Sunday, February 28, 2010

A Potemkin Village economy: how gridlock defines politics ... by gimleteye

US politics are in gridlock because elected officials, Democrats and Republicans, are fighting to revive an economic model based on land speculation, production homebuilding and construction of infrastructure related to sprawl. Instead of breaking with leap-frog, car-centric development molded to fit financial derivatives-- admitting that trillions of taxpayer handouts have been given to banks to shore up a failed economic model-- elected officials in the US are maintaining a steadfast silence to paper over their ruined circular logic.

In the New York Times, "New-Home Sales Plunged To Record Low in January", the chief economist of Metrostudy outlined that logic with crystalline clarity, "You're not going to have a robust housing market until you have more jobs, and you're not going to add jobs fast enough to bring down the unemployment rate until you have robust housing market."

In "Florida struggles to carve out new jobs: spurred by state unemployment soon expected to top 12 percent," (St. Pete Times) Mark Wilson, head of the Florida Chamber of Commerce, says, "There is no silver bullet." The Chamber, this year, will be using all its bullets to shoot down the citizens' petition to amend the Florida constitution, Florida Hometown Democracy, providing for local elections on changes to growth plans. The measure was born from the public revulsion with rampant overdevelopment that created temporary jobs in construction but permanently scarred the Florida landscape, wrecking Floridians' quality of life, the environment, and undermined the potential for "jobs" that legislators are desperate to create.

The core of the problem is not just Florida's. An economy so dependent on housing is, by definition, a Potemkin Village. Potemkin Villages in 18th century Russia were "fake settlements" built to impress the political upper class. Imperial Russia's delusions of grandeur have much in common with ours.

Along this line, as the housing bubble was inflating in 2004 to historic dimensions, raining billions in compensation, fees, and bonuses through the supply chain of Wall Street finance connected to the Potemkin Village economy, former Federal Reserve Chairman Alan Greenspan delivered a speech, "The critical role of education in the nation's economy." It is haunting to read, today. Greenspan lays out two points. The first is strange in the context of a speech on education, yet central to Greenspan's thinking: "... economic regulation, by its nature, impinges on the exercise of a property right. Continuous changes in regulations and, hence, in the consistency of property protection create a less certain environment, which undermines incentives to long-term investment and prevents the most productive use of our resources." In one breath, Greenspan points like a weather vane to the fraudulent underpinnings of The Ownership Society. Although it was only six years ago, under the pressure of the economic collapse it seems a lifetime.

"I'm one of you," Greenspan seemed to be saying as he unwound. First, the good news: that development (property rights) free of government regulation (ie. derivative debt unweighted by government oversight and regulations) is not only good and productive, it is why the US economy is the paragon of democracies. (Tell that to Greece and Spain, today.) These also comprised the cinder blocks, in Florida, of a triumphant GOP majority based on the idiotic theory that the self-interest of free markets and industry can self-police to protect the public interest better than regulations. It was the point where Grover Norquist (shrinking government to fit in the size of a bathtub... to drown there), Ayn Rand and Greenspan met Florida builders pushing anti-science, anti-environment, and anti-public health agendas in Tallahassee and Washington forward.

Taken as a whole, the 2004 Greenspan speech seems to lay out an optimistic roadmap transitioning a housing based economy to value-added through knowledge and skills. That Greenspan badly misread the economy, both on the point of the bust and the housing bubble and bust, is an error of gargantuan, historic proportions. But on his main point, Greenspan was both right and prescient of the Potemkin Village economy: "The second critical aspect of wealth creation in the United States, and doubtless globally, is the level of knowledge and skill of the population. Today, the knowledge required to run the economy, which is far more complex than in our past, is both deeper and broader than ever before. We need to ensure that education in the United States, formal or otherwise, is supplying skills adequate for the effective functioning of our economy. The recent exceptional trends in U.S. productivity suggest that we are coping, but this observation should not lead to complacency."

Greenspan's speech hinted at our current straits. Where finance, to support and enhance "property rights", moves with lightning speed, the development of an educated workforce capable of producing new jobs -- outside the Potemkin Village-- takes a long time. How poorly the United States managed these countervailing forces is etched across the American landscape and today covers Greenspan with gloom (only mitigated by speaking fees). In a Brookings Institute speech on Tuesday, the CEO of the world's largest chip maker, Intel, Paul S. Otellini said, "Unfortunately, long-term investment in education, research, digital technology and human capital have been steadily declining in the US... So, too, has the commitment to policies that made us such an entrepreneurial powerhouse for more than a century." (New York Times, Feb. 24, 2010)

The political gridlock in Washington, red ink in state budgets and scattered through municipalities across the nation, is an expression of disbelief, fear, and an impoverished imagination. While China rises, our domestic politics are polarized and that polarization manifests in a state of suspension. So far, the American voter has utterly failed to connect the churning discontent of Tea Party agitators with a Walmart culture that feeds the essentials of prosperity on the cheap. So long as Dollar Tree, TJ Maxx, and other upmarket discount retailers satisfy demands of the Potemkin Village economy, all is apparently well. In The Financial Times, the CEO of Dollar Tree spoke of his company's prospects, "We believe that as the economy recovers we're going to have stickiness." (Booming Sales Spur TJX into Expansion, Feb 25, 2010) The Times writes of a Booz & Co. survey, "The recession has shaped consumption patterns 'in ways that will persist even as the economy rebounds'".

The lack of bipartisanship in Congress is of hollow men and women who are either uneducated themselves or have simply decided to wait out the crisis and be the last man standing, or woman as the case may be. What worked in the past, will work in the future. Fly that American flag. The US is now pushed and pulled by a small but increasingly radicalized and volatile demographic. They don't trust government of any kind, they don't read newspapers and certainly not the internet. They do watch Fox News whose faith in distrust of government is unshakeable.

An educated public might break the chain, but corporations under stress are too frightened to support that. They invest their ad dollars and political cents in squeezing every last drop of profit from what worked yesterday. Let's make as much as fast as we can, corporate America seems to be saying, before the public wakes up to the fact that taxpayers have rewarded failure with billions in direct and indirect subsidies. In our state capitols and Washington, the Potemkin Village economy looks as good as the $150 aspirational haircut paid for on a political party credit card. Gridlock is good for business.


David said...

Great post. There really isn't a two party system, and I don't believe we've really had one since the early 1900's.

At this point in the game, I believe the federal government's objective (with the willing assistance of media, business, and banking elites) to stimulate discord and hubris on issues such as liberal vs. conservative, race, abortion, global warming, etc. while the real business of suborning the Constitution and eroding our national sovereignty towards the goal of one world government and concentration of earth's limited resources into fewer and fewer hands continues unabated.

Our federal government today operates so far outside of its Constitutional boundaries, it would be unrecognizable to our founders.

Instead of the confederation of independent nations united under a ferderal government with exremely limited power and scope (subordinate to the states and the people), our national government has become the very monster people left Europe to escape from in the first place.

I firmly believe the earth contains enough resources to satisfy everone's needs and then some. Unfortunately, there are and always will be a cadre of folks who will find a way to prempt the resources necessary to fulfill your needs, to satisfy their wants.

Republican democracy in this nation is way over.

Anonymous said...

If Greenspan was so wrong about the first issue how can we trust his opinion on the 2nd, or anything else.

And to David - isn't an obvious reason that there are more federal controls (and env. regs) now the fact that the states (for all the same Type A personality reasons) couldn't protect anything or anybody from corporations and large business interests?

Jill said...

Amen to this one.
And the Florida Chamber will continue to use the threat of job loss to try and sink Amendment 4 with their misleading insinuation that all construction in this state requires a land use amendment to a comprehensive plan.
They neglect to point out that there is already enough allocated commercial industiral and residential units on existing comp plans to have us bursting at the seams.

Malcolm said...

Cato was mean to me when I dropped this comment a couple of days ago. Said I was on the bong. So thanks gim for the reinforcement that ours is now a "failed economic model", even though I'm sure you don't identify with my proposed remedy.

The distress facing our community is just one piece of a very big problem.

Imagine the economic system as the house we all live in.

It can no longer provide gainful employment to millions of people who have worked hard their whole lives.

It can no longer provide shelter for millions who once owned their own homes.

It can no longer provide access to health care or education for millions.

It can no longer provide clean air to breathe nor clean water to drink for millions.

Millions of its children are undernourished and malnourished and depend on food stamps for survival.

It can no longer care for millions of its elderly.

It is a house that deserves to catch on fire.

It is a house that should burn down.

Geniusofdespair said...

LOL -- "Cato was mean to me"
very funny. If you want we can scold him/her.

Gimleteye - great observations and stitching together the argument. Was not clear on the Ayn Rand point. But this piont was crystal clear and rang true, the dumbing down of America:
" The US is now pushed and pulled by an increasingly radicalized, small and volatile demographic. They don't trust government of any kind, they don't read newspapers and certainly not blogs. They do watch Fox News and bloviators whose faith in distrust of government is unshakeable."

Anonymous said...

Great job!

Malcolm said...

Yeah, a good scolding of Cato would make me feel better. Thanks Genius, I'll look forward to seeing it on the blog. If I could suggest an opening line, "Cato, you mouth-breathing public employee hating confused semi-literate old fool..." I'll let you take it from there.

Sorry for such an undignified post on gimleteye's incredible essay.

Cato said...

"Cato, you mouth-breathing public employee hating confused semi-literate old fool..."
Ahhh I never tire of hearing accolades from my adoring fans, even the ones who have burnt one to many nuerons. Malcolm send the Bong over too my house I'll need it after watching Obamapalooza yesterday

As for Comrade Gimleteye, Mr. Greenspan and the non comformist Rand broke off relations many moons ago. The fact that Greenspan head of the federal reserve lauded property rights is in itself a contradiction since the Federal Reserve is the largest usurper of property rights on the planet (maybe second only too Robert Mugabe). It devalues our most important commoditty (Dinero, El Dollar, L'argent) at the whim of the politicians du jour.

Way before Obamanomics, W's strategery, Clinton's Hummer or papa Bush's own lip reading fiasco the US has been on a slide due too overregulation and the steady growth of the welfare state, yes some Republicans like Bonzo's sidekick have talked a good game but the truth is the size and scope of the US government at all levels has been growing consistently for the last 105 years no matter which party is in power (if only the spaniards at San Juan Hill had been better shots), perhaps the only exception being the Harding/Coolidge administration.

And now that the government takes over 50% of our income in one way or another and has sucked the vitality and productivity out of our economy it is time to pay the piper. The one thing I do agree on with Comrade Gimleteye is that homebuilding is no way to maintain an economy. There must be numerous productive (and yes profitable) industries within our borders to provide a more stable job market, true deregulation (not just financial markets), along with the realistic (not simply lips service version)shrinking of the welfare state, then perthaps we can begin to see the light at the end of the tunnel.

GE you mention Greece and Spain two bastions of social democracy that are economic basket cases not thanks solely to the financial shenanigans they participated in in order to mask their economic shortcomings, but more precisely due to their socialist economies which history has proven time and again unsustainable. It's not about reading newspapers or watching Fox or CNN its about picking up a F******* book once in a while and not just from one perspective but from numerous ones (Put down Das Kapital and Keynes and pick up something By Schumpeter or Rothbard) then maybe one starts to get a clue.

Malcolm why isn't that bong here yet? Are you bogarting again or did genius steal your stash?

Geniusofdespair said...

Behave yourself. We work hard to maintain our thousands of readers, don't scare them off, no more picking on Malcolm.

Malcolm said...

Cato, did I understand you to say you'd like Schumpeter? (Bill Murray voice: You old dog you!)

Just so you won't have any trouble with the above reference because it's post-Buster Keaton, Bill Murray is a comedic actor who appeared on the scene about thirty years ago in an American TV program called Saturday Night Live. Does Nurse Ratchet ever let you watch that in the home?

Anonymous said...

For those who think Amendment 4 will cause job loss: how's it workin for ya now?

CATO said...

Malcolm I also like to read Locke, Hume, Paine and Rousseau so I guess that makes me like 250 years old.

I hope you picked up a big crucifix at that CFC breakfast and If I were you I'd wear some garlic around my neck tonight. If nothing else the garlic will kill the reek from your bongfest.

Anon amendment 4 may or may not cause further job loss but what's that got to do with current unemployment situtation?

Malcolm said...

You read the Social Contract theorists and Tom Paine, CATO! That's a shocker. I had you pegged as an Ayn Rand or a Carl Schmitt man.

Well chew on this piece of polemic before you take your teeth out to go to bed.

First a disclaimer, the vast number of eligible Republicans won't even bother to go to the polls on the day the Crist-Rubio fiasco will be decided. Don't know which of the two men is more shallow and vapid and devoid of real leadership qualities. And this is not to boost Meek or Ferre, equally craven and opportunistic political figures.

The point is this whole elaborate game of "electing" US Senators and all the other offices in this country is being played by fewer and fewer people. It takes awhile but most people will recognize a rigged game, and when they figure out the dice are loaded they're out.

Crist and Rubio are poster boys for an era that is over now in the US. The well groomed empty-headed spokesmodel for the people who actually wield power in this country (in their debate the other day, all one fool wanted to talk about was "trust" and the other fool countered with the "God" card). And as this country enters into an existential crisis they will run away like Evan Bayh did the other day in Indiana. That is, in fact, why Crist chose to run for US Senate at all, he sees D.C. as a safer place than the governor's mansion when the tsunami arrives here in Florida. Sink and McCollum are so clueless they actually don't know the next governor will be swept out to sea.

The Florida Legislature is filled with the Crist-Rubio type and so they will all be hiding under their desks during this year's legislative session. Watch the cowards posture and preen about everything except actually closing Florida's gaping budget deficit. Closing the hole would take the courage of taking on the wealthy, their masters, the men who let them have fun playing politics and even give them a credit card to use.

Crist and Rubio symbolize impotence and soon irrelevance.