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Saturday, November 15, 2008

Opening Day and Book Review

Was it the opening of firearm deer season that made everything indoors so quiet today? David came home reporting that he had been alone at the bar at the Happy Hour Tavern (where the regulars usually gather late each afternoon), and except for Susan's usual Saturday morning visit to the bookstore and Tom's having driven all the way up from Cedar for a signed Jim Harrison (The English Major), I would have said Friday and Saturday had been switched around this week, judging by yesterday's steady business and today's dearth of same. Whatever the explanation, it was another confirmation of the time-honored retail wisdom, "Ya never know."

Late in the Dog Ears day, after finishing the Kuttner book, I selected tonight's bedtime reading from fiction of the 19th century, bringing home Charlotte Brontë's Villette and Anthony Trollope's The Golden Lion of Grandpère, my choices probably influenced by our recent viewing of the 11-episode film version of "Jane Eyre," adapted from the novel. The Golden Lion, surprisingly, is set in France, in the Vosges mountains, so it will be different from The Warden (my favorite Trollope), but I'm hoping for the same kind of characterization and dialogue, and the setting should add to the enjoyment.

Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency (White River Junction, VT: Chelsea Green Publishing, 2008), $14.95 paper

Kuttner's fundamental idea is twofold: first, that nothing short of Roosevelt-style government programs will pull our country out of the present financial crisis; second, that President Obama has the opportunity to lead us through a transformative period. Kuttner's grasp of history and economics work together throughout the book to make his case. Here are a few excerpts:

With reference to a statement by Representative Barney Frank, chair of the House Committee on Financial Services, pointing out that markets are great innovators and should not be discouraged in this role, Kuttner writes:

"Despite my esteem for Representative Frank ... I begged to differ. Some innovations, I testified, are worse than no innovations. The country would have been far better off if financial engineers had not invented some of the toxic mortgage products that went on to poison markets. It was government's job to keep these harmful ‘innovations' from the public."
[p. 102]

"At the same time, not all stimulus programs are fiscal. For the longer term, there is a good argument that raising taxes on the very wealthy and spending the money on old-fashioned public works or investments in energy independence, science and technology, or college aid would have a net stimulus effect, even if the deficit impact were neutral. The reason is that every penny would be spent, whereas the nontaxed incomes of the very wealthy might be saved, moved abroad, or invested in nonproductive uses such as diamonds, gold or pre-Columbian art." [p. 127]

Writing of free-market ideologues who would brook no government interventions in the economy:

"The business geniuses who brought America this wisdom are now humbled by events. Their allies and enablers among financial economists based convoluted theories on the general premise that financial markets were entirely self-correcting. These economists are roughly in the position of pre-Copernican astronomers who hung elaborate models on the premise that the sun revolved around the earth. They should seek honest employment." [p. 132]

and

"The men and women currently in charge of the executive branch, deep believers in laissez-faire, have no coherent theory of financial regulation, so their separate emergency measures lack policy coherence. In their hearts, they oppose what they are being compelled to do in a crisis. And so we still have a system that privatizes speculative gain and socializes the risks [with government bail-outs]." [p. 138]

and

"Wall Street welcomes the bailouts; it still resists the regulation." [p. 142]

Regulations put in place under Roosevelt need to be brought back, Kuttner argues, adding, "It should not have been necessary a second time." [p. 142]

Finally,

"The debate about ‘free trade' versus ‘protectionism' is a false one. The fact is that all trade depends on rules. The real question is: Whom do the rules benefit? And which rules might be more symmetrical?

Kuttner is NOT anti-market. He advocates neither the abolition of private property nor state ownership of the means of production. What he argues FOR (among other things) is the reasonable regulation of financial markets. Just as free speech can exist alongside laws prohibiting yelling "Fire!" in a crowded theatre, free markets can thrive in an environment that protects consumers, citizens and the financial institutions themselves.

Is anyone's mind likely to be changed by this book? Perhaps. It may be that we have seen enough of the current financial crisis--though no one thinks we have seen the worst yet---that minds are opening to facts they would have shut out in happier times, as well as to reconsideration of recently rejected policies. One issue I had to rethink while reading this book was the "Deficits are always bad" assumption, which entails balancing the budget before doing anything else. The kind and timing of deficits make a difference, Kuttner says. To cut taxes and slash programs in a recession will only prolong and deepen the bad times, worsening the financial situations of individuals and families at every level.

Recently a man said to me (we had never met before) , waggling his finger in that elementary-teacher way, "Truth is always simple. Lies are complicated." I don't remember what prompted that little homily, as we had been discussing energy policy, but I didn't buy the truth-simple, lies-complicated statement then, and I don't buy it now. Any "always" or "never" statement is simple, excluding counter-examples or tough cases. Does that mean "always" and "never" statements are probably true, while "nuanced" statements are nothing but prevarications? I don't think so.

A global economy is complicated. The recipe for extricating ourselves from the current crisis can't possibly be simple. What's great about Kuttner's writings on economics is that he doesn't just lay out page after page of "Ain't it awful?" bad news. He offers positive, workable alternatives. This is important stuff.

Footnote to this title and publisher: Margo Baldwin, president of Chelsea Green Publishing, was able to deliver this book from copy editor to readers in three weeks, a "transformative" publishing event. Hats off to all concerned.

Postscript: Reading back, I see that the passages I have chosen are more critical than constructive, with the exception of the explanation of benefits to be derived from the right kind of deficit, but I leave it to others to read the book for themselves. Kuttner's policy prescriptions, taken out of the context of surrounding facts, historical and present, would only invite rejection from those not already convinced.

6 comments:

P. J. Grath said...

So, shouldn't that be 'pe-Colombian'? There were a few other small errors that slipped through, but the speed with which this book hit the markets inclines me to forgiveness.

P. J. Grath said...

Let me try that once more. Pre-Colombian. What was that remark about publishing speed?

Gerry said...

Um, Pre-Columbian in English, as in before Columbus, but Precolombiano in Spanish, as in Cristobal Colon, which becomes colombiano when it's an adjective and now we're venturing into deep waters . . .

P. J. Grath said...

Thanks, Gerry. I knew it was before Columbus but thought (for whatever reason) that the vowel changed in the adjective. Not so, it appears. I stand corrected.

dmarks said...

It is actually pre-Columbian. The term refers to the Americas before 1492: the arrival of Christopher Columbus. "Colombian" refers to the nation of Colombia, in northern South America.

Going too far the other way, many spell Colombia wrong, with a U in it.

As for Kuttner, it is not as cut and dried where we have had such a dangerous lack of government intervention in markets that have caused these events. Fannie-Mae and Freddie-Mac are huge quasi-governmant agencies, and are at the root of the mortage meltdown, along with the a specific policy to encourage mortages to those who could not pay for them.

I wonder where we would be without these actions of the government, through Freddie-Mac and
Fannie-Mae.

P. J. Grath said...

Merci, tout le monde, for spelling lessons.

As for government and finance, I've been reading a dense little book on Justice Brandeis that gives the 1880's Supreme Court background to the 1929 Crash. The 19-century Court was activist on the side of Big Business, overturning state laws right and left that would have curbed excesses and protected workers and consumers. In the current crisis, I agree that it is not enough to look at only what one side (government or private companies) did. It isn't who did something but what they did that is important. Hence Kuttner's reminders that government has done a lot of good things for Americans over the years and can be effective and competent. Private companies, NGO's, governments, churches, etc., etc.--all are composed of and run by human beings and will exhibit the full range of human wisdom and competency. Intelligent leadership is essential.

Good grief! Sometimes I slip so far into talking in platitudes that I feel like that awful, boring little Mary in PRIDE AND PREJUDICE--God Forbid, and excuse me very much!