For the moment the unfolding drama on Wall Street represents largely a financial issue – the massive issuance of debt over the last decade or so is being written down as it becomes clear to analysts that companies like General Motors are not really quite as valuable as we thought.
In some sense this is a rational response to new information. For a decade we lived on borrowed money and time. We bought cheap from China and the Chinese lent us our money back to buy more and so we did. But instead of increasing the value of our labor we were actually wasting it in unproductive activities.
California, for example, generated huge employment gains just on the backs of the housing market itself: loan originators, mortgage brokers, appraisers, real estate agents. They were not producing anything, they were not adding fundamental value to our economy. They were just taking a cut out of the huge recycling of our paper wealth, again, borrowed from China.
For a time this gave the appearance of greater wealth and even well being. The state could afford more social programs, for example, based on increased tax returns.
But now that massive recycling of dollars is coming to a global screeching halt.
But we do not have political and social institutions that enable us to deal with this kind of financial collapse. A stark example was the atrocious behavior by politicians on the left and right during the debate about the Paulson Plan.
And we appear to be on the verge of electing a president who promises us to begin a new war in Afghanistan if not Pakistan. He actually argues that that should be our top priority as a matter of national security.
His second priority – increasing tensions with China – is even more dangerous.
At the very moment, then, when the US needs to build a global plan for economic restructuring and recovery our Democratic party leadership is preparing us for global war. And that’s the Democrats. I don’t even want to imagine the world that Bomb Bomb Iran McCain would lead us into.
This reminds me in some ways of the 1964 election campaign. A liberal Democrat is committed to social progress but also to maintaining global military power. The result was a deep social crisis that nearly tore the country apart – leading some on the left and right to take up violence (the assassinations of King and Kennedy, the Weather Underground bombing run).
Our labor movement, for example, began a decline in that period from which it has never recovered. Our political parties are simply shells of real parties – there is no serious internal debate in them much less any mechanism of accountability for controlling the behavior of candidates at least not once they are in office.
Thus we have almost no independent democratic leadership in society at large.
That vacuum will mean that social responses to what may be a widespread economic collapse could get very ugly. We are already seeing it in the manner of the two campaign’s behavior: whether it is the mob stirred up by the Obama campaign to suppress debate about their candidate or the kinds of hostile, even racist, epithets that appear to be emerging in Republican speaking events.