Five Things You Need to Know: The Lingering Stealth Depression
Our declining standards of living pass by virtually unnoticed.
Despite the seeming enormity of it in retrospect, the stock market crash of 1929 barely even registered for most Americans. The day before the crash, Time Magazine's Oct. 28, 1929 issue was business as usual; national stories, Washington stories, a review of the newest plays opening in Manhattan, a piece on a cat washing contest in Kingston, NC.
A week later, in the wake of the stock plunge, the cover story was as far from a piece on crashing share prices as you could get - a profile of a man named Samuel Insull, the "financial father of the Chicago opera." The crash did make the magazine, of course, second billing in the Business section in a piece titled, "Bankers v. Panic." The next piece, however, was about a $2.5 million investment by a Wall Street investment bank in orchids: "Last week, however, to the orchid industry went 2,500,000 Wall Street dollars, not squandered, but carefully invested."
Heh. Yes, the dream dies hard, doesn't it?
It took a little more than two full years -- Dec. 11, 1931 -- before the New York Bank of the United States would collapse. Surely that would rattle a few cages? Well, thre no magazine cover play. The cover was reserved for Dr. James Henry Breasted, "foremost Egyptologist of the U.S.", but the bank collapse did garner a story in the Business section, below a piece on Lorillard Co., then in the news as "the only major industrial concern in the U.S. to resume dividends in 1931."
I obsessively read archived issues of Time Magazine and the New Yorker. I want to understand how the Great Depression resonated among those who were living and, occasionally, working in it. If our modern stealth depression continues, with looking concerns over the debt ceiling, Greece, PIIGS, war, and terrorism, frequently interrupted by tech-driven sex scandals, what were their concerns?
One thing that stands out is that our present depression is a bizarro mashup of 1930's America, punctuated with iPods and cheap consumer goods; one in which declining standards of living pass by virtually unnoticed because the fall is so abrupt, so scattered, a truly stealth economy with few visceral effects. These effects hover near the financial elite but at a relative distance. The microwave is the new bread line, our Hoovervilles replaced by people squatting in foreclosed homes watching Netflix, which is simultaneously both an achievement and a horror.
Economically, things are going to get worse, the political upheaval more intense. This stealth depression is not yet over.
2. Why We Must Destroy Our Pathological Financial System
If you can find the time, I urge you to watch this rather long video presentation by Amar Bhide, a founding member of the Center on Capitalism and Society and noted writer and author. In the video , (H/T: new deal 2.0 blog), Bhide makes the following point: ""Technological innovation does not require financial innovation," he notes. It needs lending that's based on financiers who have actual conversations with borrowers." That may seem to be a rather obvious point today, but it only a few years ago that we considered face-to-face interactions between borrowers and lenders to be a quaint relic of the pre-financial innovation age. Bhide's larger point is that we are mired in a system of "pathological finance," a diseased system which must be replaced with something more like the real economy; decentralization, dialogue, and relationships involving real responsibility.
The obvious question then is this: Could we have the current level of lending if we made those changes? But there's actually a prior question -- not even a question, an assumption: Is the current level of lending about driving technological innovation, or is it about servicing existing debt loads and maintaining the present financial system's churn? As Bhide observes, "Technological innovation does not require financial innovation." The answer is clearly the latter, and we are transitioning from operating with that as an assumption to questioning it.
Bhide's primary point, that we must reset system and begin again, is crucial to understanding where we are moving financially, socially and politically. Essentially, this is a backdoor entry into opening up the conversation to what is really at stake, jubilee, reset, debt discharge and renewal, establishing a new system with different lending parameters, where lending supports innovation, versus maintaining a system where lending supports the present financial system at the expense of the former, which is pretty much his argument when he states that "We have a great innovation system in spite of the financial sector, not because of the financial sector."
Currently, this idea of the financial system vs. jubilee are not yet being formally connected. They eventually will be, for jubilee, income inequality, "too-big-to-fail" and reform are all part of the same conversation. It is possible, perhaps even likely given current levels of corporate debt issuance, that it will take the next debt crisis to formalize the conversation along those lines.
(via new deal 2.0)
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