The War Between the States (of corporate desperation) and a Short History of American Economic Time (and if this title was any longer it could never make it as a bumper sticker.)

If you are a frequent flyers accumulator for any of the airlines you may have gotten this letter in your email inbox.  If not, I’ve linked it here. The letter, signed by all of the major airline CEOs, amounts to a political declaration of war by one side of American corporationality (the producers of goods and services) on another (the producers of finance and speculation.)  In short, the airlines are declaring political war on Wall Street over the issue of oil futures contracts speculation.  And asking you to be their foot soldiers in the assault on Washington.  I find the letter worthy of note as I’ve never seen anything quite like it. But then, the airlines have never been in anything quite like this.

The last time the bottom fell out of the economy and oil prices hit the sky the airlines will still in the transition from protective government regulation to bare knuckles free markets.  Given that airlines have hardly had stellar profits ever since they left Uncle Sam’s wing to solo on their own, the current economy and out of whack oil markets has been spelling gloom—and doom—for the heirs to the Wright Brothers. Many of the airlines are on the brink of bankruptcy–as many have been for years.  Out of desperation comes acts of desperation.  And this letter smacks of political desperation—and political anger—that comes form seeing ones very survival as an industry on the line.

Politically this may portend that, come November, yet another crack in the Reagan coalition will hurt John McCain and his fellow members of the GOP at the pools.  The RC of big business and heartland American social conservatives (which has always been an odd—and often contradictory—alchemy of Hamiltonian pro-big government, big finance and big business industrialists and Jeffersonian anti-big government, rural populists (giving the GOP the best of both worlds:  access to urban money and rural and suburban votes) is fracturing.  Social conservatives have finally woken up and realized they are the African Americans of the Republican party, being sweet-talked and wooed every election and then seeing every hollow promise hollowed out in between.  Just how many years have  Republicans controlled the Presidency, the Congress or both?  Just when did Roe v. Wade get overturned? (Or  an anti-Gay Marriage, Balanced Budget, Pro-Prayer in Schools, Term Limits, Pro-life amendment get passed?)

Now the façade of corporate America, seeing what is shaping up to be the worst economy since the 1970s—or earlier (which leaves only one other really rough patch to compare with, bucko) is splintering at the money—filled seems.  If corporations don’t pony up the big bucks and unified front as it has done to oppose Democrats (you remember them—pro labor, pro environment, pro progressive taxation, pro pro-consumer government regulation, or at least they used to be back in some primordial pre—Reagan time) historically, John McCain will be standing on a three-legged stool of political support sans two legs.  And the third—moderate GOP voters–aren’t strong enough to hold up the campaign increasingly swollen by its own incompetence.  (Of course, John McCain’s senior economic advisor, Phil “Let Them Eat Weight Watchers” Graham may be right and all of our problems may be reducible to whiny, fat, old people.  But don’t bet on it.)

E.J. Dione, speaking on NPR’s All Things Considered yesterday, said very concisely something I teach in my classes about economics.   He said that, just as the economic problems of the 1970s produced the supplyside Reagan Revolution  of the 1980s, the economic problems of the early double naughts  may produce a shift towards more government intervention in the economy to help average people.  That would be workers and consumers.  That would be demand-side economics, aka Kenyesian economics, aka New Deal economics.

In economics only two things matter:  supply and demand.  Government policy can try to affect one over the other—it can’t really effectively and successfully influence both significantly at the same time.  When one of these paradigms dominates but, then, crashes and burns, government can only—and must—shift to the other.

American economic history can be divided into three great epochs.  From the 19th Century—particularly after the Civil War—to 1932 that policy was Laissez-Faire industrialism.  Laissez –Faire has never meant “hands off” the economy, as many simplistically believe.  Adam Smith never wrote that it did nor believed it should.  Laissez-Faire means government hands of the decisions of supply and demand in the economy but it also, for Smith, meant active government in maintaining an efficient and—most importantly—fair free market.  Smith, a dower, Scottish moral philosopher, understood that people are people and, given the chance, they cheat.  Hence his famous admonition that “People of the same trade seldom
meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public,or in some contrivance to raise prices.”  The role of government was to prevent such “conspiracy” and “contrivance.”

In practice, however, whenever you hear someone advocating so called Laissez Faire policies for government, they are calling for pro-supplyside policies:  anti-labor, anti-consumer, pro-capital and a pro-producer.  These were the policies of the industrial revolution—and the gilded age. This model crashed and burned in the ravages of the Great Depression, ushering in the Keynesian, demand-side, New Deal model.

The American New Deal model ushered in the greatest period of economic prosperity affecting the broadest segments of a society in human history.  And, before you naively say the New Deal didn’t end the Depression, the War did, please understand that, economically, American policy during WWII amounted to Keynesianism on steroids, on crack, with the government not just stimulating labor and industrial markets but the government becoming the labor and industrial markets. What really drove American economic dominance in the post-war period, however, was a simple fact of geography: we had sent our boys “Over There” to fight, not them sending their boys “Over Here”. As a result, “Over There” got blown to hell in a handbasket and “Over Here” emerged from the war relatively unscathed.  In 1950 the US strode the world as a colossus with no real economic competition.  Britain and France were bankrupt by two successive world wars, so bankrupt that they would be forced to hold going-out-of-the-empire-business sales and dismantle, in a few years, the empires they had spent centuries assembling.  Germany and Russia were bankrupt and burned to the ground.  Japan was bankrupt, burned to the ground and glowed in places at night.  The rest of the world was what it had always been: poor.

In 1950 if you wanted to by a skilled-labor industrial product you had to buy it from us.  That would be U.S.  And the wealth of nations poured into our own.  So much wealth poured in to the U.S. that we could be magnanimous, giving billions of dollars of aid to Europe and the world to rebuild from the war and develop from poverty, confident in the knowledge that much of that money would flow right back into American accounts as the world bought our stuff.  John Maynard Keynes once said that the tailor would gladly lend you ten dollars every Friday if he was confident you would use that money to buy a ten dollar coat from him every Monday.  Such was the relationship between the US and the world (and, currently, is the relationship between China and the US, with China playing the role we once did.)   That prosperity party which today haunts us as the American Dream: the God-given–if historically unique—right if each generation to expect to live markedly better than the generation before.  From the 1941 to 1973 American standard of living doubled and almost doubled again.

Then in 1973,  as Don Mclean sang,  the music died.  The American prosperity party came to a stuporous conclusion.  Done in not by the excesses of government intervention in the marketplace but by global economic realities.  By the 1960s they—Europe and Japan—were back, with industries modernized, more efficient and cost-competitive (in part thanks to US aid) to challenge American producers on a global stage.  By the end of the 1960s the US was sending more money to the world than the world sent to us.  The resulting “Dollar Glut” caused the value of the dollar to tumble and the Bretton Woods dollar-tied to gold based global monetary standard collapse.  Arab oil producing nations, seeing the value of their dollarized-oil fall as a result, used the pretext of the Yom Kippur war in 1973 to inflate oil prices.  The result of all this: the American economic recession known as “stagflation” and, by the end of the 1970s, a global economic downturn.

The traditional Keynesian response to the “Stag” part of stagflation–driven by the loss of jobs in the face of rising energy costs and massive amounts of dollars leaving the economy to purchase said energy overseas–during the Carter years was to bump up social spending.  That, unfortunately only further inflated the “Flation” side of the problem, driven by the impact of high oil input costs on all segments of the society.    It would require massively supply-side monetary policy—the Federal Reserve jacking interest rates to almost twenty percent—to crush inflation and, with it, the American economy. Out of the worst recession since the 1930s supply-side II—Reagonomics with its pro business and capital tax cuts, labor policies, environmental policies and, perhaps most importantly, regulatory policies was born.

The result: three decades of strong to middling economic growth. (The last eight years hardly being the golden age of Reaganomics, hence all the nostalgia for all things Reagan and ‘80s in Republican pundit circles.  All that’s missing is for Dana Farino to start wearing big hair and padded shoulders to White House press conferences…) But also three decades of declining middle class fortunes.  Where the WWII generation saw standards of living double every generation, Baby Boomers and Gen Xers now need wait three generations for the same gain.  Perhaps this is why Baby Boomer attitudes towards the economy is so glum.  Throw in the Enroning of the economy as corporate America and Wall Street, shorn of true regulation and oversight, ran amuck, the Dot.Com bubble and, now, the subprime mortgage meltdown (all foreshadowed by the looting and collapse of the S&L industry in the 1980s, the first great manifestation of Reagonomic ubercapitalism gone astray) and the result is an overleveraged, unstable economy on the brink of the worst economic recession of the last seventy years and the possibility of a global recession to match it.  With all the geopolitical instabilities that would portend.

The Reagan Revolution.  Born: 1980; died: ?  You might start etching that date on the economic tombstone: 2008.  If Barack Obama—or John McCain, for that matter—are actually serious on changing economic course from the one charted by Reagan and followed by his three successors–including Bill Clinton—there is only one direction to tact towards.  Demand-Side II.  The Return of Keynes and Roosevelt.

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6 Responses to “The War Between the States (of corporate desperation) and a Short History of American Economic Time (and if this title was any longer it could never make it as a bumper sticker.)”

  1. mlaiuppa Says:

    Okay. All that.

    But oil has peaked (and natural gas quickly following) and the airlines as well as everyone else needs to get a clue and suck it up.

    Rail needs to come back in a big way. Long distance travelers need to learn to plan in advance and then sit back and relax. Rail is 18% more efficient than air and 17% more efficient than auto.

    Reduce, reuse, recycle. Time to start reserving oil for that for which there is no substitute and start substituting in a big way now. That means more solar, more wind, more geothermal, more bio, more alternatives.

    We need a NEW New Deal. One based on green, to both retrain and employ those out of work and to produce the green we need. (Double entendre intended.) Retool factories to produce wind turbines, solar panels, inverters. Fine the dirty and wasteful to reward the clean and efficient. Light a fire under coal fired plants: clean or gone. No cap and trade. If they can’t clean up their emissions, then they’re shut down. That of course means we need to bring in a substitute.

    Instead of flushing all of that animal waste away to provide the e.coli in the next crop of spinach, contain it for the methane.

    Caging animals up in farms and feeding them what they weren’t designed to digest and then pumping them full of drugs to combat the effects of a lousy diet isn’t a good business model for food production any more. We’re going to have to modify our diets to eat smarter, thrifty and more…..green.

    We need to eat a lot less beef. The cows need to get off of their corn diet. The grass can both feed them and sequester carbon. Free range isn’t cheap but it’s healthy for the cows and the earth.

    There’s a lot more.

    Yes, oil speculation needs to stop. But that is a very small part of a very large and very complicated problem.

    Have you put a PV array on your roof yet? How many mpg does your car get? Biking and walking more? Do you reuse your cloth bags, forgoing both paper and plastic? Programable thermostat. Microsprinklers on timers. Composting. Everyone can do more. And the more we do, the better it gets for everyone.

    Reaganomics is over and we’re entering the fourth epoch. Time will tell what it will be.

  2. bill greene Says:

    I would divide American economic history into two epochs: There were the first 250 years from 1620-1870 when there was limited government, easy entry to business, relatively fair and open competition, no foreign adventures, and minimum taxation and regulation. That benign scenario allowed the great majority of citizens to employ their imagination and initiative in pursuing their ecomonic well-being. Those generations, who asked for no handouts or assistance, built the wilderness into a great nation with railroads crossing the continent, and made us one of the most advanced industrial powers of the world.
    Then there was the last 100-150 years when all that good stuff commenced a slow death. In the 1900’s, we allowed ourselves to become embroiled in major foreign wars, enacted so many laws and regulations that you can’t do business without legal representation, burdened the people with a huge bureaucracy and oppressive taxes, diminshed the independence of the citizenry with huge subsidies and welfare transfers that put millions on the dole, and initiated a number of feel-good utopian schemes that waste the peoples’ money, create injustices, and bring on harmful and unintended consequences. These negative trends of the last 100 plus years have been encouraged by an educational system that teaches victim dependency and anti-Americanism; politicians buying votes from the gullible; and a cadre of intellectuals who seek to rule from the top by administering centralized governmental programs. In short the self-reliant generations of Americans have been replaced by an effete elite who dictate political correctness, multi-culturalism, and socialism–with all the trappings of big government.
    The three eras described in this post are really just sub-parts of the final declining phase of the American State. Both Republicans and Democrats have fallen victim to these negative forces. History is replete with successful Republics that eventualluy succumbed to populist democracy and its related bloated bureaucracy. The lessons of history are being repeated, here in the USA–it’s simply a case of “deja-vu all over again.” I have fashioned the “Radzewicz Riddle” to illustrate the point: “Why do primitive start-up societies do so well and yet once they become affluent, their people better educated and more sophisticated, their leaders more compassionate, and with their new elites employing the latest scientifically crafted government programs, then, somehow, things start to go downhill? Of course, the answer is that the academics and intelligentsias have taken over, the common people are bamboozled, and economic freedom is smothered in a miasma of oppressive regulatory burdens.

  3. mlaiuppa Says:

    Ah, yes.

    The good old days of children in the coal mines and rats in the meat packing houses.

    There’s never a bootstrap to pull yourself up with when you need one.

  4. Bookmarks about Corporate Says:

    […] – bookmarked by 4 members originally found by Spirituse6 on 2008-09-30 The War Between the States (of corporate desperationThe War … […]

  5. byncJoyboaddy Says:

    Terrific post – hope to visit once more..

  6. Deonna Kupchinsky Says:

    I am happy that Tiger Woods is back playing. It makes the sport interesting all over again.


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