Tuesday, September 16, 2008

As Wall Street Tumbles, Herbert Hoover -- er, John McCain -- Claims That "The Fundamentals Of The Economy Are Still Strong."

Well, thank you Mary Sunshine.

Seriously folks, the economy hasn't been sound for a long time, making it even more bizarre that John McCain made this claim yesterday, shortly after Lehman Brothers went down the tube. Even if -- as at least one source correctly asserts -- this phrase was part of a longer speech that acknowledges the current situation as worrisome, how can McCain float this fantasy when economists of all political persuasions are asserting that the economy has not hit bottom yet? That the worst may be yet to come? (Even the Radical, who does not pray often, is praying for you, AIG. And for you, WaMu.) Click here for video posted by CBS News that shows Obama finally getting aggressive; click here for video posted by FP Passport, a web log published by the journal Foreign Policy, that shows a longer clip from the McCain speech than I have quoted above.

The Radical keeps imagining that she and other historians of the Great Depression will begin to have their phones ring off the hook, so eager will news organizations be to hear their wisdom about the current crisis and the comparisons between John McCain and Mr. Hoover. But I suspect it is not to be. The Lehrer News Hour will keep going back to those tried and true Presidential historians, Michael Beschloss and Richard Norton Smith. Once more, stardom will elude me ("Mr. DeMille, I am ready for my close-up!")

Among those whose faith in the stewardship of the Republican party seems to have been shattered for the time being is conservative columnist David Brooks, whose piece in today's New York Times, "Why Experience Matters" seems to be a sincere attempt to bring the Republican base down to earth about what the "vote for the guy you want to have a beer with" attitude has bought for both the masses, as well as the classes. "The issue starts with an evaluation of Palin, but does not end there," Brooks writes. "This argument also is over what qualities the country needs in a leader and what are the ultimate sources of wisdom." Although Brooks acknowledges the critical importance of tension between elite conservatism and popular conservatism, he condemns the Bush administration for its ineptitude, and warns that votes for "ordinary people" are not, in themselves, a path to good government as populist demagogues claim. He continues:

Experienced leaders can certainly blunder if their minds have rigidified (see: Rumsfeld, Donald), but the records of leaders without long experience and prudence is not good. As George Will pointed out, the founders used the word “experience” 91 times in the Federalist Papers. Democracy is not average people selecting average leaders. It is average people with the wisdom to select the best prepared.

Sarah Palin has many virtues. If you wanted someone to destroy a corrupt establishment, she’d be your woman. But the constructive act of governance is another matter. She has not been engaged in national issues, does not have a repertoire of historic patterns and, like President Bush, she seems to compensate for her lack of experience with brashness and excessive decisiveness.

The idea that “the people” will take on and destroy “the establishment” is a utopian fantasy that corrupted the left before it corrupted the right. Surely the response to the current crisis of authority is not to throw away standards of experience and prudence, but to select leaders who have those qualities but not the smug condescension that has so marked the reaction to the Palin nomination in the first place.

Nicely put, David, and a very gracious way of admitting that things have gone tragically, fatally awry under the Presidency of that guy a majority of voters actually did not want to have a beer with, but the oil industry and the financial industry did. And in case anyone has noticed, there is a growing movement of conservative intellectuals who are turning on the McCain candidacy because of his choice of Sarah Palin, her lack of seasoning, the ethical questions about her policies as governor, and the kind of cynicism about the electorate that the choice of such a person represents when there were so many better qualified people (many of whom were extreme social conservatives, many of whom were women.) Some of us might argue that this cynicism about the voting public is only the Reagan candidacy carried to an extreme, but as someone who is studying that period, I would say the jury is out on this one. Perhaps the great untold story of the first Reagan administration is how people around the president rejected social extremism, over and over again, while simultaneously pursuing the kinds of changes in the nation's regulatory structure that ultimately produced the crisis we are living with this morning. It is a complicated history to say the least.

Um, Jim -- I'm in the office all day if you want to give me a ring.

But let's get back to the Second Great Depression, and to its more local effects. Many of us stopped opening our investment report from TIAA-CREF over a year ago, although I am heartened to see they have not yet been mentioned in this collapse, difficult as it may be to imagine that they too are not implicated in the subprime mortgage market scandal. However, we in the academy can't begin to understand yet how the current crisis will affect us. One of the things I wonder is how many students will begin to find that their highly leveraged parents are unable to pay the bills? And do places like Zenith have anywhere near the resources to plug the gap for students who are suddenly in need of financial aid packages? And I am not just talking about the children of the super-rich, of which we have a-plenty. How about the children of the secretaries and administrative assistants and janitors and coffee vendors of the super-rich? We aren't seeing many photos of them leaving Lehman Brothers, are we? (Although, since those photos and video look more like a perp walk than anything else, that may be ok.) Their children go to Zenith too. And we are going to have to come up with the money to help all of them.

Some people are frantic right now about the future: I'm just thanking my lucky stars that I am healthy enough and young enough to work for a couple decades. And kind of fascinated that what I began thinking about as a dissertation field back in 1984 is happening all over again.

And hoping that the American people get out there in November and vote for Roosevelt, not Hoover.


davidjhemmer said...

Maybe you can tell us which data do you use to measure the "fundamentals" of the economy. (unemployment? GDP? avg weekly hours worked? interest rates? inflation? bank failures? etc..) And then once you've told us these, maybe you can:

1. Compare these data right now between the US, the EU and Japan and explain why the US is doing so much better.

2. Compare the data between the US now and the Great Depression.

Maybe it would give some perspective.

JackDanielsBlack said...

TR, I'm not sure Roosevelt would be much help. As a "historian of the Great Depression" I am sure you know that the unemployment and stock market figures from the late '30s weren't much better than when he took office -- sure, he created make-work programs for the masses (and for eggheads) that resulted in some pretty nice murals, parks, and post offices, but it took World War II to get us out of the Depression. Even with every liberal economist in the country backing him up, he couldn't make the Depression go away. But you must know this.

davidjhemmer said...

I am issuing a challenge to TR. I claim, based on somewhat slim evidence of her post, that she has no real understanding of what is going on on wall street. That she does not understand why Lehman Brothers is going bankrupt but Merril got bought out at a premium to its stock price. That she doesn't understand why mortgage rates on teh 30 year mortgage rates tumbled yesterday. That she cannot justify calling this the "2nd Gret Depression" when it is really just a 20% decline in the stock market, something that has happened over a dozen times since the "First Great Depression". That she doesn't understand why Bear Stearns was bailed out but not Lehman. etc.. etc...

JackDanielsBlack said...

Here is a comment from Amity Schlaes, author of "The Forgotten Man: a New History of the Great Depression":

A few people have asked whether the current period is like the Great Depression. The answer is 'no.' This period is to the Great Depression as a drizzle is to Katrina."

Don't know whether or not you are familiar with this book, TR, but if not you might want to check it out.

Tenured Radical said...

Dear rwp,

Sweet of you, but I can't accept the challenge. I'm too busy preparing for class, doing searches, writing books. Maybe another time. And I can't think of a single reason why I would prove my intellectual worth to a complete stranger anyway. Work on your own blog and prove me a fool there if you wish. You wouldn't be the first.


davidjhemmer said...

If you can't answer those questions I suggest you not volunteer yourself to go on TV as an expert to explain why we are in the 2nd Great Depressions.

Besides TR you and I should both be happy at what is going on. We have complete job security. I'm 30 years from retirement. I'm thrilled to see the stock market drop now, it means my TIAA-CREF contributions are buying more each month, I'm buying stocks on sale. The stock market in 30 years is going to be where it is going to be, better for me that it stays low for now. Also the Fannie/Freddie situation plus yesterday's stock market debacle (and the ensuing bond market rally) have driven 30 year interest rates down so low that now I can refinance my house and save $150/month. Sweet sweet depression!

Even if you won't answer my challenge, at least answer my first comment. You disagree with McCain on the fundamentals of the economy. How do you measure these fundamentals?

JackDanielsBlack said...

Some interesting statistics:

October 1933:
Unemployment 22.9%, Dow 93

January 1938:
Unemployment 17.4% Dow 121

from "The Forgotten Man" by Amity Shlaes

Two observations:
1) Several years of the Roosevelt adminstration don't appear to have made much difference in these key figures, despite all the alphabet-soup agencies and social programs;
2) Looks like things were a lot worse then than they are now!

Jarrod Hayes said...

Wow. This is quite a pile on. A couple of points. First, using the Great Depression as an illustrative analogy is a useful for making the point that in fact there are serious economic problems in the United States that need to be addressed aggressively (see NYTimes article: http://www.nytimes.com/2008/09/17/business/17leonhardt.html?hp). The United States just nationalized ANOTHER major corporation, AIG. Come on folks, the United States overthrew Mossadegh for lesser actions. The United States has managed to *technically* stay out of recession thanks in large part to increased exports arising from a weak dollar. Take those away, and you have a recession. It is also no secret that over the span of the Bush Administration a dramatic wealth redistribution has taken place as fewer and fewer 'middle class' jobs were created and more and more entry level retail and service jobs took their place. Real wages have been falling while wealth inequality, measured by GINI, has been rising. Yet consumers continued to spend? How? As TR points out, they leveraged their future through their home mortgages and credit cards. We are *only* seeing the result of the mortgage bust, and that has yet to run its course. Should consumers start defaulting on their other lines of credit...well, let us just say that the Great Depression will look like the 'good old days.' Do the Federal and State governments have the fiscal flexibility to deal with such an event? In short, no. The fiscal irresponsibility of the Bush Administration has left the Federal government without significant options short of printing more money, a bad move given already high inflation rates.

Second, this idea that U.S. economic fundamental are 'sound' as measured by the willingness of Americans to work hard is ridiculous. Once again, the Great Depression analogy TR uses is helpful in exposing the banality of this claim. Americans were more than willing to work hard during the Great Depression, but that did not stop it from occurring. The economic system then was built on a house of cards. Ben Bernanke, for example, attributes the Great Depression to...DEBT! Consumers and businesses overextended themselves and defaulted, driving the national economic system into he ground. Here again, TR's analogy is highly illuminating. There are obviously contending views of the causes of the Great Depression, but its use as an analogy to highlight the current risks and the possible impact of poor decisions regarding the future leadership of this country (i.e. McCain's open admission that economics is not his thing) is a legitimate one that right-wing prof and Jack should acknowledge.

And now, back to my dissertation...

JackDanielsBlack said...

Jarrod, when unemployment has been hovering around the 20% level for several years, as it did during the Roosevelt administration, then come back and tell me that the Depression is upon us. Until then, no sale.

As for the economic difficulties we are experiencing, have you forgotten that the Democrats have been running the legislative branch of government for the last two years? What laws have they proposed to remedy the situation?

A good part of our current problems originated in a Clinton-era push to stop "redlining" -- that is, turning down home loans to folks who lived in poor districts. Laws and regulations encouraged banks to loosen their lending criteria, and they did so with a vengeance. Now we are reaping what was sown. We could go on and talk about the "Qants" and the hedge funds and the funny securities packages of bad loans put together by the investment banks and the superior ratings given these packages by the rating agencies, but suffice it to say there is plenty of blame to go around. And I suspect a lot of the folks responsible for this situation vote Democratic. If you think that Obama/Biden represent reform, feel free to vote for them -- but prepare yourself for disappointment if they get elected!

JackDanielsBlack said...

Let's see, who were the biggest recipients of Fanny Mae and Freddy Mac political contributions? Could it have been -- yes, the results are in, ladies and gentlemen-- John Kerry, Barack Obama, and Chris Dodd? For confirmation, see

Yes, I know, it's Fox News, but they cite their source. A quote from their story:

"Fannie and Freddie have been creations of the congressional Democrats and the Clinton White House, designed to make mortgages available to more people and, as it turns out, some people who couldn't afford them.

Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration's White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama's VP search committee, has hauled in millions from his Fannie Mae CEO job."

And let's not get started on Chuck Schumer. Here's an exerpt from his Wikipedia entry:

"Following the meltdown of the subprime mortgage industry in March 2007, Schumer proposed a federal government bailout of subprime borrowers in order to save homeowners from losing their residences.[33] Others are quick to point out that such a "bailout" would primarily benefit lenders and Wall Street bankers, who make large campaign contributions to congressmen;[34] Schumer's top nine campaign contributors are all financial institutions who have contributed over $2.5 million to the senator.[35]"

Now, remember folks, according to TR we need to vote Democratic to stave off the next Great Depression. Indeed!

Steven Horwitz said...

I'd only add that McCain is quite like Hoover, - both had a pretty unbridled faith that government programs could solve economic problems. McCain is no defender of laissez-faire. And then take a good look at what Hoover actually did in office and then please tell me with a straight face he was a defender of deregulation and laissez-faire and "do nothing".... so says an economic historian of the Great Depression.

Tim Lacy said...


In a departure from the right-wing sniping that's dominated the comments section of this post, let me say that I too have been wondering how all of this is going to affect my TIAA-CREF account. I met with my rep the other day, and she still thinks I should stay the course with my moderately aggressive package. Nervous sigh. I'm following her advice for now.

And I'm glad you referenced the Brooks article. I too appreciated it.

All the best,


davidjhemmer said...

Right wing sniping?

McCain said the fundamentals of our economy are strong. TR ridiculed this and said we are in a Great Depression. I politely asked her what economic measures she uses to measure the "fundamentals" and she can't even answer. I wouldn't call that sniping, I'd call it calling out TR for baseless attacks. The reality is that any reasonable objective measures of the economy she chooses will show that the current situation is nothing remotely comparable to the Great Depression, which is why she hasn't provided any.

Anonymous said...

Yes, because if we raised taxes on the top 1% and increased capital gains taxes, we wouldn't be in the current situation.

davidjhemmer said...

The top 1% are already paying more than the bottom 95% and are paying a greater share of income taxes than before the Bush tax cuts. See


for this information. More than 40% of the households in the US already pay no federal income tax. It gets awfully dangerous when we are in a situation where almost half are paying nothing (or even collecting via EITC) and taking so much from the wealthy.