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 dot.com 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.