House of Cards before meltdown
The stranglehold the right wing has had on our nation’s economics has been a boon, you would think, to updating working knowledge of what works, and most strongly, what doesn’t, for economic health. To the morbid fascination of those of us who actually studied, and have working knowledge of, economics as a science there is an incredible tenacity of the right wing that insists its disproved theories actually work.
Yesterday’s post talked about outmoded theories that still have a hold on business reporters like Maria Bartiromo, still canting on about a need for tax cuts for business – that never have and never will create jobs. The comments on that post included references (see number 28) to that ‘trickle down’ theory, as it was named in our long-ago Economics 101 courses. Inert in so many ways, the right has shown it will not stop believing in a fantasy that has led them, and the nation along with them, into this present financial catastrophe that threw our system into deep debt and wasteful policies under such fallacious concepts.
Last night on After Words, on Book TV, Sebastian Mallaby, author of More Money Than God – about hedge funds – mentioned disparagingly [at 00:46:05] the inability of academia to let go of "market efficiency". That is another concept that was held by academics but proved totally wrong when the right dominated the nation’s economic policies. It holds that the market will annihilate inefficiency, or an inability to sustain itself, so that regulation by government is extraneous. Under that theory, mortgage companies were left to control their own practice of extending credit to those unable to handle it under the firm belief that business would have a strong instinct of self-preservation.
While we’re inspired to giggle at the thought that an economy would be run under such a belief as if it were serious science, that’s what got us into this mess. Coincidentally, at the same time, millions of U.S. consumers of debt were operating on a marketplace theory that played right into the ‘market efficiency’ myth. That concept was that they could consume now, and pay later, under a personal plan of ‘controlled debt’.
Recently I had a fascinating discussion about what we learned in school, with commenter "eCAHNomics", who I found out is a classmate of mine from 1966. What we learned at Wellesley, and the way it was taught, is a subject of humor now.
Unfortunately, though, what was taught at their colleges is still firmly entrenched in the actions of many business moguls who have all too firm a grip on a struggling economy. While we don’t know with certainty, eCAHNomics and I speculated about the donations of corporations with a vested interest in debt and those endowed Chairs.
One example of academics gone terribly wrong, one that I feel badly about, is a relative who swallowed whole the teachings at Harvard’s School of Business about creative debt, a.k.a. ‘deficits don’t matter’. Now underwater in a huge mortgage, his retirement funds and borrowings against a house, invested in the market, disappeared, as did so many other retirement plans. Now, he’s struggling to keep his home from foreclosure while his wife is working in retirement to manage their living expenses. Like all too many of our generation, under assurances that economic theories he’d paid dearly to study, combined with the siren call of living high and paying later, this business school believer went over a cliff of controlled and rational planning sold widely by the purveyors of debt. Those credit card companies and financial houses are living high, even now, on those outdated theories’ effects.
The original concept for banking was sound, and envisioned interest earned by lending out personal savings, which could even manage a certain percentage of failed loans. When those savings converted to the more daring, but also more dangerous, challenge of having it all now under a planned debt payment – the economy as a whole climbed out on a limb and handed the saw to every business that might grow greedy and raise its own share.
That happened when gas price gouging occurred in 2006. An economy consisting almost entirely of hyper-extended households ‘having it now’ suddenly had to cope with twice and more the amount budgeted for that ‘controlled debt’. The paycheck-to-paycheck majority got into more debt than it could afford. The first card in our national house of cards toppled. After that, each incremental share of our overextended house of cards began an inevitable tumble that is barely above depression level nationally, while personally the tragedy in many households is at depression level.
Still soaring in its visions, the corporate class still will not see that it has been proved wrong. What was bad for individuals is bad for corporate interests as well, but those diminished profits haven’t hit home with the believers in ‘market efficiencies’ and ‘trickle down’ myth. That your debt is their profit is as far as they can see. That is the lowest and last layer in the total house of cards our economy had become. If they can’t let go, and become part of the functioning, REAL, economy that last layer is on the verge of tumbling.
Believing in myths, and putting a balance on their books that ignores investments in bundled "toxic" mortgages – which include a preponderance of debt that will go unpaid – means that REAL value has been wiped out. Holding tight to a blind faith in outmoded and wrong theories has led to a whole system based on a ground floor that is gone.
"Mark to Market" – the term for accepting actual monetary reckoning on all those bundled bad mortgages – is the sound of that last row of cards beginning to believe in gravity.
Author: Ruth Calvo, 66 and retired, is a longtime political activist for progressive causes and writer as well as a daily editor here at The Seminal. She worked in the office of TX. Senator Ralph Yarborough after graduation from Wellesley College in the 60’s, served on the Council on the Arts after receiving their award for playwriting, managed some political campaigns in Maryland, and served several years as assistant to Maryland House of Delegates member Delegate Gene Counihan.