I have no doubt that a few people made a lot of money in the markets this past week. But I don't care about them. I care about the people who are losing, still losing, because they continue to fall for the pipedreams foisted upon them by the media, politicians and industries that surround them, that literally shape their lives. The people who, looking at a 3% rise in the Dow in one day, once again look at their TV sets, and once again convinced that recovery is here to stay. Robert Reich has some sensible words on the Dow vs people's lives:
The Stock Market Rally Versus the World’s Economic Fundamentals
Reich has it all so right, the Dow Jones indeed is not your world, and then he veers off the tracks like there's no tomorrow.
by Robert Reich
What passes for business reporting in the United States is too often a series of breathless reports about the stock market. When the Dow rises precipitously, as it did today (Wednesday), the business press predicts an end to the Great Recession. When the stock market plummets, as it did last week, the Great Recession is said to be worsening.
Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there’s no relationship at all. Over time, weather and geology interact but the results aren’t evident for many years. The biggest impact of the weather is on peoples’ moods, as are the daily ups and downs of the market. The real economy is jobs and paychecks, what people buy and what they sell. [..]
Many big American companies have been showing profits because they’re doing ever more business in China while cutting payrolls at home. American consumers aren’t buying much of anything because they’ve lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load.[..] The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.
Europe is in almost as much a mess. The problem there isn’t just or even mainly that Greece and other nations on the "periphery" have too much public debt. A bigger problem is European consumers aren’t buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe’s large economies – Britain, Germany, and France – are paring back their public budgets. It’s exactly the wrong time, and a recipe for disaster.
In his view, both Europe and America should greatly increase their government spending. Why? So they can return to growth. Not that there's even one iota of proof that spending more will spur any sort of growth in today's world, mind you. But that doesn't seem to matter. Neither does the fact that debts and deficits are at unparalleled levels. People like Reich argue that if you don't spend more, you certainly won't get growth. And that's not just bad, it's unthinkable. The reasoning behind this, obviously, is that when push comes to shove, growth will cure all ills.
Economists on all sides of the spectrum suffer from the same delusional perceptions. Their differences, enhanced and illustrated with mathematical formulas and complex graphs, often boil over into near shouting matches, but in the end they all aim for the same goal. Growth. Whether it’s through spending more today, or cutting now so more can be spent tomorrow, the holy grail remains the same identical object: growth.
If you would ask them what happens, what we should do, if there is no growth, or if there’s a huge contraction, one that lasts 10-20 years, before any growth re-emerges, if and when we might go from 10% of what we have now to 11%, they would declare you a fool who doesn't understand their sophisticated models. Which show cyclical trends, with ups and downs, for sure, but which always down the line end in net growth. And not a decade away, or two, but just around the corner.
Just listen to the band of fools:
Economy Avoids Recession Relapse as Data Can't Get Much Worse
In any given society, the people should make sure the best and brightest among them are to be their leaders. We can all agree, that makes a lot of sense. But it's not what we see, is it? Wherever you look, from Asia to Europe to Africa to North America, the political prowess is in the hands of a bunch of power-hungry self-absorbed peacocks (mostly, but not exclusively, male). Democratic, absolutist, what's the difference, really? Sure, there's people getting into the game with the best intentions, but they are either thrown overboard or they adapt to the game. Power corrupts. Not instantly, perhaps, but it is a sure-fire slow grinding way to warp a (wo)man's moral mind space.
• The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good. The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris [.] at BofA Merrill Lynch.
Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 30 percent below five years ago. "It doesn’t rule out a recession," Harris said. "It just makes it less likely than otherwise." The possibility of the economy lapsing into another contraction during the next year is 25 percent, he said in a Sept. 1 report.
• "Things can get worse," said Martin Feldstein, a professor at Harvard University in Cambridge, Massachusetts, and president emeritus of the National Bureau of Economic Research. "When the economy is moving forward at a very slow pace, very close to zero, the risk is we could slip over into the negative side of zero."
• "With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases," said Nouriel Roubini, "A negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double dip," Roubini, chairman of Roubini Global Economics LLC, said[..]
• "My overview is that we have a very disappointing recovery rather than a double dip," said Carmen Reinhart, a professor at the University of Maryland[..]
• The central bank "will do all that it can to ensure continuation of the economic recovery," Bernanke said in his Jackson Hole speech.
• The housing market, whose collapse kicked off the economic decline that began in December 2007, also looks to be stabilizing at a depressed level, after factoring out the ups and downs in sales prompted by a home-buyers’ tax credit and its expiration in April, [chief investment strategist at Wells Capital Management] Paulsen said.
• The U.S. banking industry "has more capital as a percentage of assets right now than in any time since 1935," Richard Bove, an analyst with Rochdale Securities in Lutz, Florida, said [..]
• "I tend to be cautiously optimistic about growth," said Harvard professor James Stock, who is also a member of the NBER’s Business Cycle Dating Committee. "All the excesses have been corrected." A double dip is "quite unlikely," he added.
These politicians of ours base their economic policies on people who suffer from that same syndrome. Economists, since it’s not a science, and hence its theories cannot be disproved (see Karl Popper on fallibility), get to play the same game as their temporary "masters". That is, what they say doesn't depend on what they feel they should convey on account of inner convictions and morality, but on what they feel people want to hear. Which makes them, essentially, indistinguishable from detergent ads. Who cares how clean this soap washes your clothes, did you see how happy the family on TV is that uses it? Who cares what the meaning of my words is, people so desperately wish to believe in a change from the misery they have.
And so everyone, politicians, economists, and yes, you, is stuck in the growth meme, and that fits the economic system itself, and our human brains, to a T. The fiat money our economies are based on cannot exist for very long in a system that doesn't grow. It has to be issued at an interest rate (or you wouldn't need fiat money to begin with). To pay the interest, you need to issue more money, rinse and repeat. And in order to issue the extra money you need to pay the interest, without killing the goose, you need to have growth.
Here's thinking we won't understand this one, as a society, until we're sitting among its smouldering ruins. Sure, it's the fault of the leaders, the politicians, the economists. But who put them where they are? It's you, it's us, we are as addicted as they are to the perpetual growth paradigm. They talk nonsense, and we hear what we like to hear and swallow it hook line and tinkerbell. It's in our amoeba brains, and we can't fight it, since we are the amoeba brain. "I don't care if you make sense, as long as you make me feel good." Don't blame yourself, blame the amoeba inside of you. You know better.
One that got away (as in one flew out of the cuckoo's nest) is Christina Romer, who was chairman of President Obama's Council of Economic Advisers until this week. Boy, has she said some braindead things in her tenure, preferably from the White House lawn, after yet another session of how do we spin this one. Well, Christina will never tell all, bound by the Washington Omertà, but she had some warnings for the listening ear:
Economist Christina Romer serves up dismal news at her farewell luncheon
Lunch at the National Press Club on Wednesday caused some serious indigestion. It wasn't the food; it was the entertainment. Christina Romer, chairman of President Obama's Council of Economic Advisers, was giving what was billed as her "valedictory" before she returns to teach at Berkeley, and she used the swan song to establish four points, each more unnerving than the last:
- She had no idea how bad the economic collapse would be.
- She still doesn't understand exactly why it was so bad.
- The response to the collapse was inadequate.
- And she doesn't have much of an idea about how to fix things.
What she did have was a binder full of scary descriptions and warnings, offered with a perma-smile and singsong delivery:
Anybody want dessert?
- "Terrible recession. . . .
- Incredibly searing. . . .
- Dramatically below trend. . . .
- Suffering terribly. . . .
- Risk of making high unemployment permanent. . . .
- Economic nightmare."
Romer had predicted that Obama's stimulus package would keep the unemployment rate at 8 percent or less; it is now 9.5 percent. One of her bosses, Vice President Biden, told Democrats in January that "you're going to see, come the spring, net increase in jobs every month." The economy lost 350,000 jobs in June and July. [..]
When she and her colleagues began work, she acknowledged, they did not realize "how quickly and strongly the financial crisis would affect the economy." They "failed to anticipate just how violent the recession would be."
Even now, Romer said, mystery persists. "To this day, economists don't fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would." Her defense was that "almost all analysts were surprised by the violent reaction."[..]
Without the policy, she had predicted, unemployment would soar to 9.5 percent. The plan passed, and unemployment went to 10 percent. No wonder most Americans think the effort failed. [..]
"As the Council of Economic Advisers has documented in a series of reports to Congress, there is widespread agreement that the act is broadly on track," she declared. Further, she argued, "I will never regret trying to put analysis and quantitative estimates behind our policy recommendations."[..]
... the problem is not that Romer did a quantitative analysis; the problem is that the quantitative analysis was wrong. Inevitably, this meant that, as she acknowledged, "the turnaround has been insufficient." And what to do about this? Here, Romer became uncharacteristically hesitant to make predictions. She suggested some "innovative, low-cost policies." But the examples she cited - a "national export initiative," new trade agreements and a "pragmatic approach to regulation" - aren't exactly blockbusters.
"The only sure-fire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less," she said. [..]
The truth is that the Obama administration is pretty much out of options. Any major new effort would be blocked by Republicans, who have few alternatives of their own. "What we would all love to find - the inexpensive magic bullet to our economic troubles - the truth is it almost surely doesn't exist," Romer admitted.
How does that make you feel? The soon-to-be-former chairman of President Obama's Council of Economic Advisers says there is no solution to the economic crisis we're in. Well, okay, no "inexpensive magic bullet". You think there'll be an expensive magic bullet? An inexpensive "non-magic" bullet?
What I think Romer is saying is that she found out that all of the economic theories she learned all through her life have come up empty and wanting. And now she'll return to university to pass them on to a whole new generation of students. Because she still can't admit to herself that the theories she based her entire life upon are worth less than the paper they're written on. But still, completely clueless, and that's what she admits, if you listen closely. No idea what went on, no idea what to do about it.
This woman had daily meetings with Larry Summers and Tim Geithner, and often Obama, for like 19 months. That's almost 400 meetings. And now she comes out and says she hasn't got the faintest idea what to do. And if she doesn't, after sitting through all those meetings, there can be no doubt that means neither do the rest of them. Not a single bleeping clue. Not one of them. Theories abound, but not a clue. Infinite taxpayer fortunes to spend, but your pet hamster could do the same job. Not a clue.
These are the people who determine White House policies, who get to decide which trillion dollars of your children’s potential tax revenues will be spent today, and on this banker, and which trillion tomorrow on the next one.
Still feel lucky?