Monday, May 14, 2012

Discussing Austerity Sincerely

"Austerity" is a deadly serious concept that needs to be discussed sincerely, not used as a propaganda club by ambitious politicians.

One sees now in Europe the same artificial argument that has plagued Washington since 2007. With almost no one in the ruling elite willing to admit that the guilty party is the whole ruling elite and that the solution is fundamental systemic reform, presumably to be implemented by rulers who did not partake in that guilt, half the elite claims that austerity must be inflicted on the poor (i.e., the thin must diet) while the other half calls for debt-financed growth. Neither bites the bullet to say that, yes, austerity is called for – but it should be austerity for the rich, while, yes, growth is called for - but it should be growth financed by the rich.

Imagine a system in which building real stuff (solar panel factories, new dams, mass transit systems) paid a higher return to investors than buying derivatives. All it would take is a trivial manipulation of the tax code. 

That $2B the brilliant financial manager Jamie Dimon* just tossed down the drain could have made the U.S. the world leader in the new industrial world of solar energy. Of course, it was only $2B (or maybe $3B, if you want to be picky). Chump change. Maybe that approach would take time, but the top 0.1% of U.S. households now sucks up a cool $1Trillion every year and then there’s that $200B or so every year that could be sliced off the Pentagon’s budget and still leave the U.S. with an obscene military superiority over all its potential adversaries combined. And, after all, we have already wasted five full years since 2007. Imagine what could have been done if Obama had entered the White House determined to implement real financial reform!

At least in Europe, a serious dialogue about austerity is beginning to emerge, thanks to Hollande and Tsipras. Americans still prefer to pretend everything is OK with the nation's basic socio-economic structure; it's easier to trade insults and get all hot about whether two consenting adults living together should call themselves bride and groom or just two consenting adults living together.
*The Emerging J.P.Morgan Scandal - Egregious Mistake or Crime?

  • LA Times 5/14/12:  "There's evidence that the department where the Whale worked was, in fact, replicating Morgan's real-life business of lending to corporations, but using fancy derivatives to do so -- creating a "synthetic" bank, as traders would say, without actually lending to corporate customers as real banks do.
  • If that's true, the question is why? To put it another way, if JPMorgan had $350 billion sitting around idle (the sum the Whale's department appeared to have to play with), why not use it to do something that helps the economy -- such as, you know, lending it to businesses? Instead, JPMorgan used the money to buy chips to play in the derivatives casino, which doesn’t help the economy one bit."
  • Bloomberg 5/14/12: The U.S. Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are investigating, according to people familiar with the probes.
  • New York Times 5/17/12: Dimon slowly coming clean:  “What this hedge morphed into violates our own principles.”

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