I wanted to pass on some of my thoughts about the twinned historic US
election and global economic crisis. I couldn't help but be moved by
amidst the hundreds of thousands of people, millions perhaps, who
celebrated in the streets on the night of November 4th. In Berkeley,
people chanted U-S-A, and "yes-we-did," as they high-fived people in
passing cars and held up flags proudly. I got choked up--and still
do--when I see the surprised emotional elation of people who have fought
for so many years for civil rights, or, like the grandmothers featured on
TV, never in their wildest dreams thought something like this would happen
in their lifetimes. But, perhaps even greater challenges are now upon us.
Some of the same winds that have brought us a measure of political change
have brought unprecedented economic turmoil. For many of us, the elation
is turning into deepening uncertainty. Further compounding the situation,
the Hope and Change promised by Obama are, disappointingly, not
sufficiently apparent in his recent cabinet choices. When people ask me
how my studies are going or how my winter break was, I say "fine," but the
truth is that lately, I have been preoccupied following the news and not
sleeping very well.
The best summary that helped me put the economic crisis in perspective was
a radio program on one of my favorite shows on National Public Radio
called "This American Life." The program is called "The Giant Pool of
Money," and I cannot recommend it highly enough to you.
What is really interesting is that the program shows how the crisis was
caused by much more than bad home loans or a few missing finance
regulations. Rather, the program sheds light on how the crisis has been
developing over years as the global economy came to rely on American
consumers going further and further into debt to buy imported stuff. With
unprecedented global inequality (the richest 2% own more than half of the
world's wealth; the poorest half of the world hold less than 1% of total
wealth), investors are left without a productive place to put their cash
(which is the "giant pool of money") and get a good return. The result was
that the investors eventually turned to shoving their funds in to the
American real estate market, creating the bubble (prior to this, they had
done a similar thing with internet companies).
Another analogy can help understand where we are now. The crisis is like a
car crash during which each devastating moment tumbles past slowly, and a
more clear perspective of its significance comes later. Americans are
still happily attending new blockbuster movies, still lining up outside
stores for the latest iPhone. Though some have lost jobs, for many, life
goes on pretty much as normal except for the barrage of disconcerting news
stories on TV and radio. However, the effects of the crisis are predicted
to spread and deepen cumulatively.
The stock market fall was just a dramatic financial step of a much deeper
economic crisis. Declining stocks make investors hold their money rather
than lend it out, reducing business opportunities and jobs. As peoples'
income declines (be it from lower salaries, unemployment, lack of credit,
or lost retirement savings), they spend less, which exacerbates the
recession. The recession reduces taxes that pay for state services like
teachers and road repairs (California is predicted to face a $42 billion
budget shortfall in the next six months). This domestic slowdown then
leads to recessions in the other countries that depend on consumers in the
US to buy their goods. China, for example, may slow to the lowest levels
in decades. Recession overseas in turn ricochets back to the US.
The proposed solutions are not cause for much optimism. The often
recommend and typically American solution of "buy more" is only likely to
exacerbate the problem. You might recall that Bush's recommendation after
9/11, which happened amidst the recession of 2000-2001, was to go out and
shop. And the rebate checks sent out in early 2008 were intended to get
you the latest gadget. Such "solutions" merely put consumers further in
debt, and weakens the US currency.
A critical indicator will be the value of the dollar (in relation to other
currencies). The American dollar has been guarded as a relatively stable
global currency for the past 35 years (before that, it was gold), but this
could end with significant consequences. Initially when the crisis hit,
investors swarmed back to the safety of the dollar, increasing its value.
But, we've been borrowing A LOT of money to pay for the stuff we buy from
other countries, tax cuts for the rich, and the military … and now
bailouts for banks and the funny scenario of the porn industry. The way
the US government borrows money is by selling IOUs (Treasury Bills), about
2/3 of which China and Japan have bought. The US is constantly paying back
IOUs that it sold years ago, and selling new ones. Other countries of
course don't want the US --a key export market-- to fall, but then again
they don't want to be stuck with a bunch of dollars that aren't worth
much.
The spending package for next year will be critical because, as Obama
noted recently, "we are running out of the traditional ammunition that's
used in a recession." To try to get investors to get the economy going,
the government has already made it as cheap as possible for banks to
borrow money (by lowering interest rates to 0%). The government has also
borrowed so much money that the government is in danger of getting a bad
credit rating itself. The next step will be to just print more money--this
is what the US Federal Reserve meant the other day when it said it is
prepared to use "all available tools." But, investors don't have much
confidence in the value of something if more of it can just be printed. If
the value of the dollar starts to fall too much, investors and banks may
ditch their dollars for something else (how about Euro?), and will stop
buying Treasury Bills--essentially stop lending to our government, leaving
the government unable to pay for things (like health research or park
ranger salaries) and folks in the US unable to buy stuff from overseas.
How much debt does the US government have? $7 trillion.
$7,000,000,000,000. That is about half of the value of the entire US
economy (it's GDP) each year. Half! Half of the value of every single
thing made or done (pencils, computer games, haircuts and all) in the
entire US economy. That's a lot. It's about $230,000 for every person in
the US.
What's striking is that this amount is also much larger than that
requested for many years by international anti-poverty campaigners, who
have begged unsuccessfully for a few billion here and there to eradicate
polio, stop genocide, or ensure every kid has at least a primary school
education. Why can we give so much to people who are so wealthy, almost at
a drop of a hat, but not to worthy causes? Perhaps our foreign aid is
being used selectively to cultivate dependence for global political aims,
rather than arising out of generosity and an appreciation of our
interdependence.
And this is where Obama's cabinet choices come in. Many people who
campaigned for Obama have been disappointed by his choices, viewing them
both as too conservative and as largely recycled from a Clinton presidency
that contributed to the conditions generating the economic crisis. Ardent
Obama supporters, however, counter that these folks have changed their
views and learned their lessons.
A key example is Larry Summers, who Obama chose as his economic advisor.
Summers promoted the 1997 deregulations in finance markets that helped
cause our current crisis (the Glass-Steagall Act, which removed the
separation instituted by FDR between investment and commercial banking).
He also promoted funding tax breaks for businesses in developing countries
by reducing spending on things like primary school and basic health care.
Summers attracted notoriety in the 1990s through a leaked high-level memo
arguing Africa is "under-polluted."
Progressive appointments, like Hilda Solis for Labor Secretary, are rare
exceptions. Obama's choice to head the nation's bank is Tim Geithner, who
has been the head of the Federal Reserve in New York, where the financial
meltdown began. To manage the nation's federal lands, Obama has appointed
a rancher favorable to mining businesses. To head the agriculture
department, Obama went ahead, ignoring the tens of thousands of signatures
of people asking him not to, and appointed Iowa's Tom Vilsack, a proponent
of conventional agribusiness. To head energy, he named a smart scientist
who believes in nuclear energy, clean coal and cozying up to oil companies
to get them to convert land from growing food to growing fuel (ethanol).
For the office overseeing international trade --that fundamental aspect of
the "giant pool of money"--he appointed a former Dallas mayor and oil
lobbyist. And for foreign policy, we have Hillary Clinton, a relatively
conservative hawk. Recall that the Clinton Administration--its hands
burned from Somalia--did little to intervene in the Rwandan genocide; nor
did they do much for the subsequent 4 million deaths in the Congo; and,
recall that the troubles in and around Somalia and Congo continues to this
very day.
Obama often states his belief in common interests and he and his nominees
avoid (or block) propositions that are not centrist, doing so by
dismissing dissenting views as ideologically or politically motivated.
But, the same tornado that helped bring Obama to office may be rendering
his feel-good pragmatist approach, irrelevant at best, catastrophically
dangerous at worst.
There are three scenarios that I can see happening: (1) a miracle, (2) a
backlash or (3) pressure to have real reform.
Could Obama pull off an FDR-style miracle? FDR came from high society, but
instituted programs to help the middle class and the poorest. Maybe Obama
could get his advisors to do the same. Perhaps force of circumstance and
Obama's charismatic powers are such that he will be able to guide his
advisers to dramatically change views to ones neither he nor they have
historically had, and perform duties for which they lack the skills. And
perhaps he will also be able to get his staff to do so amidst our greater
debt today (our debt/GDP ratio was 67% in 2007, and was 36% when FDR took
office) and amidst our climate change quagmire. Perhaps he will be able to
use the strengthened presidency and compromised congress bequeathed by
Bush to usher in an effective stimulus package that works despite its lack
of roots in participatory democracy or any rational economic school of
thought.
If he cannot, will the country turn to a conservative backlash against him
after the two-year spending package runs out? Conservatism is still strong
in the US and could make a ferocious comeback if Obama's middle-way
muddling pulls us further down (a scenario that will definitely make Dick
Cheney seem like Mother Theresa). Recall that the country doesn't like the
Democrat-controlled Congress almost as much as it doesn't like Bush, and
note that 2008 was in large measure a vote against Bush, rather than for
progressive policies per se. Our country is still more fragile than many
think--the recent HBO cable movie 'Recount' showed interestingly how Al
Gore conceded the 2000 presidential election in part to avoid a
destabilizing national constitutional crisis.
This could be prevented--and here's where you figure in--if real reforms
can be made before things really spiral out of control. As Obama's
pseudo-change cabinet is unable to deal with the worsening crisis, people
may mobilize to pressure them to change their approaches, or pressure him
to appoint fresh people with new ideas. For this to happen, we will still
need to be carefully scrutinizing our government, but our criticism must
be constructive. Although Obama wins our respect for trying to consider
all sides of issues and give people the benefit of the doubt, people,
including Obama, do make mistakes, and power is a corrupting force. The
beauty of democratic scrutiny is that we can do together what we can't do
alone. A key testament to Obama and his historic accomplishment would be
to not treat him as a messiah, but rather to engage with him as a public
official in our democracy, one who is accountable and open to learning and
improving.
Only by doing so, can we truly realize Martin Luther King Jr.'s Dream
about American civil rights--a Dream, King himself recognized in his 1967
"Time to Break Silence" speech that is fundamentally interconnected with
broader issues of American materialism and militarism:
"As I have walked among the desperate, rejected and angry young men […]
their questions hit home, and I knew that I could never again raise my
voice against the violence of the oppressed in the ghettos without having
first spoken clearly to the greatest purveyor of violence in the world
today--my own government […] We must rapidly begin the shift from a
'thing-oriented' society to a 'person-oriented' society. When machines and
computers, profit motives and property rights are considered more
important than people, the giant triplets of racism, materialism and
militarism are incapable of being conquered […] The choice is ours, and
though we might prefer it otherwise we must choose in this crucial moment
of human history."
We all deserve the right to celebrate our historic accomplishment and
renewed sense of purpose and unity on January 20th, and we will. The Obama
administration will certainly be better than Bush's, and for that we
should be happy, but not satisfied. The economic crisis may make it
possible to implement necessary and historic changes, but the crisis may
also be used as an excuse to stifle debate, prevent transparency, and rush
through ill-conceived economic programs that exacerbate the situation.
President-elect Obama recently warned, "I urge Congress to move as quickly
as possible […] every day we wait or point fingers or drag our feet, more
Americans will lose their jobs […] And, our nation will sink deeper into a
crisis that, at some point, we may not be able to reverse." But, the
economic crisis is profoundly intertwined with deepening maladies of
American democracy. We should not be afraid to demand transparency and
participation, speak out when Obama and his administration misstep, or
think creatively and pressure insistently about what they can do better
and how. Our future depends on it.
With all my best wishes for a great 2009,
Arash Taheri Lotfi
