Us in Wonderland, Spinning Downwards

Take a step back away from the spin, and it’s Alice in Wonderland. We keep following further down, and we keep spinning it. "No, it’s not bad, no, we’re okay, the fundamentals are sound." I wonder how much of what’s going on with our economy is a matter of not recognizing that we can do either guns or butter, but not both.

Instead of recognizing that, and dealing with it, we spin it. Hide it. Redefine it. Don’t let the public deal with what it takes to pour money down the hole of war; do the subprime thing, borrow the money we spend, keep the whole thing patched up, pretend it’s fine.

Could it be that it was pretty much in the cards, when we embarked on that war, that what was then a reasonably healthy economy was going to suffer?

And then the unhealthy failure to deal with the problems created more problems, cascading forward until we’re now rescuing our financial system, still, like Alice in Wonderland, spinning it. "We’re fine, everything is fine, don’t worry."

So this time we solve it, apparently, by printing up another $700 billion and passing it out. Is there any point in this strange descent into the rabbit hole that we stop and say "Wait a minute. We can’t pay for all this?" Wars, mortgages, trade deficit, federal budget deficit …

And — here’s where it gets really bewildering for me — with all of this happening, there are still candidates saying they are going to reduce taxes? Is it just me, or is that really crazy?

What if Ockham’s razor, the idea that the simplest explanation is correct, is in play here? What if what’s really going on is that all the time it was really a matter of guns or butter, but not both? Like they teach in macroeconomics 101?

4 thoughts on “Us in Wonderland, Spinning Downwards

  1. Nice thought, but the present disaster traces back to disastrous deregulatory moves in the late 90's perpetuated by both parties. Bush sent no less than 17 messages suggesting reform of Fannie Mae/Freddy Mac regulations, but they went nowhere, and – truth be told – it was not a major item for him. McCain cosponsored a reform bill in 2005 that died in committee. The Democrats voted en bloc against it, but the Repubs controlled the Senate and could have made it happen.

    The real problem was that the plutocrats on both sides of the aisle were benefiting from the status quo, and neither Dems nor Repubs really wanted to change it. The collapse is the result of turning phantom equity – that portion of the subprimes mortgages that are uncollectible – into hard cash on a massive scale. Underlying that is a social problem that has been growing for thirty years, namely, the increasing unaffordability of housing for the middle class. It is unfortunately not nearly so simple as Federal budgetary choices in the last eight years.

  2. @Realist: good points, thanks, and completely credible; nothing is ever that simple … but you didn't mention the guns and butter question … you don't think those trillions of dollars of additional borrowed money are significant? Tim.

  3. No. What has caused this are sequential defaults on private debt, the result of noble efforts to make homes affordable to middle class people. No problem there, but the usual bunch of scoundrels moved in and created rampant abuse.

    None of the failed firms are major lenders to the government. The government was never in danger of defaulting. The crippling losses are the result of leveraged private housing debt that turns out to be uncollectible.

  4. Genuine Realist, I've been trying to explain this to my Birkenstock-wearing friends for a few weeks now. Those are the best four paragraphs on the subject I have seen anywhere, hands-down.

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