Tuesday, September 30, 2008

The new New Deal

On Monday we witnessed a partial collapse in the stock market as the bailout package was voted down in Congress amid unprecedented ideological confusion. We are currently witnessing a shift in both the political and financial landscape of the United States. Monday’s vote describes two things that are going on right now:

1. The Republicans don’t seem to realize that their political future hinges on the continued alliance with Wall Street and big money. They seem to think that there is an alternative political and financial current of “free market” thinking that they can support, but they are wrong.

2. The Democrats don’t seem to realize that this plan is indeed a fat cat bailout that never had the potential to work in the first place. The stock market will crash very soon anyway, and today the value that was lost on Wall Street because the market went down was $1.4 trillion, which is twice as much as the size of the bailout package… In theory, if Wall Street would have gotten all the money today, the market still could have gone down by $700 billion in just five hours. The Democrats don’t realize that this bailout goes 100% against their goals as a party, because it supports the continued reliance that America has on Wall Street as the provider of fictitious prosperity instead of government guarantees of social safety for citizens and sound finances for the government. For inspiration, the Democrats should instead look at the New Deal.

What I’m saying is that the financial situation of this country is so bad on a systemic level that it has to be re-done from the ground up, and that we don’t have a choice. There is no longer anything you can do about the state of the financial system with bailout packages, takeovers, capital injections and the like, because things have simply gone too far for too many decades. We have to re-think the way our economy functions, of what it consists, on what it relies and on what principles it is run.

We all know now that a trickle-down, unregulated economy does not work. Whatever has trickled down over the years since the markets were set free has swiftly disappeared lately. However, the trickle-down effect is likely to work very well in reverse as people at the top of the income pyramid quickly withdraw their money from the economy so that unemployment rises sharply. We will see a lot of pain in the months to come among poor people in the United States. They will lose their jobs, homes, health insurance and more. Also, thanks to Reagan, they don’t have a social safety net to rely on, which leaves these people utterly vulnerable. We need a new New Deal to get America back on track.

What I suggest that this New Deal would do is to re-create a vibrant internal market for goods and services in this country. This country is definitely large enough to produce everything it needs for its own economy, and it does not need to rely on China for goods, or India for services. I’m not saying that international trade is bad. I’m only saying that the lack of investment in America’s public infrastructure is what has made goods and services produced in America unaffordable, to a large extent. The competitiveness of American goods and services, sold in America, could be greatly increased by investing tax money in railroads, roads, education, research, public transportation and more. By being able to efficiently produce and deliver these goods and services, the financial advantage of outsourcing to China would be eliminated for a lot of goods and provide many jobs in America. As a result of this much more tax money would stay in America, profits could be re-invested in America and the trade balance and currency value would be greatly improved. By investing more money in education and research, America could become more competitive on the international market for very advanced goods, i.e. goods that no one else is able to produce. That was traditionally the essence of international trade: you had to buy what you didn’t have or couldn’t produce. I believe that the manufacturing industry in America can be re-created through public investment and that new industries can come about as well.

There also needs to be substantial investments in the American people. 20,000 people per year are dying because they don’t have healthcare. There is so much suffering on so many levels of American society that that crisis is far more significant than a Wall Street crisis can ever be. We need to bring back a comprehensive social safety net immediately. This will obviously have enormously positive effects on society as a whole in the short and long term. What we need to stop is dying, hunger and extreme poverty right here in America. We need to raise the minimum wage, provide national health insurance, national pension plans, childcare and eldercare, labor rights and social rights.

How do we pay for this? It’s simple: Bush ended Pax Americana with invasions and torture. The era of American dominance in the world is over. Pull the military out of Iraq and Afghanistan and decrease spending on the military by 50%. There’s your money.


Jay Diamond said...


This blog and your thinking is truthful, brave, and strong !

I'm glad I came across your comment on the NY Times website.

Lisa said...

When you say you believe the stock market will collapse, do you mean all stocks will go to "zero", or do you mean will go down "significantly". I ask, of course, because I've got a few stocks.

Jacob said...


I don't think that stocks will become worthless, but I do think they will go down by about 30% on average. However, I don't think that the stock market will do well for another ten years, so anyone who is over 50 should not own any stocks in any form if you ask me.