America Seeks Out the Guilty Parties

Nobody’s heard of him, but Houston’s Bill Perkins must have money to spend. Three times in the last ten days he’s taken out a full-page advertisement in the New York Times. It’s a huge drawing of George Bush accompanied by Ben Bernanke, President of the Federal Reserve, and Henry Paulson, Treasury Secretary and former head of Goldman Sachs. The three of them are raising the American flag in a cemetery, in the famous pose of the victorious soldiers at Okinawa.* On the gravestones are written the words “Capitalism” and “Private Enterprise”. The flag bears the words “Big Insurance”, “Detroit Auto” and “Wall Street Banks”. A hammer and sickle appear where the 50 stars should be. There is a logo above the three men. It is signed “the New Communists”.

People are saying that America is going off the rails. In fact, it’s seeking out the guilty parties, whether it’s managers who have become converts to “state control” to get their hands on public funds, or “corrupt” bankers. Americans have been left stunned, or angry, by the succession of events: first Fannie Mae and Freddie Mac, formerly pillars of the credit system, nationalized for the good of the market, and then a plan to bail out the financial system to the tune of $700 billion, using state money to buy back the toxic debt accumulated by the system itself.

A disoriented nation is also looking for gurus – gurus like Warren Buffett, America’s richest man, who made his first appearance on October 1st with Charlie Rose on the public network PBS. The network had also paid for a full-page advertisement in the New York Times, urging readers to tune in and hear the “legendary investor” talking about the impact of crisis and suggesting his solutions. Buffett has always deeply distrusted the practice of borrowing as well as Wall Street and its “by-products”, advising his innumerable admirers on “secure” investments. A supporter of higher taxes for the very wealthy, which he regards as both necessary and legitimate, he still receives thousands of requests for help.

Hardly anyone is discussing the real underlying problems. Peter Peterson, formerly Secretary of Commerce to Nixon, and David Walker, ex-Comptroller General to Bush, are rare exceptions. On October 5th, they took out a two-page advertisement reminding readers that the key issue for the American economy is debt. The debt for health insurance for the retired amounts to $34 trillion, unemployment insurance £7 trillion, and the national debt $12 trillion. That adds up to a total debt of $53 trillion – in other words, $455,000 per household, more than 10 times the annual income of the average family.

“As disruptive and damaging as today’s mortgage sub-prime crisis is, we’re looking at a ‘super sub-prime’ crisis that, if left unaddressed, will hurt many more Americans – and hurt much worse,” they write, adding that the underlying problems will not be solved either by eliminating wasteful public spending (so much for McCain’s proposal) or by canceling tax cuts for the rich (so much for Obama). They ask the two candidates the following questions: “How will you make fiscal responsibility and intergenerational equity a priority? How will you slow the rate of growth in health care costs that threaten to bankrupt America? How will you encourage the country to save more and reduce our dangerous dependence on foreign lenders?” With 22 days to go to the presidential election, neither candidate has yet come up with any consistent answers.

But that comes as no surprise. Electoral campaigning is not conducive to deep thought about fundamental issues. Who’s going to say, “Vote for me and I’ll raise your taxes?” So Obama is promising tax reductions for “95% of Americans,” and McCain for 100% – who can top that? Never mind the fact that many of their advisors know an increase in tax revenues will doubtless be unavoidable. In the context of the election, the debate is being curtailed. Obama assures us that we need serious “change” if the US is to avoid a catastrophe. Not to be outdone, McCain keeps repeating that America may be going through a bad patch but is still “the greatest power in the world” and has “the best workers and the best soldiers.” It’s not a question of changing the system, but of cleaning the Augean stables.

PATRIOTISM AND THE POLITICS OF FEAR

Obama tells us that we are seeing the “worst crisis since 1929.” That date conjures up the immediate image of the Great Depression. For once it seems that the politics of fear is playing in the Democrats’ favor. Keen as ever to display their patriotism, the Republicans see this as almost tantamount to treason, with Obama deliberately playing on the drop in confidence. What we’re facing, first and foremost, is a crisis of confidence, they argue. We only need to re-establish that confidence to set everything going again. They aren’t saying it out loud, but they’re thinking, “like it was before,” with just a few minor adjustments.

Beyond the political “use” of the crisis, the question of its underlying substance remains. The only ones to tackle it so far have been economists, and their analyses have not yet filtered out to the general public. To put it simply, there are two sides to the debate. One side believes that the crisis is a structural one. The reason America has run up so much debt is that it has to buy more because it produces less (goods manufacturing has fallen from 32% to 13% of the country’s GDP in 30 years). For the same reason, the country is paying for an increasing number of pensions with the revenue from fewer and fewer secure jobs. General indebtedness – both government debt and family debt – will only be reduced by a boost in production, which will lead both to an increase in stability and to growth based on an improvement in purchasing power rather than on an ever-expanding credit bubble.

The other side in this debate thinks that we should cushion the decline of the economy following its financialization, but that the decline itself has become irreversible. That decline is the result of globalization, which has brought about a new international division of labor. The rich countries cannot escape the consequences. The financialization of their economies cannot be reduced, since that would impoverish them at a time when their growth is already much weaker than that of emerging countries, such as China, India and Brazil, whose growth is indeed based on goods manufacturing. For those who take this view, the room for maneuver enjoyed by a new president will be constrained by the surrounding international context, and the good health of the markets remains the cornerstone of any American recovery.

Distilled into their purest forms, the first side of this debate is Democrat, and the second Republican. In the middle are the analyses which “blend” the two arguments from either side. The “real” rescue plan will not be known until after the election.

*Translator’s note: The famous photograph referenced by the cartoon actually depicts the Battle of Iwo Jima, not Okinawa.