Define Crash, Please
“You keep using that word. I do not think it means what you think it means.”
As of the weekend, we heard that the Dow industrials [was] down over 5,500 points, or 39%, from year-ago peak (MarketWatch). It’s strange, though, because doesn’t crash mean that everything stops working? Crash means bread lines and digging holes and filling them in again to pass the time. At least, that’s what happened during the last crash. What does crash mean today? The internet clearly still works. Jets are still flying on time (I can hear one right now).
Just how crashed is crashed?
Moment of Truth by Paul Krugman (New York Times) says we’ve got the weekend to figure things out. After that, people will no longer have to wonder whether the world is in a recession—after that, it’ll be a depression. What measures are on the table? Nothing useful from Europe or the Americans, but the British—under Gordon Brown—have a pragmatic program that has a good chance of working. But they can’t just save themselves—everyone else has to follow suit or they’ll just drag Britain down with them, decent program or not.
“[…] the British government, showing the kind of clear thinking that has been all too scarce on this side of the pond, announced a plan to provide banks with £50 billion in new capital — the equivalent, relative to the size of the economy, of a $500 billion program here — together with extensive guarantees for financial transactions between banks. […] The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort. And the time to act is now. You may think that things can’t get any worse — but they can, and if nothing is done in the next few days, they will.”
He never was one to take lightly, but with a newly-minted Nobel Prize in his pocket, Krugman’s opinion carries even more weight. But, what does worse mean? 401K accounts and pension funds empty? Really empty? Does the internet start to disappear? Does TV? Do movies, art, music and books become superfluous? Not only no gas, but no food in the stores anyway? Are planes flying? Does the global transportation network continue at some reasonable percentage of capacity? Do we just lose access to cheap Chinese crap or do we also have no food available? And if we stop buying Chinese crap, will they stop buying our crap debt and let the whole house of cards fall even further?
When a high-profile newspaper says that “everyone” is affected, to whom are they referring? Americans have saved, on average, nothing over the last several years; not a dime, on average. Are they affected? People who spent every dime that came in—and many that didn’t—on stuff they didn’t need are looking pretty smart right now, as those who squirreled away for retirement watch everything disappear in a puff of smoke. Who’s on top? Who’s going to suffer more? Will anyone in the first world really suffer? Or will most of us continue to pay marginally more for food or fall deeper into poverty? Will we just see worse returns on our investments or will they disappear entirely? Does the crash affect everyone? Or just the people who invested directly?
And what about the lives of the poor around the world—billions of whom live on less than a dollar a day during the best of times—are they going to get even worse? Or do their lives continue more-or-less unchanged as the “western” world drops several steps down the economic ladder? Do their lives perhaps get better as the owner of the boot on their neck suddenly has a whole set of troubles of his own to which to attend?
So, now it’s Monday and Europe appears to have gotten its s%#t together in order to “save” the economy (though they are actually converting the economy to be state-run until it gets back on its feet). And America? Paulson’s still in denial and, apparently, all branches of government are willing to wait for him to realize that his bastardized notion of the free market can no longer save itself. They’ll probably wait until things have teetered even closer to the brink, putting another notch on the belt of failure for both the Bush administration and the do-nothing Congress.
They must be going for a record or something.
The article, Not My Financial Crisis – I’ve Got Literally Nothing to Lose by Alexander Zaitchik (AlterNet), makes the following point about those who have not really participated in the economic boom, who don’t really do much more than scrape by:
“Scraping by will likely become even harder in the days ahead for people in my income bracket. But it seems to me that a decade of scraping by is good practice for whatever’s coming. And it’s just a fact that this particular era of capitalism hasn’t been very good for those of us at the bottom of the wealth pyramid. If it takes some creative destruction to herald a new, more egalitarian, better regulated economy, then so be it. Millions of us are waiting for the reckoning with belts already tightened. They’ve been tightened for as long as we can remember. (emphasis added)”
It is easy to sympathize with the emphasized statement above; it’s probably true. But, it also indicates that the author isn’t at the bottom of the heap or isn’t aware of the ramifications of a true restructuring of the economy. When economists claim that the system can be saved, they mean that it will be put back the way it was; they don’t mean systemic change, which would benefit the unwashed masses, but not before it starved half of them to death.