Posts Tagged ‘Housing Crisis’

One sad thing about the CPAC Conference is that while the various speakers’ criticism of Obama’s “soak the rich” policies are true and persuasive, conservative leaders are missing out on an important recent development that renders much of the old strategy focused on growth, low taxes, and a rousing defense of capitalism less relevant than ever.

Once upon a time, conservatives were middle class, upwardly mobile people that worked hard, saved, made a few bucks, had kids, moved out to the suburbs, voted Republican, and contrasted their own happy and auspicious lives with those of the shiftless, undeserving poor, the “parasites” of the Democratic Party.  Working class people too hopped on board, though sometimes uneasily,  because they were disgusted with the excesses of the 1960s, jealous over their guns and their churches, and resentful of the simmering racial cold war harming their prospects on factory floors.

Today, however, the first group in that coalition–the group that cares a lot more about money and taxes and economic parasites than it does about flag-burning or abortion–is in economic shambles.  Their 401Ks are cut in half.  Their homes are upside down and increasingly being foreclosed upon.  Their self-confidence which depended upon the sharp contrast of their own lives with those of the idle poor has been undermined by the prospect of years and years of toil simply to get even.  Further, their sense that the rules are basically fair and that businesses (and people like them affiliated with businesses) succeed because they deserve to has created a kind of upper-middle-class populist reaction to the various Wall Street bailouts:  if their own small businesses must fail, and if their own portfolios get whacked, why does a subset of the economy, a subset that is not particularly notable for building or inventing anything other than impenetrably complex financial instruments, getting tax money and bailouts while the ordinary upper middle class gets the tab.  This tale of two groups of rich people is given further salience by the contrast of their own relatively straightforward success through thrift, focus, effort, hard work, and sobriety with the gambling-style activity and loose living of Wall Street in recent years.  I’m reminded of the largely middle class reaction against aristocratic decadence in France circa 1789.  Recall that it was a bourgeois revolution, not primarily a proletarian one.

Bill Clinton quite intelligently saw that the future of the Democratic Party and its big government ideology required expanding entitlements to the middle class, so that future elections became referenda on health care, scholarship funds, and the like.  Even so, his centerpiece health care proposal failed.  The middle class constituency I describe above mostly had health care because they were employed, and Republicans took over in 2000 after eight fat years of moderate rule.  What Clinton could not do by force of rhetoric, the economic crisis may allow.  Suddenly the old rules have left the middle class deeply in debt, immobile, and flirting with despair over the massive and seemingly unfair degradation of their wealth.  Further, the big giveaways to Wall Street, banks, and the most irresponsible homeowners have created among many a cynical “get while the getting’s good” view of things. After all, why be a sucker?  And, more important, why shouldn’t the rules be changed to help the good people just like them?

Rick Santelli’s impassioned Chicago Tea Party rant was surely enjoyable, but it would probably fall on deaf ears in places like Ft. Myers and Phoenix where people that did play by the rules and still see themselves as sensible and responsible are deeply underwater.  Suddenly, they’re poor too and more inclined than ever to take the handouts that they formerly thought would only slow them and their kind down.  It’s one thing to be against big government when you are a net loser under such a regime; it’s quite another to ask people to be against big government on principle.  For a long time, enough Americans saw the limited government policies of the founders echoed in the pro-capitalism direction of the Republican Party as a winning formula in accord with justice.  When that formula has left so many high and dry, the inexorable sprint towards big government solutions is harder to resist than ever, as too is a serious reevaluation of the values on which it was all based.

To accomplish anything of value, conservatism must change its rhetoric, focusing more on the cultural issues that still divide us from the Democrats and the likelihood that this productive class (even with a housing bail out) will become the permanent water-carrier for the big government future, exchanging, in effect, its future and that of its children for a few trinkets and Fool’s Gold.

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The absolute craziest convention on Wall Street, at the Federal Reserve, and among academic economists is simply to ignore economic history before the Great Depression. It’s particularly wacky to do so as the Federal Reserve, which was billed as a means of avoiding economic dislocation after the Panic of 1907, was established in 1913. In other words, the Great Depression happened on the Fed’s watch.

What’s happening now to the economy: the bankruptcy of overly leveraged institutions, falling prices, a general sense of uncertainty, and calls for high levels of government spending and control are hardly unprecedented. We heard such rhetoric throughout the 70s. And this shift took place once before, in Europe, in the late 19th Century in response to the “Long Depression” of the 1870s and the associated anemic recovery.

For Christmas, I received among other books Norman Rich’s The Age of Nationalism and Reform, 1850-1890. This book might seem obscure and irrelevant to all but the most die-hard history buffs. But consider the following passage, and ask yourself if you think anyone at Lehman Brothers or on Bernanke’s staff like has had much familiarity with this episode and whether it might have been useful:

The 1873 crash set off an economic depression which was to continue for another two decades in the form of a slower rate of growth, rising unemployment, and a general feeling of economic insecurity. This depression appears to have been caused primarily by overspeculation and overproduction. There was a decline in the rate of railway building, and a consequent drying up of this immense market for goods and materials. At the same time European agriculture was depressed by the competition of cheap agricultural products from the interior regions of Russia, America, and Australia, to which the railroad had given access.

During the depression years there was an actually an increase in the real wages and a rise in the standard of living of many Europeans as a result of a steady fall in the prices of agricultural and manufactured products. The fall in prices, however, which brought hardship or outright ruin to many economic enterprises, together with the increase in unemployment and the overall sense of economic insecurity, aroused a widespread feeling of dissatisfaction with existing government economic policies and anger at the threat of foreign competition. The liberal doctrine of laissez faire was discredited as industry, agriculture, and labor alike clamored for protective tariffs and state aid. And everywhere in Europe, with the notable exception of England, the state responded to these pressures. The 1873 depression thus inaugurated a new period of state intervention in economic affairs which was to increase steadily to he present day. It also contributed to the growth of an economic nationalism which was to strengthen the burgeoning forces of political and ideological nationalism.

I used to feel somewhat sorry for Obama for the crises he must now manage, a good many of which were not of his making. But then I realized: he likes this situation and this is good for his personal goals, even though obviously quite bad for the country. Crises, real and imagined, allow someone like Obama to aggrandize power, push through the most radical and spendy proposals, and–like FDR–will make a great many people worship him even more without regard to results, so long as he manages his own image carefully. Far from feeling sorry for Obama, I feel sorry for my future children and grandchildren. It’s a scary time, and we have an immature and untested demagogue at the helm, whose historical loyalties are tribal, whose background is in the cesspool of Chicago politics, and whose outlook is replete with various artifacts of 1970s cracker-barrel liberalism.

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