Sunday, July 20, 2008

WSJ Article: Rage against the Machine

The Wall Street Journal published a James Grant (of Interest Rate Observer fame: article today titled, "Why No Outrage?"

In the old days, you'd expect a William Jennings Bryan preaching to the masses, and Howard Beale being mad as hell at Wall Street's alleged fleecing of the poor. But the William Bryan analogy isn't quite on point, and the populist movement was declared dead as early as June 1990. Take a look at this Kirk Scharfenberg Atlantic Monthly article, "Populism in the Age of Celebrity"--if it was published today, we wouldn't know the difference, even though almost two decades have passed:

Mr. Scharfenberg's point is we have elevated celebrity and materialism over quieter, more intellectual pursuits, and in doing so, have extinguished "deliberative democracy." To wit: "As a nation, we have lost the capacity to ponder events, reflect on their meaning, and act." Another point Mr. Scharfenberg makes is materialistic pursuits (e.g., studying the stock market) render us more separate from each other, while community-based pursuits (e.g., Little League) bring us together, allowing for active democracy and an exchange of ideas. Put another way, we reap what we sow; however, if we've sown and accepted materialism for the last eighteen years, then who's to blame for our current financial mess?

Overall, the constant strain of greed is probably just one factor in our current malaise. Capitalism seems made for constant boom-and-bust cycles, so when times are good, no one complains, and when times are bad, no one also complains because they expect the next bubble to be around the corner. To borrow from Churchill, perhaps consistently steady growth for everyone isn't as desirable as the inconsistent opportunity for unequal wealth. Thus, the recurring hangover America experiences every ten years seems vaguely familiar but not bad enough to want to actually do something about it.

Personally, I am conflicted about whether outrage is justified. There is no doubt we have become a more craven society, more harried, more avaricious, less God-fearing, and less civil. But we have also become more affluent, more connected through electronic advancements, less hungry, and less stagnant. In France, the youth riot because they cannot find jobs due to the socialist structure, which always favors older persons. In America, even most of the unemployed have televisions, food in the fridge, a car, a cell phone, and internet access. America is also more diverse than ever, and most of the economically vibrant cities have less than a 50% white, native-born population (Chicago, Miami, New York, San Francisco, San Jose, etc.). Even the South is revitalizing itself, as manufacturing moves back to cities like Louisville, KY and Huntsville, AL. It's quite a turnaround from the days of Bull Connor attacking his own city's residents and Sandra Day O'Connor being unable to find a job as an attorney after graduating at the top of her law school class.

So a question has to be asked: is it possible for civilizations to reach a saturation point in terms of progress? Is it possible that while America still has eons of progress remaining in terms of spreading wealth, increasing media diversity, reducing its prison population, and re-discovering a more peace-minded foreign policy, most of the work relating to the spread of basic comforts has already been done? Perhaps we do not riot like the days of Watts because we know we are better off than our ancestors and most of the current world population. As one satirist (P.J. O'Rourke?) has remarked, "When my young daughter tells me, 'Life is unfair,' I tell her, 'Honey, you live in the greatest country in the world. You're not starving. You will not experience government-sanctioned sex discrimination. You have economic prospects. You are relatively safe. You'd better hope life keeps being unfair to you.'"

As for William Jennings Bryan, some readers will remember him as a fiery populist ("You shall not crucify mankind upon a cross of gold"). Yet, almost no one knows the context of the famous gold gobbet. Bryan was attacking the banks for not lending farmers more money. Banks, as we all know, loan more money than they actually have. They can do that because the money isn't linked to any hard asset. A bank doesn't need one bar of gold to loan 100 dollars. It can have no gold in its vault and lend as much money as it wants. In the old days, however, the gold standard meant the U.S. could only loan money based on how much gold it had in its vaults, because it had to be able to redeem the paper money for gold at any time. So if the U.S. didn't buy more gold, it couldn't loan more money to the banks, and the banks couldn't loan more money to the people. The gold standard, by linking paper currency to a fixed quantity of gold, prevented banks from taking in two dollars and loaning the same two dollars to others four or more times through multiple loans. If we had a gold standard today, the subprime mess would not have occurred, because banks would not have been able to fund all the loans without unrealistic quantities of gold.

So when Bryan railed against the gold standard, he wanted more inflation and more loans, because his farmers were already in debt, and their customers didn't have money to buy their products/produce. This double-bind meant the farmers were not getting paid, and their debt was increasing. By advocating more inflation, the value of the farmers' debt would be reduced and more people would have money to buy their products, breaking the debt cycle. Thus, Bryan wanted exactly what we had from 2002 to 2007--easy money.

Lost in all the reporting on the financial crisis is the unprecedented access to money the poor had, leading to a small window of opportunity to escape a lifetime of low hourly wages. As Bryan discovered, easy money helps the poor when compared to having no money. Easy money allows the poor to buy homes. Easy money allows the poor to open a small business. Easy money helps the poor, who get greater access to new jobs created by the influx of new money to spend. Easy money hurts the rich, who see their savings reduced by inflation. In a stunning reversal that would have made Marx proud, shareholders--thought of as rich--took the hit along with the poor. The problem, then, wasn't easy money--it was financial mismanagement and greed on all sides. Such factors make it harder to get outraged. For example, my immigrant, middle-class parents were able to refinance their house at a low interest rate, freeing up more money to spend and giving them more security. At the end of the day, we've reaped what we've sown.

Having said all that, I'm going to let Howard Beale have the last words:

I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.

We know the air is unfit to breathe and our food is unfit to eat. And we sit watching our TVs while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that's the way it's supposed to be!

We all know things are bad -- worse than bad -- they're crazy.

It's like everything everywhere is going crazy, so we don't go out any more. We sit in the house, and slowly the world we're living in is getting smaller, and all we say is, "Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials, and I won't say anything. Just leave us alone."

Well, I'm not going to leave you alone.

I want you to get mad!

I don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street.

All I know is that first, you've got to get mad.

You've gotta say, "I'm a human being, goddammit! My life has value!"

So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell, "I'm as mad as hell,
and I'm not going to take this anymore!"

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