Depression – migrant workers

Larry Lessig hates bailouts. So do many people, and with good reason. But his logic, and the logic of much of America, is the belief that we can saw the back half of the Titanic off from the front half of the Titanic. People are thinking small, as if this is a store under some financial pressure, that is going to drop it’s prices. We’ve been locked in a generation where there has been de facto deflation in most of the economy. In computers, in wages, in inexpensive manufactured goods. People could not increase their wages, so they waited. The attitude was that if prices just fall far enough, then money will flow. This is a very paleo-conservative way of thinking, and living in a neo-conservative time with a compression of the middle class.

But this is only true if there is a well of money to become demand. Demand, remember, is desire plus the ability to buy the object, either with credit or savings. The US has no savings and crashing home equity to draw on. Instead we’ve reached an economic race condition. Why is this? It takes time before a drop in materials costs or wages is reflected in a drop in prices, but it is reflected almost immediately as a drop in buying power, and very quickly in foreclosures – which further depress wages. Like hyper-inflation, the danger of deflation is that it will reach a meta-stable state, something which can persist much longer than it ought to.

The original bailout was a terrible bill, and it failed, despite repeated claims to the contrary. However, what is being done here is a bridge loan. The problems with Detroit run deep, and there needs to be restructuring, but bankruptcy would lead to simply destruction. And the next time someone talks about creative destruction to you, remind them that the Great Depression created Hitler.

The real problem in the developed world economy is that everything is expected to be as profitable as drilling for oil in Saudi Arabia, and the United States can keep consuming as if it will never have to pay for what it buys with exports. The era of American fiat money is at an end, and the real inflation in the economy has been asset inflation, which, in turn is driven by the ballooning share of the economy which is turned into profit. Wages need to go up, not down, because people who are making less can’t afford to pay more.

From the collapse of Lehman to the end of this Congress is a span of almost exactly 100 days – it will be remembered as "the Reverse Hundred Days" when an outgoing super-minority party, put a wrecking ball to the American economy and engaged in one last looting expedition while home foreclosures prepared to leap upwards again, and the economic downturn began to ripple across Asia.

Bernanke or Paulson could have supplied this money, the Republicans had no need to filibuster the bill. There are hard lessons to be learned, today’s hard lesson is that Obama’s faith in "post-partisanship" has already been betrayed, the only post that the Republican’s put in partisanship, is the one they intend to ram firmly into the soft white underbelly of American wages.