The California Legislative Analyst’s Office announced late last week that it expects the state to fall short of balancing its budget by $3 billion dollars in the current fiscal year. The analysis goes on to predict that, even with the automatic cuts that will be triggered by this shortfall, the state will begin the next fiscal year with a $10 billion deficit.
Today the congressional “supercommittee” declared that it could not come up with an alternative plan to closing the federal deficit, thus cementing in place (unless they don’t) the cuts approved earlier this year—and predictably setting off another round of partisan shrieking and scapegoating. (This, of course, will please many less responsible citizens.)
Last week’s unemployment numbers showed continued minor growth in new jobs—now five months in a row—but the rate of expansion remains anemic. The federal deficit topped $15 trillion, and oil prices surged back to the $100/bbl level, thus threatening this lackluster “recovery.”
The political fallout of the Euro crisis continues apace. Last Monday we witnessed the political defenestration of Silvio Berlusconi and the appointment of Goldman Sachs advisor Mario Monti as his “temporary” successor in Italy. Then yesterday voters in Spain became the first electorate to unceremoniously dump the incumbent party since the Greeks kicked off the crisis in a desperate attempt to stave off painful choices.
In the meantime, back here in California, the Think Long Committee created by billionaire Nicholas Berggruen will propose yet another reshuffle of the state’s tax system, with an eye to bringing $10 billion more tax revenue to our creaky and antiquated state government. The Recovering Bureaucrat has not yet read the full proposal, but news reports indicate that it will be another product of the wishful thinking that we can go back to the “good ol’ days” if only we take enough cash from the taxpayers—especially the filthy rich ones.
After today’s 250-point sell-off in the Dow Jones Industrial Average, the Los Angeles Times, in an article entitled, “Dow falls to five-week low as global gloom deepens,” reports, “‘There is just no good news,’ said Dave Rovelli, head of equity trading at brokerage Canaccord Adams in New York.”
The RB has been arguing for some time now that we would be much better off re-establishing our political economic policies upon our founding principles with an eye to the future than wasting time trying to stave off the inevitable. He has yet to read any analysis by thoughtful commentators that displays confidence that the bailout measures being undertaken in either the dollar or the euro zones will liberate any time soon the productive forces of mankind. (The RB obviously doesn’t include as “thoughtful” the mendacious Paul Krugman and other mouthpieces for the Church of the All Powerful State.)
A solution that very likely may become necessary to alleviate the financial crisis is a system-wide “bankruptcy.” For now this possibility is still so unorthodox that it tends to send waves of fear and angst among establishmentarians of all stripes; yet the Recovering Bureaucrat finds it difficult to see any other process that can stop the madness, jump start production, and stimulate the associated consumption.
Reality v. Denial
We should have learned a long time ago the simple fact that the market place rules. It inexorably and eventually crushes every attempt to force upon it something it doesn’t want. Yes, for some people “the market place” is a dirty concept, and yes, those people are themselves in the market place. The market is simply the sum total of all the activities of any group of people, in this case the global economy. It’s just a space comprising a huge series of relationships and exchanges, and has no more moral value than the park that the New York Occupiers occupied.
But it does have the happy circumstance of being real and therefore the source of truth. All the people in the market and our relationships are real and therefore irrefutable. It is our human struggle against unpleasant truths—almost always about ourselves—that causes us to resent the market and make hubristic attempts to refute its actuality anyway.
Several weeks ago the Atlantic economics writer Megan McArdle posted an insightful if depressing article about how this dynamic of our human nature is making European leaders cling to a course of action they know to be highly likely to fail. Our similar unwillingness to address the American federal deficit springs from the same human foibles.
CNN released a poll today demonstrated how pervasive and widespread this is. Although CNN characteristically turns the story into another tedious “blame the GOP” screed, the numbers tell a more important if dispiriting story.
The survey indicates that two-thirds of the public supports increasing taxes on higher-income Americans and businesses, with just 32% opposed to such a move by the super committee. That's a slight increase since early August, when the panel of six Democrats and six Republicans was created. And by a 60% to 39% margin, Americans back major cuts in spending in domestic government programs, basically unchanged from late summer.
. . . According to the survey, Americans are overwhelming opposed to raising taxes on the middle class, which was never on the table, six in ten are against major cuts in military spending, and 57% are opposed to major changes to such entitlement programs as Social Security and Medicare.So there we have it. It’s not just the establishment political class that is paralyzed by our contradictory desires. We all persist in the unsustainable collective fantasy that increasing taxes on the “1%” would allow us to have our entitlements and a strong defense and pay for them all with someone else’s money. And of course when the inevitable implosion arrives proving the impossibility of squaring the circle, we evade our civic responsibility by blaming the very people we elected to make the impossible happen!
We persist in the fantasy that we can avoid radical restructuring of our global financial system. We assiduously avoid the impolite topic of an orderly bankruptcy. We stubbornly ignore the return to basics which alone will get us back on track.
The lessons of Europe elude us just as completely as they elude the Europeans. The Recovering Bureaucrat finds it ironic how the priests of the Church of the All Powerful State repeat the mantra of “sustainability” when it comes to energy policy while simultaneously ignoring the unsustainability of the political economic structure they want to prop up at all costs.
The untenable imbalance of global debts and assets as expressed by our financial system is the human market place speaking loudly and clearly. Regardless of what we in the Advanced Sector seem to be saying—keep up current levels of government spending and get someone else to pay for it—our collective actions are demonstrating that enough is enough.
The daily stories of the wheels falling off this insolvent global system will only accelerate until reality finally catches up with our denial. Then the only question will be: how will we clean up our mess and restore the prosperity of which we are actually always capable right here, right now?