The Great Recession

By Rothschild, Matthew | The Progressive, January 2009 | Go to article overview

The Great Recession


Rothschild, Matthew, The Progressive


The economists were the second to last ones to figure out we're in a recession. The last one was George Bush himself, but he doesn't care. He's been phoning in his job for months now anyway.

But people who were losing their jobs, people who were losing their homes, and all those who've seen their retirement accounts lose 40 percent of their value--they all know we've been in a recession for some time.

And it's not just any recession.

This one's a whopper. It's likely to be the roughest recession in forty years, at least. And it's going to last a lot longer than its predecessors.

This is what happens when the idolatry of the free market prevails over common sense, when greed skims over the lessons of 1929.

We wouldn't be in the Great Recession today if Bill Clinton and Robert Rubin hadn't deregulated the financial industry.

We wouldn't be in the Great Recession today if Alan Greenspan and Ben Bernanke and Henry Paulson hadn't let the housing bubble expand to the popping point.

We wouldn't be in the Great Recession today if the Bush Administration had bailed out homeowners instead of just bankers.

But here we are, right smack in the middle of the Great Recession, and now it's on Barack Obama's plate.

At least he's talking some sense. Since winning the Presidency, Obama has been upfront with the American people about the need to engage in massive deficit spending in 2009 and 2010 to rescue the economy. This is a basic Keynesian prescription, although for many it is a hard medicine to swallow, especially after the debt Bush has run up in Iraq. But swallow we must.

Obama may have to spend between $500 billion and $1 trillion to forestall double-digit unemployment. What he spends that money on is almost as vital as the aggregate amount. Fortunately, he is wisely talking about repairing our infrastructure, sharing money with state governments, and initiating a green jobs program. These expenditures will give us the most bang for the buck, and they will lay the foundation for long-term growth that is not so ruinous to our environment.

Unfortunately, his economic appointments leave a lot to be desired. He could have picked someone like Joseph Stiglitz or James Galbraith or Dean Baker to head the Treasury and the National Economic Council. All have been critics of corporate globalization. All are strong proponents of reregulating financial institutions and reflating the economy.

Instead, he chose Lawrence Summers to head the council and Timothy Geithner to be Treasury Secretary. Both are experienced at ramming free market policies down the throats of other nations. Both were disciples of Robert Rubin when he began to deregulate the financial industry as Clinton's Treasury Secretary in the late 1990s.

Summers served as chief economist at the World Bank from 1991 to 1993, when it was foisting structural adjustment policies on developing nations. And when he moved over to Treasury, he got Stiglitz fired from the World Bank after the Nobel Prize-winner criticized such policies.

"Spread the truth--the laws of economics are like the laws of engineering," he said while at the World Bank. "One set of laws works everywhere."

You can find this quote in Naomi Klein's Shock Doctrine: The Rise of Disaster Capitalism, a must-read. She points out how Summers ran roughshod over Russia's parliament to impose economic shock therapy there in 1993, when he had moved over to Treasury.

"The momentum for Russian reform must be reinvigorated and intensified," Summers said, after the parliament had refused to go along. Shortly after that comment, the International Monetary Fund threatened to withhold a $1.5 billion loan. So Boris Yeltsin dissolved and attacked parliament, abolished the constitution, and bowed to the IMF's and Summers's demands. …

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