We’re facing real unemployment, that U6 number no one wants to discuss, that’s at around 20%. Our banking sector is a tottering mess. The only reason the country doesn’t look like it did in 1934 are that we have some of the safety net from the New Deal still in place — unemployment insurance, food stamps, Social Security, and the like.
Don’t forget that most of the reason we’re in this condition is a brilliant move back in 2000 — the repeal of the New Deal’s Glass Steagall act which had, among other things, forced the separation of the commercial banking that you use from the investment banking activities of the wealthy.
Fast forward eight years from that brilliant plan and what did we see? One of our five investment banks swept up in a shotgun wedding to fend off a catastrophic implosion, one permitted to collapse, and then the remaining three turning themselves into bank holding companies. The removal of Glass Steagall let them gamble until they got into a bad spot, then they socialized their losses, drained our public treasury of nearly a trillion dollars, and the lending they were meant to do isn’t happening because they know what troubles are brewing.
The same political crew who gave us this gift of fiduciary responsibility is also behind the extremist view that the debt ceiling is a hard limit. This started as a negotiating position but the fringe right — Libertarians and the Tea Party factions — have the bit in their teeth. If the GOP backs down on this point they’ll get pilloried in the upcoming primary season.
If they don’t back down they might avoid primaries altogether via the simple expedient of triggering a civil war. We’re already flirting with the concept of a de facto default and the global bond markets are not amused. If our debt ceiling isn’t raised it won’t just be about the bankers trying to go gambling with our Social Security money, it’ll trigger the mother of all deflations.
We do need to pay down the debt from Bush’s adventure in Iraq and the poorly run exercise in Afghanistan. The expedient method for accomplishing this is to let the Bush era tax cuts expire. 75% of our debt will simply go away if we tax the wealthy at a rate similar to what we had between World War II and Vietnam. You remember those years, when America was strong? The theory that wealth produces jobs is just that, a theory. The historic proof is that jobs create wealth.
And in times of trouble the government is first the lender of last resort, and then the consumer of last resort, hiring people and selecting projects that will benefit our society over the long haul. Those parks and fair grounds and schools and bridges that all date back to the 1930s and 1940s? That’s Works Progress Administration effort — a program created first to put Americans back to work, and second for the long term benefits it would provide.
We have a stark choice — stand up to our rotten media, our rotten banking sector, and our rotten, feckless oligarchy, threaten taxes like we had when Eisenhower was in office (91%!), accept a return to the levels when Reagan was in office, and get America working again. Down that other path lies the same collapse that befell the Soviet Union in the early 1990s.