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Turns out

poor people and minorities are to blame for the economic meltdown. Ghetto denizens trying to buy a house forced financial wizards to create opaque mortgage-based securities that they leveraged a hundred times over, in much the same way that workers asking for higher wages, generous benefits, and reasonable job security forced US automakers to move part of their operations overseas and undercut the very class of workers who were the most loyal customers for their products. Now both need a bailout after this vicious assault by the non-rich.

Luckily the non-rich, despite their vast power, have not been able to exercise the same degree of control over the government, so a bailout is a real possibility.

September 22, 2008 - Posted by | economics, politics


  1. Politically correct legislation concerning the environment raises the prices of homes, thereby pricing those homes out of the reach of lower-income families. In addition,the free-lunches that the American worker enjoys have made the cost of production so high in this country that American companies go overseas to try and save some money. It’s natural. There’s an underlying situation that your posting is not taking into account,in my opinion. I believe you put the cart before the horse in blaming everything on the higher-ups. I’m not saying they’re saints, mind you, but the emphasis on vilifying them distorts the view. A more measured view is in order, I think. It would reveal a more balanced assessment of the blame. It goes back decades, to the 1970’s, when we had a trade surplus. Ever since then, we have not kept up the pace that got that surplus.To insist on blaming someone who did something in the very recent past is not the broadest or most well-rounded viewpoint.

    Comment by tonydowning | September 22, 2008

  2. I concede that my viewpoint is not the broadest or most well-rounded. I don’t regard breadth or roundness to be ends in themselves, however.

    I’m curious as to what you think is to blame for the loss of the trade surplus that apparently kept everything together up until the 70s.

    Comment by Adam Kotsko | September 22, 2008

  3. Poor people and minorities are to blame for *everything*, Adam. Duh.

    Comment by bitchphd | September 22, 2008

  4. And women. Don’t forget, women are always to blame.

    Comment by Sajia Kabir | September 22, 2008

  5. Adam–
    After WWII, the Breton Woods Conference in New Hampshire met to ensure free, worldwide international trade. This conference realized that the Depression of the 30’s was caused by universal protectionism, including us as culprits, with the Smoot-Hawley bill. The result of Breton Woods was spectacular, worldwide, economic growth. But we lost that spirit of free competition (that had served us so well)in the 1970’s. Labor became so strong, and the liberal influence of the 60’s was so strongly in favor of the people, that this led to unrealistically high wages and benefits. We became less competitve than we had been– foreign companies whupped us in the global marketplace, having a lower cost of operation and production. Some of our companies went overseas with American jobs. Other companies just went under, unable to compete. Politicians didn’t help– they have short-term perspectives since their terms of office are short-term, and they thus favored the feel-good policies that made us less competitve. The Asian Tigers (Japan, South Korea, Sinapore, Hong Kong) kicked our butt in the 70’s since they modernized with computer technology quicker than we did, and they took advantage with a vengeance of the new invention known as the storage container– they could get their products over here faster. We were asleep at the switch with too much protectionism, and that’s why NAFTA can help us get back in form– it will reduce free-lunches by forcing us to compete without protectionism. We need to balance the needs of the workers with the needs of the economy overall.Tony.

    Comment by tonydowning | September 22, 2008

  6. Tony, did you write that last paragraph sometime in the mid-90s?

    Comment by Brad | September 22, 2008

  7. Adam,

    I’d like to respond more to this post than would make sense in a comment. Perhaps you could e-mail me with privileges to post here. The fact of the matter is that it’s really the banks that ignored their CRA responsibilities that are a significant cause for this crisis.

    Comment by Rob | September 23, 2008

  8. Responding to both bitchphd and Sajia– I never came close to blaming “poor people, minorities, and women.” That’s an unfair twisting of my words. I wanted to say I think the blame is systemic, from the CEO’s on down to the workers with unrealistic benefits and wages.It’s a system of free-lunches and too much protectionism, even with NAFTA. I’m not blaming people who work at McDonald’s– that would be ridiculous. I’m trying to suggest a paradigm for a more comprehensive view.
    Responding to Brad– I wrote it when the date says, Sept. 22, 08. It will take a generation for NAFTA to fully kick in, not just 15 years. I know the banks have made bad loans, irresponsible loans, and that that precipitated the crisis–that’s the system of free-lunches I’m talking about. It’s in the air, in the paint, everywhere– we have to keep moving away from lowered standards. I agree with Rob, and I feel that what he says does not refute me, it can be seen as the current instantiation of the freebies.

    Comment by tonydowning | September 23, 2008

  9. Does it need to be said? Tony’s version of post-war economic history is spectacularly, comically wrong, in virtually every particular.

    Comment by Richard | September 23, 2008

  10. In particular, his account appears to be missing almost 15 years, from 1980, when Regan was elected, to 1994, when NAFTA was implemented. It’s not like the current economy is a result of not giving neoliberalism enough time to work its magic.

    Comment by voyou | September 24, 2008

  11. Plus, there’s the bizarre interpretation of Bretton Woods, among other things. The whole thing reads like the text for a libertarian cartoon about free trade.

    Comment by Richard | September 24, 2008

  12. There’s a great article today in the NYT on page A31, by James Grant, in which he gives his explanation, which seems pretty sensible. In ’44, with Bretton Woods, we had a system based on the gold standard– the dollar was collateralized by gold bullion America possessed. Nixon took us off that standard in ’71, since foreign banks, our creditors, were worried about our balance of payments due to our spending, and started buying up the bullion. Nixon wanted to stop that buying up of our bullion, so he took the dollar off the gold standard. Since ’71, the dollar has been uncollateralized. We live in the era of the faith-based dollar. That means the watchword since then has been liquidity, and a free-wheeling, uninhibited style of business the world over. The beginning of the end for the Bretton Woods system (which was created so as to prevent from happening again what happened in the 30’s, with the collapse of international trade), was when the dollar went off the gold standard. We have moved away from pay-as-you-go since ’71, and towards fiction. This crisis is the culmination of all that. Our lack of financial inhibitions since then is the cause.

    Comment by tonydowning | September 24, 2008

  13. How is paying with gold any less fictional? It’s not like one of the atomic properties of gold is to represent the value of a certain portion of human production.

    Comment by Adam Kotsko | September 24, 2008

  14. Isn’t gold supposed to be the backup to our currency in theory? I have friends who pretty much trade in gold only and have surprisingly good readings even during this crisis. I doubt any of this has to do with human production…I don’t think capitalism, at least that practiced in the states, really cares about that. Isn’t the motto more of a “do less to get more”? Isn’t this where we have developed our disproportionate sense of entitlement?

    Of course I have no real idea what I’m talking about.

    Comment by phil | September 24, 2008

  15. Responding to Adam:
    With gold or whatever as collateral, at least there were consequences to engaging in a too-liquidity based, too free-lunch based economy: American dollars pile up in the possession of foreign bankers who are our creditors, and they get worried naturally about our profligate spending, and therefore about the authenticity of what we’re handing over as payment, and so they will want to get rid of those slips of paper in exchange for what’s backing up the symbol, the actual gold itself. But now, in the era of the “faith-based” dollar, there are fewer inhibitions financially, because our creditors are no longer able to exchange the paper currency for the gold reserves. The American dollar has been unhooked from the gold standard. “Debts without tears” is our style now. Gold has been a standard of wealth for thousands of years just due to human custom.

    Comment by tonydowning | September 25, 2008

  16. I think it’s worth pointing out that this whole crisis wouldn’t be happening if we’d just stuck to the barter system.

    Comment by Adam Kotsko | September 25, 2008

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