Published Lebanon Daily News January 8, 2009
Reprinted here with permission of the author

A Republican friend (I do have them!), asked me how bad things are and if the economy will ultimately recover. This is what I wrote him back.

Sure, “the economy will ultimately recover.” This is not the end of our empire. It is not 410 AD and the sack of Rome. Think rather the Battle of Adrianople in 378 AD when the Roman army lost it first major battle to the barbarians. It is not the end but it is not the same as it was. The real question is where do we go from here.

Change, whether or not it is change we can believe in, will be full of surprises. Look at the economy and what happened to the rock-bottom principal of ownership. Milton Friedman have mercy on them, the Republican Socialists are ready for the government to take ownership in almost anything.

We will never think about money and the economy the same way that we did. Wall Street, the guts of this capital-oriented economy, just isn’t there anymore. All of the great investment houses, some of which we have known since the 1800s and are what we thought of as Wall Street, are gone – acquired, merged, bankrupt, or morphed into commercial banks. Secretary of Treasury Paulson even suggested a federal corporate charter for all financial entities.

But who can believe anything Paulson says now. He gave away $350 billion with no strings attached and to no effect. With that money, his banking buddies bought banks, held parties and gave dividends and bonuses with nary a thought for the people they were supposed to lend to.

Our politics will likewise never be the same, even if no one wants to explicitly recognize the fact. President George W. Bush so empowered an Executive Presidency that he could ignore habeas corpus, order “enhanced interrogation” and warrantless wiretaps, force banks to sell ownership to the government, give money to the auto industry after the Congress had explicitly said no and, in effect, do absolutely anything with a simple signing statement. And he wasn’t impeached!

Now, Barack Obama could call on all the same powers but, hopefully, he won’t need unconstitutional powers to do what he is talking about. So what will he do?

The guy was more than a constitutional authority; he was a social worker and community organizer. He knows the problems of the disenfranchised, the poor, the working stiffs and one should expect that he will try to do something for them. They are, after all, the ones who gave him almost $500 million to campaign with and voted for him.

He’ll give unions back their bargaining rights, tax away the money that the super rich skimmed over the past 30 years and make markets work for those who produce the goods and services. If that isn’t a change from tax cuts for the rich, I don’t know what is.

In the meantime, look out for a president who promises radical action — like supporting sit-down strikers! –  and then appoints superb technicians. They will be relentlessly efficient in getting him what he wants. Especially when previously unacceptable ideas, like a single-payer, universal coverage healthcare system, fit with the newly discovered role of an efficient government.
It will not be simple. There will be no straight-line extrapolations. At this point, as things get worse — very much worse, people are getting really ticked off at all of our leadership elites. Obama is going to have to be very adroit at controlling that anger to keep things from getting out of hand.

Obama, in his guise of an outsider, seems well placed to do a good job with his presidency, but it is a problem that George W. Bush and, ultimately Ronald Reagan, gave him that chance. They pushed the ideological pendulum so far to the right that I fear it could come careening back out of control.
We should all be concerned about the changes that are going to happen and that even Obama and his moderates may not be able to control. Compared to that, when this “great recession” will be over is almost trivial.

But my best answer to that question is: It depends. I am a two armed economist. If, on the one hand, they go at it right as a middle-class solvency problem and attack the lack of wages and purchasing power, then it can end as early as the 4th quarter of 2009.

If, on the other hand, they treat it as a financial liquidity crisis then I have to think that it will be a long slow pull off of the bottom. It will be the infamous “L” shaped recession where the economy will stop falling but will have only barely perceptible growth that could last into 2015.

We live in interesting times.

–
Paul A. Heise, PhD
Emeritus Professor of Economics
Lebanon Valley College
717 964-2019

“Terror is the price we pay for empire. Moral decay is the price we pay for religious repression.”

It’s Christmas and Christmas, with all of its mix of Christian and pagan symbols, with its shopping and gift-giving, has become the celebration of family. Christmas is our most important holiday because the family is still the core of our society.

Christmas is especially important now when so many families are looking on hard times.

The economic news is not good this Christmas. The economy is tumbling unchecked into what appears to be either a Great Depression II or a (new term) Great Recession. It is going to be that bad.

When the President-elect specifically says that the economy is going to get worse before it gets better and that it will take not months but years for recovery, the average family should be pulling closer together.

It is families that we have to be thinking about. Family is that place where, when you have to go there, they have to take you in. That is because family is the place where we share the good times and go for support in the hard times.

Christmas is a celebration of the family as community; the celebration of who we are together. It is the only time when we still sing together. It is the time when we exchange gifts as tokens to reflect the fact that we care for one another.

If past economic downturns are any guide, caring for one another is about to get a whole lot more concrete than affectionate gift-giving.

In 1932 at the pit of the Depression, my parents, like many others, had to give up the comforts of independent, city living and go back to the family farm. In our case it was a farm just outside of Detroit owned by my Aunt Rhea and Uncle Harry. We lived there for a while in the tenant house, about the time I was born.

Formerly, families could hunker down and get past it that way by helping each other but many no longer have that option. Our industrial society has moved too far from our agricultural base. In most cases there is no farm to go back to and families are instead doubling up with already stretched siblings and retired parents.

America, and much of the world, has just finished a period of prosperous if skewed growth. Those good times were, unfortunately, living beyond our means and financed by debt. We borrowed for the necessities like school and housing, we borrowed on credit cards, on cars, and finally we borrowed on what was supposed to be a retirement nest egg, our homes.

The benefits of economic growth went almost completely to the wealthy. There are now over 460 American billionaires and income distribution is more skewed to the rich than at any time since the 1920s.

Even without the income, we indulged our hunger for things and a shop-till-you-drop life style. Many lost the spirit of Christmas, the spirit of peace and joy at the shared love of family. Chasing after wealth and things left us with nothing. The coming hard times should send us back to basics.

The past 25 years of unregulated and irresponsible market worship was a wild ride but it ended in catastrophic debt and near system collapse. Now we have to figure out a way to stay afloat as we pay for it.

The government’s $1 trillion “economic recovery plan” is meant to do that but it is more Christmas promise than present and is more business than family-oriented. The government is preparing this Christmas present for the economy because there is no way that families or markets can correct the problem.

The recent period of growth was also a period of strident partisanship. There seems to be a growing political consensus that the surrender to materialism and the drive for wealth was not a good thing for our country as a whole.

The country is beginning to show signs of coming together. Both Republican and Democratic economists agree on the size and nature of this Christmas program. Only Representative Boehner, leader of the House Republicans, seems to doubt and he is reduced to advertising for economists who share his skepticism.

Our new president-elect exudes a quiet strength and smiling acceptance of life. In fact, he seems to laugh and relax only in the presence of his family, his clearly strong-minded wife and beautiful children. His willingness to accept people as they are is a rare gift and one that promises much.

So, in the hard times that we see coming, let’s celebrate our way out of them by sharing this feast of the Holy Family, our family and the new first family. Let’s also celebrate that we as Americans are again promising hope to the whole world.

–
Paul  A. Heise, PhD
Emeritus Professor of Economics
Lebanon Valley College
717 964-2019
“Terror is the price we pay for empire. Moral  decay is the price we pay for religious repression.”