JUST WHOSE CRISIS IS THIS?
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Copyright © 2005, 2006, 2007 and 2008 by Jay B. Gaskill
Please contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com
WEDNESDAY
Populism 101 Continues…
JUST WHOSE CRISIS THIS?
It should be obvious - but apparently is not - that when public policy drives bankers to make imprudent loans in service of an ideal (everyone gets to “own” a fine home regardless of ability to pay), there will eventually be a crash. The only surprise here is the staggering scale and worrisome pervasiveness of the ensuing financial toxicity.
For a brilliant indictment of the liberal-ideological mindset when it is forced on the otherwise cautious banking community (by George Neumayr, go to this link: http://www.spectator.org/dsp_article.asp?art_id=13970 .
But there is another dimension to this, captured in a single slogan: “It's the incomes, stupid!”…
The credit crisis was driven by a doomed attempt over decades to sell too much, too fast to people who earned too little. Even when America's blue collar manufacturing workers worked full time in real factories for real money with real benefits, credit was never as easy as it has been in the last fifteen years.
The cost of a typical American car has been driven up many multiples of the core manufacturing costs for its essential transportation function as a direct result of mandated technological additions (not just the relatively cheap seat belts, but sophisticated systems for air bag deployments, for example). Whatever the merits of these additional features (they would be frills in poorer countries) for safety, pollution control and other salutary goals, they have had three negative effects: (1) much higher purchase costs, (2) fewer owner driveway repairs (3) high computer chip vulnerability leading to non-repairable failures – even at your local garage.
All this still might have worked except that real incomes for most working Americans didn't keep up. [The days when Dad traded in the three year old car on a new one are long gone.]
Why all this happened is difficult to untangle, but the big picture is clear enough. We Americans, the people who pioneered mass production, invented television, computers and the internet, among many, many other gifts to the world, have simply lost our effective monopoly in making the very things that originally made us great.
Put crudely, the smokestacks were allowed to resettle elsewhere while we tried to retain the clean stuff - design, advertising, finance, research and intellectual property. So the subset of our population that works in these “clean” fields get the better paying occupations while the former manufacturing employees lost income, some would say irrevocably. [On that pessimistic point, I disagree, but that is for another article entirely.]
In general, it is an unpleasant truth that the world economy differentially drains incomes from those parts of the local economy where skill levels in-country and outside are approximately similar. Put another way, the cost of paying workers always seeks its lowest practical level. The elites have been relatively protected from this trend, while our country’s non-professional workers have not.
An artificially loose credit system has operated, until now, as a subsidy mechanism to partly compensate our income deficient workers by flooding the market with low cost Wal-Mart style imports from Asian sweatshops, and big ticket items whose true cost was masked by unrealistically easy borrowing.
The coming populist revolt may make things better or worse, but come it will.
Intelligent solutions take more time and heavy lifting than the unintelligent ones. The elites are on notice. This week’s events tell us something else:
Time is running out.
JBG
