwhile, took office in the midst of a global economic crisis. While Malkin referenced the “first few months” of a presidency, Obama has been in office for just 27 days, and has barely begun to implement an economic policy.
I can appreciate the fact that Malkin, Limbaugh, Coulter, et al, want to see Obama fail. I can even understand why. If they can just convince enough people that bad news is the president’s fault, they might be able to get new leadership that can bring back the policies that contributed to this economic nightmare in the first place.
But blaming even a 300-point Dow Jones drop, over a month, on the new president is unusually foolish, even by far-right standards.
Steven Taylor offers this:
I have serious doubts and questions about the stimulus bill, but this kind of stuff is just plain silly. Further, it seems to me that it is part of an overall approach to the current financial crisis that is being pursued by the GOP, many commentators (and some news programs) on FOX, and by a number of right-leaning commentators: hope for failure and further hope that whatever bad things happen can be pegged to Obama, and to heck with trying to actually be adults about the current situation.
I don’t expect, by the way, for the GOP and like-minded folks to roll over and do whatever Obama wants. However, it seems to me that there hasn’t been much in ways of reasonable attempts to be part of the solution. Boehner’s main approach has been righteous indignation at press conferences and on the floor of the House, for example. Beyond that, I personally have been having a very hard time accepting Republican’s rebirth as fiscal conservatives (and I say that as one who found appeal in the notion of a fiscally conservative/responsible party and who found a great deal of disappointment in the behavior of the GOP during their tenure in charge of the Congress).
Taylor just doesn’t have a taste for the “radically simplistic, if not patently ludicrous.”
Someone needs to tell Malkin that if that is the way we are scoring things, then 9/11 is solely George W. Bush’s fault and Clinton gets all the credit for those budget surpluses back in the 1990s.
For that matter, Bill Clinton should get the credit for my doctorate (earned in 1996), Ronald Reagan should get props for me meeting my wife (first date in 1985) and George H. W. Bush, thanks for my marriage (1990)! And, I suppose I should thank President Obama for the great weekend we just spent in New Orleans.
See! It’s an easy game to play if you try.
Yeah, well she did organize a rally in Denver – “Today in Denver, hundreds of citizens gathered on the steps of the Colorado State Capital to let their disagreement with Obama’s economic policies be known.” There are a lot of pictures at the link – placards with Obama the Crypto-Marxist Endorsed by Castro, little kids with flags, an actual roast pig, and Michelle Malkin smiling, looking quite fetching. It could have been California.
John Cole at Balloon Juice sees the future:
It occurred to me that this is quite possibly stupid enough that it can be the centerpiece of the discussion of Meet the Press with David Gregory this weekend.
Yep – and Krugman was right about California. This could be America next. In fact, it has happened already. So don’t say we never gave you anything besides the Beach Boys.