Category: economy

Thinking About the Economy: Is Raising the Minimum Wage a Good Idea?

~ Clarissa ~ 52 Comments

I should stop reading the economy-related blogs, people, because they are confusing me. See the following post, for example:

In the midst of the Second Great Depression, Senator Tom Harkin of Iowa has introduced a bill increasing the minimum wage to $9.88 an hour.

“If my proposal went through, a $15,000 a year worker will make $20,000 a year,” he says. “You know $5,000 a year is significant to someone in that category. [It] may not get them out of poverty, but it makes life better.”

OK, we can all agree that $15K per year is abysmally low and nobody can live on that. An income of $20K per year, while still low, sounds much better.

What I don’t get, though, is how the conclusion is being drawn that raising the minimum wage would raise incomes from $15K to $20K. Wouldn’t the employers simply outsource the jobs overseas? And wouldn’t the rest of employers simply stop hiring new workers and, instead, burden the existing workers with even more job responsibilities?

It is probable that I’m not seeing something important here but such suggestions sound like nothing but pretty, self-consoling speechifying. If a politician proposes that the minimum wage be raised, that politician should either find the courage and make it clear that such measure needs to be accompanied by outlawing the outsourcing of jobs and introducing a very stringent regulation of the workplace, or stop blabbering on the subject irresponsibly.

Again, correct me if I’m wrong here, but it seems to me that the economy in this country suffers from being subjected to endless half-measures. It’s like nobody has the courage to select a course of action and follow it without vacillating, going two steps backwards for every step forward, and without actually moving in any direction.

Is it any wonder that we are stuck in a protracted period of economic stagnation at this moment?

>Immaturity and the Housing Bubble: Review of Edmund Andrews’s "Busted"

~ Clarissa ~ 8 Comments

Andrews is a long-standing reporter for the economics section of the New York Times. This is what makes the story he tells in Busted: Life Inside the Great Mortgage Meltdown so scary. Andrews’s book presents two closely connected stories: the history of the creation of the US housing bubble that started the current economic crisis and his personal story of getting into an incredible amount of debt in the years that led to the collapse of the housing market.

This is a book that needs to be read, even though it will make you lose your faith in humanity for a long time to come. Andrews analyzes in great detail how the lending institutions gradually became more and more driven by the desire for instant profit without stopping to think for a second what will happen long term. The author also brings to light the incredible, mind-boggling stupidity of Greenspan, Bernanke, and Co. He demonstrates how corrupt and dishonest the Bush Jr. administration was.

None of this, however, is very new. At least not to me. From the moment I moved from Quebec to the US, it became obvious to me that the housing prices in this country were ridiculously over-inflated. I saw my friends and colleagues pay really insane, seven-figure prices for poky little apartments in Manhattan or run-down bungalows in Connecticut and immediately realized that this was the game I would never agree to pay. Mortgaging away your life for the next 30 years in hopes that the bubble will get even bigger and the price of your house would magically grow seemed like a genuinely stupid proposition even for someone like me, who at 27 was woefully ignorant about economy. Today, when I understand the workings of this country’s economy and politics a lot better, I am even more reluctant to participate in this insanity.

What really bothered me in Busted: Life Inside the Great Mortgage Meltdown was not the story of the housing bubble. It was the story of a nearly fantastic immaturity. Immaturity on both sides, the lenders’ and the borrowers’. Those who handed out completely unsecured loans to people incapable of ever paying them off and those who accepted loans they could never even imagine paying off. Andrews was one of those who accepted. And accepted. And accepted some more.

The immaturity and total intellectual impotence of this man – who, once again, writes for the economics section of The New York Times – is mind-boggling. He decides to take out a loan to buy a half-million dollar house. As a result, he knows that his entire paycheck will go towards his alimony payments and the mortgage with not a dime left over for the bills. Of course, he hopes that his new wife will make enough money to cover all of their living expenses. Nothing would be all that wrong about this picture, if it weren’t for one tiny detail. His new wife has been a house-wife who hasn’t worked a day in the past 20 years. Besides, she is accustomed by her former husband to living the life of luxury. She didn’t even do any work around the house because her first husband paid for a housekeeper. On top of that, Andrews gets this woman to move to a completely different part of the country. Then, he expects her to find a well-paying job – with no skills, no connections, no experience of being an employee – and start paying all the bills: “We had both assumed she could earn enough for us to get by. We didn’t have any idea how she would do it; we were both simply sure that she could do it.” It is incredible to encounter such profound intellectual impotence from any one over the age of 12.

This is not the weirdest thing about Andrews’s relationship with Patty, the woman who eventually became his second wife. He left his first wife and proposed to Patty before Patty and he had ANY kind of a relationship. They hadn’t even as much as kissed, let alone had sex or lived together. And these are not some horny teenagers. These are people who are almost 50 at the time. During marriage counselling, Andrews and Patty discover that they do not see eye to eye on 90% of issues discussed. This, however, does not suggest to them that it might make sense to postpone the wedding until they actually get to know something about each other.

Andrews’s path to penury begins when he takes out a sub-prime mortgage on his new house. Over the next few years he gets so far into debt that you couldn’t dig him out of it with an excavator, just to keep the stupid super expensive house. And you know why? In his own words, “Even though it was all about buying a house in the suburbs, it felt vaguely exciting, edgy, and a little gangsta.” When a balding, paunchy, white gentleman in his late forties is motivated to take out an impossible loan because he wants to feel “gangsta”, of all the stupid things, you know that something is seriously wrong here. And this is supposed to be a well-educated upper-middle-class individual, who works as a journalist, for Pete’s sake!

In order to climb out of the financial hole he has dug for himself, Andrews tries every crazy borrowing practice out there. He runs up a staggering credit card debt, empties his pension account, and even hits up for money his elderly mother. There is just one thing he doesn’t do: try to cut down the costs. Andrews goes through his wedding to his second wife in throes of a panic attack over mounting bills and huge debt. After that, he proceeds to pay the caterers that were hired for the wedding. Of course, the idea that people who can’t pay the electricity bill might be able to do without a catered wedding never crosses his mind.

For a while, Andrews’s family income rises to $200,000 per year. I don’t know about you, people, but for me this is a staggering amount of money. One could live like a king on half that amount. Still, Andrews cannot make ends meet. Even though the debt is growing and his interest rates become sky-high, he keeps spending on things that cannot possily be considered necessary expenses: cable telivision, HBO, beach house, Ipods, expensive clothes, the list is endless.

Andrews criticizes the irresponsible lenders virulently. He never stops to think, though, that those who criminally handed out unsecured loans were motivated by the same basic immaturity that got him into so much trouble: have fun now and assume that things will somehow work out in the end. These people, who are so immature that it makes my hair stand on end in horror, are the ones that got us into this mess. They mortgaged away our future, and their children’s and grand-children’s future because they wanted that Ipod, that house, that vacation right now and didn’t want to pay for them. Now, we will all have to pay for their lack of responsibility and their inhuman immaturity for decades to come.

[To be continued…]

Chris Hedges’s Empire of Illusion: A Review

~ Clarissa ~ 10 Comments

The moment China, the oil-rich states, and other international investors stop buying U.S. Treasury Bonds, the dollar will become junk. Inflation will rocket upward. We will become Weimar Germany. A furious and sustained backlash by a betrayed and angry populace, one unprepared intellectually and psychologically for collapse, will sweep aside the Democrats and most of the Republicans. A cabal of proto-fascist misfits, from Christian demagogues to simpletons like Sarah Palin to loudmouth talk-show hosts, whom we naively dismiss as buffoons, will find a following with promises of revenge and moral renewal. . . There are powerful corporate entities, fearful of losing their influence and wealth, arrayed against us. They are waiting for a moment to strike, a national crisis that will allow them, in the name of national security and moral renewal, to take complete control. The tools are in place. These antidemocratic forces, which will seek to make an alliance with the radical Christian Right and other extremists, will use fear, chaos, the hatred for the ruling elites, and the specter of left-wing dissent and terrorism to impose draconian controls to extinguish our democracy. And while they do it, they will be waving the American flag, chanting patriotic slogans, promising law and order, and clutching the Christian cross.

–Chris Hedges, Empire of Illusion

This long quote from Chris Hedges’s Empire of Illusion: The End of Literacy and the Triumph of Spectacle demonstrates perfectly why I think this is a stunning piece of journalism at its very best and a book that any responsible citizen has to read. I absolutely loved this book (except Chapter 2, which seemed like it was taken from a completely different book and can be resumed as “Pornography bad, Dworkin good, sex scary, intimacy comforting.”) I suggest that this chapter be skipped altogether in favor of the brilliant political analysis of the rest of the book.

Empire of Illusion is an angry book. Hedges, one of the very few remaining journalists in the US who do actual journalism instead of regurgitating washed out mantras handed to them by their keepers, is not afraid of hurting the public’s tender sensibilities by the truth. He realizes the gravity of our current situation and is unafraid of telling the readers that our economic and political future looks bleak. The way our government tries to address the collapse of the economy, which it coyly terms “a recession”, by throwing taxpayers’ money at the problem is wrong and self-destructive:

We are vainly trying to return to a bubble economy, of the sort that once handed us the illusion of wealth, rather than confront the stark reality that lies ahead. We are told massive borrowing will create jobs and re-inflate real estate values and the stock market. We remain tempted by mirages, by the illusion that we can, still, all become rich.

None of these so-called measures are working. Endless bailouts and stimulus packages that have indebted us in an unheard of way have failed to jumpstart the economy and move the country out of this crisis. Still, nobody is proposing any alternatives to this failed system. The economy of the US operates in exactly the same manner as the unsustainable Soviet economy. Nobody, however, is willing to recognize it. People believe that if you call this perversion “capitalism” and “free market economy” often enough, it will actually turn into capitalism and free market economy. Reality has been substituted by illusion in so many areas of life, Hedges observes, that people often refuse to see and identify what is right in front of their faces. This rejection of reality in favor of illusion haunts all spheres of our lives:

Faith in ourselves, in a world of make-believe, is more important than reality. Reality, in fact, is dismissed and shunned as an impediment to success, a form of negativity. The New Age mysticism and pop psychology of television personalities, evangelical pastors, along with the array of self-help best-sellers penned by motivational speakers, psychiatrists, and business tycoons, all peddle a fantasy. Reality is condemned in these popular belief systems as the work of Satan, as defeatist, as negativity, or as inhibiting our inner essence and power. Those who question, those who doubt, those who are critical, those who are able to confront reality and who grasp the hollowness of celebrity culture are shunned and condemned for their pessimism.

The reason for this resistance to acknowledging the reality that lies right in front of us is that the very few of us possess the intellectual, psycholigical, emotional, and linguistic tools needed to perform this task. Rather than decipher the incomprehensible, confusing, and often painful reality around them, people prefer to escape into the world of cliches and make-belief. Who wants to dedicate their lives to addressing complex, important issues, if you can happily escape into the world of triviality?

Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion. We ask to be indulged and comforted by cliches, stereotypes, and inspirational messages that tell us we can be whoever we seek to be, that we live in the greatest country on earth, that we are endowed with superior moral and physical qualities, and that our future will always be glorious and prosperous, either because of our own attributes or our national character or because we are blessed by God. In this world, all that matters is the consistency of our belief systems. The ability to amplify lies, to repeat them and have surrogates repeat them in endless loops of news cycles, gives lies and mythical narratives the aura of uncontested truth. We become trapped in the linguistic prison of incessant repetition.

(I’m quoting so much because the way Hedges writes is so powerful, concise, and convincing that I don’t want to deprive my readers of the enormus pleasure of seeing the way a real journalist should write. This is a rare pleasure nowadays.)

One would expect, of course, our system of higher education to help students acquire the intellectual and linguistic tools needed to analyze the failings of our poitical and economic systems. This, however, does not happen. As anybody working in the higher education system knows all too well, our universities have been undergoing the process of transforming themselves into robot-churning factories. Hedges’s understanding of the way the higer education system has been appropriated by the military-industrial complex is profound:

The bankruptcy of our economic and political systems can be traced directly to the assault against the humanities. The neglect of the humanities has allowed elites to organize education and society around predetermined answers to predetermined questions. Students are taught structures designed to produce these answers even as these structures have collapsed. But those in charge, because they are educated only in specializations designed to maintain these economic and political structures, have run out of ideas. They have been trained only to find solutions that will maintain the system.

Our universities have become nothing but “high-priced occupational training centers.” Graduates are incapable of approaching their reality in a critical way. All they are trained to do is to service the system as efficiently as possible. Now that the system itself is in dire need of a rehaul, there are very few people around who would be at least capable of recognizing this fact, let alone do something about it.

For a while now, I have been discussing with my friends and colleagues the very scenario that Hedges describes in the first quote of this post. This crisis is not going away any time soon. People will start to get scared, restless, depressed, and angry. They will turn to the Evangeical fascists for consolation. It’s good to see that there are thinkers who realize that we are going in this scary direction and are trying to do something about it.

We all remember Obama’s insightful remark about bitter people clinging to guns, religion and hatred. I still remember what a relief it was to hear a politician say something so smart and relevant for a change. If the President is smart enough to understand that we are going in the direction of religious fascism, then why is he doing all he can to push us towards this horrifying prospect?