So I’ve been reading up a lot on the financial crisis. Along with a great group of grad students, my colleagues Josh Whitford, Sudhir Venkatesh, and I have been dedicating a couple hours every other Friday to read through and make sense of what’s going on. Yesterday word just came down that GM’s CEO has been fired by the Obama folks. I don’t have much of an issue with this. But here’s what I DO have an issue with:
1.) The Geithner plan is a way to reinflate the bank/financial capitalism bubble with the hope that losses can be distributed in the long term (across, say, a decade rather than a year). They seem to be saying to us, “don’t worry, this next time we’ll get it right, through regulation.” You’ll have to excuse me if I’m not buying.
2.) GM and Chrysler have problems. They’re selling about 40% fewer cars than they were a few years ago. Few businesses, no matter how well run, can sustain this kind of hit, particularly those who are structured in a way that requires them to move their product quickly. GM in particular made the fateful decision to become a financing company, where their product (cars) were basically a mechanism for them to sell financing to people (Ford, by contrast did not make this move and had cash reserves on hand; Toyota and Honda to an even greater degree). For this, and other management decisions, I think the Obama folks are right in asking the CEO to step down. But here’s the issue:
3.) The Obama folks and many pundits are willing to let the manufacturing economy fail in a way that they are NOT willing to let finance capital fail; or better, they are willing to step in and restructure manufacturing in ways that they are not willing to intervene in finance. The argument here is that manufacturing made “bad decisions.” However, what was the bad decision that manufacturing made? Well, primarily shifting their profit accumulation to finance capitalism. Those firms that did this failed; those that did not are surviving. The failure of the auto makers is, to a large degree, the same as the failure of the banks. Yet the auto makers are being subject to punitive measures in the way that finance capitalism isn’t. So here’s the kicker:
4.) The assumption behind the Obama team is that if we simply prop up finance capitalism again, and regulate it better this time (by which they mean, regulate the issues that occured in the past and nothing more) then all with be fine. It’s the new economy. Manufacturing is dying. But the triumph of finance capitalism has been the triumph of inequality. We know this story well. Since the 70s, inequality has increased, not decreased. America lost good jobs and gained lots of bad ones. Wright and Dwyer have shown that the pattern of job expansion through the 90s (Clinton’s great era) was one wherein there were few to no middle class jobs (job growth was isolated in the bottom and top quintiles) meaning that intra-generational mobility was a near impossibility (there are few intermediate jobs that allow you to climb). Looking at the same era Dean Baker has show that much of the growth since the early 90s has been a growth in consumption fueled by the accumulation of debt (Americans now have, on average, nearly $10,000 in credit card debt). Basically, the “growth” in finace capitalism has largely been illusionary; what’s grown is our average debt-load and the capacity of those on the top to capture more and more of the spoils.
My question is: why is this the system we want to support? Rather than take this moment as a time where we fundamentally rethink the structure of the economy, we seek a return to what failed us. Without good jobs (say, those manufacturing jobs that we’re willing to see disappear) the American economy is unlikely to recover. Yes, we need finance for businesses and jobs. But if the experience of the last 40 years has shown anything it is that such finance is not particularly good at helping create the kinds of jobs that we need: productive labor. I know, I know, I’m reviving my Marxist roots (remember? I warned you). But I say that before we jump in feet first to rebuilding our economy we think more seriously about what it is we want to rebuild. The Obama folks want a Clinton economy (the one they created!). I say, that economy didn’t actually work so well. It gave us more bad jobs, lots of debt, and more and more powerful rich people. Turn back a few years and regulate isn’t the answer. But I think the treatment of finance vs. auto makers reveals that it’s exactly the answer that the Obama team is giving us.